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Public Private Partnership‘an alternative procurement delivery

model in Defence’

Kitty MarmanidisDirector Public Private Partnerships

Informa National PPP SummitSydney, 4 June 2014

Overview

• Defence PPP Projects – snap shot

• Key Benefits to Government of PPP

• PPP Assessments within Defence

• Range of procurement delivery models

• Value for Money considerations

• Risks

• Key disadvantages of PPPs in the

Defence context

• Defence Key Issues

Australia’s Progress ….. not there yet

Defence PPP Projects – snap shot

Headquarters Joint Operations Command

Approx. $1.4 billion over 30 years

The General John Baker Complex

Headquarters Joint Operations Command

HQJOC Project was the AIPM National Winner of Project Management Achievement

Awards 2009 –Construction/Engineering in

excess of $100 million and ACT winner of Construction &

Engineering >$100 million.

HQJOC Project won the inaugural Infrastructure Partnerships Australia 'Project of the Year'

award for 2009.

SINGLE LEAP

(Single Living Environment and Accommodation Precinct)

Single LEAP Phase 1 - approx. $273m or $680m over 30 years

Single LEAP Phase 2 –accommodation Larrakeyah, NT

Single LEAP Phase 2 –accommodation at Australian

Defence Force Academy, ACT

Canberra Times - photo Scott Shirley

Key Benefits to Government of PPP

Appropriate Risk Allocation

Fixed time and price: construction and operational risks are passed to the private sector

Financing costs reflect the project’s risk: financial risks are passed to the private sector

Financing due diligence reduced risks: public sector service delivery risks are reduced through the use of rigorous project finance due diligence processes

Key Benefits to Government of PPP

Certainty of Service Quality

Maintenance obligations rest with the private sector: private financing ensures secure long term funding streams for maintenance/repair, minimising lifecycle costs and maximising benefits

Certainty of service delivery: the service is provided to the agreed standard and thus consistency of quality is assured

Key Benefits to Government of PPP

Effectiveness and Efficiency

PPPs allow the public sector to focus on core functions

PPPs drive innovation

PPPs are more accountable and transparent

Key Benefits to Government of PPP

Value for Money

Better value for money

Harnessing private sector skills

Public sector does not pay if private sector does not deliver

Better Governance

Approval Processes

Strong project governance

- Project Governance Board

- Project Steering Committee

PPP’s Optimise Risk Transfer

Value

for

Money

Risk Transfer to

Private Sector

Optimal

Value for

Money

PPP Suitability

In accordance with National PP Policy and Guidelines (2008)

Initial PPP Suitability Checklist for Major Capital Facilities (MCF) Projects

Initial PPP Suitability Checklist for Major Capital Equipment (MCE) Projects

Initial PPP Screening PPP is best used where:

• the duration of the project > 15 years

• opportunity for appropriate risk transfer

• feasibility of bundling design, build, operation, support and disposal of the materiel

• there is potential for third party utilisation of the materiel

• a performance based contracting regime

• the ability to specify outputs

• scope for innovation

• high level of private sector interest in the project

Range of procurement delivery models

Acquisition (Build Only)

Acquisition (Design & Build)

Acquisition (Design,

Build,

Operate, Maintain)

Managing Contractor

Early Contractor Involvement

Degree of Private Sector Participation

Leasing

Public Private Partnership

Project Alliancing

Value for Money (VfM)

Current policy is the assessment of VfM is against the Public Sector Comparator (PSC) - VfM is demonstrated because the PPP option costs less than the PSC for the project

Getting the risk allocation right

Ensuring VfM throughout the term of the contract

Risks

Approval Processes

Too much focus on the transaction

Inappropriate risk transfer applied to projects

Finding the Right Projects and gaining support

Not having a pipeline of projects

Capturing Information/Records Management (for the term of projects)

Failure to realise value for money

Key disadvantages of PPPs in the

Defence context

Reduced flexibility to deal with equipment

Reduced flexibility to change requirements over time

Degree of complexity

Longer procurement timetable

Significant higher transaction costs eg internal costs and external advisers fees

Key disadvantages of PPPs in the

Defence context

Availability of internal expertise

Significant consequences of poor contract management

May not be suitable where design riskis significant

Greater Government scrutiny

Defence Key Issues

Military Operations

Development of Project and approvals

Contract Development andManagement

Asset Utilisation

Extent of Risk Transfer

Budgeting for PPPs

Other matters ……

Gaining organisational and stakeholder support

Affordability considerations

PPPs are an alternative, value for moneyprocurement delivery model for Defence

It is the transfer of appropriate risks whencombined with the discipline of privatefinance which makes PPPs a more effectivemodel

Questions ?

Kitty MarmanidisDirector Public Private Partnerships Defence Materiel OrganisationDepartment of DefenceEmail: kitty.marmanidis@defence.gov.au