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Assignment-

Description of task:

Based on your study in Strategic Construction Procurement so far, you are required to submit a critical analysis essay on a large complex construction project case study. The detailed information for the case study project (The New Schools Project) is provided in the Case Study description below.

There are various procurement methods that may be used for project procurement, for instance, fixed price contracting, BOT, Unit price, Alliancing, Partnering and Public Private Partnerships methods.

Imagine that you are appointed as the project procurement manager, and you are going to tendering in this project. Please analyse and explain in detail which procurement method is the most effective for this project procurement. Furthermore, please provide your explanation about how your recommended procurement method would improve supply chain performance in this case.

Case study - The New Schools Project

As the NSW Government's first social infrastructure Public Private

Partnership (PPP) contract, the New Schools Project delivered eight new Primary Schools and one Special Needs School to the community within a record breaking time. Over a 25 month period, nine newschools were designed, received planning approval, constructed and commissioned. This is 12 months in advance of what Primary Schools have been delivered under a traditional Government procurement process.

Not only were the schools delivered in very short construction periods, but they were also designed to meet stringent performance standards set by the Department of Education and Training and with 30-year whole of life cost considerations. They were provided in a seamless transfer for construction to facilities management to enable operations to commence and were subject to a stringent defect rectification programme, which guaranteed the service availability of all parts of the school.

Background

The NSW Department of Education and Training (DET) is the largest provider of educational services in Australia. DET operates more than 2,400 sites, enrols 1.2 million students and has an asset base valued in excess of $15 billion.

In recent years DET has let two major public-private sector partnership type contracts to provide NSW government schools in new urban release areas. This new approach is called the New Schools Privately Financed Project.

These tasks were to be carried out by Axiom Education Pty Limited, supported by ABN AMRO Bank, Hansen Yuncken, St Hilliers and Spotless.

Under the new style contracts the contractor must:

• design, construct and commission specified school facilities at its own cost, by specified dates. These school facilities include all the schools' buildings, fixtures, fittings, equipment, electrical goods, furniture, grounds, playgrounds, paths and gardens
• provide operational, cleaning, security, safety, utility, maintenance and repair services for each school facility
• hand the school facilities over to the State, or a new contractor nominated by the State, at the termination of the contract.

This replaced the traditional procurement approach which uses individual school construction contracts and many short-term service and supply contracts.

The first contract of $137 million involved 9 schools. Bids from the private sector were first sought in October 2001, and a contract was let in December 2002. The schools are:

Table 1-School Location Opened

Dapto Primary School West Dapto 2004 Ironbark Ridge Primary School North west Sydney 2004

Kellyville Ridge Primary

School

North west Sydney 2004 Sherwood Ridge Primary School North west Sydney 2004

Tallowood School for Special

Purpose

North west Sydney 2004

John Edmundson High School Liverpool 2005

Shell Cove Primary School Shellharbour 2005

Woongarah Primary School Woongarah/Warnervale 2005 Glenwood High School North west Sydney 2005

The process of awarding the first contract was protracted and contractual agreement was reached almost a year later than originally envisaged. Two schools, due to be opened in 2003, had to be removed from the PFP process and provided using traditional individual construction contracts; two new schools were substituted in their place.

These schools were constructed some two years earlier, on average, than would have been possible had traditional public sector funding approaches been adopted, and the net present cost of the schools to the Government over the next 30 years will be reduced by approximately 7% (see Table 2). In addition to the school facilities, at least eight of the nine schools are also likely to have child care centres. Axiom Education will pay the Government up-front fees for these centres, which will be financed, designed, built, operated, maintained and repaired by the private sector and then handed over to the Government or a substitute operator, along with the school facilities, on 31 December 2032.

Table 2-'Value for money' comparison between public sector and private sector project delivery

"Public sector comparator" (PSC)

(hypothetical, risk-adjusted estimate of

the cost of the most efficient, likely and

achievable form of public sector delivery)

Private sector

Delivery (adjusted toensure discountrate calculated ona consistent basiswith the PSC andto include anestimate ofpotential childcare revenues)

"PSC best case" (95%probabilitythat PSC costwould behigher thanthis)

"PSC most likely case" (mean of PSCcostestimates)

"PSC worst case"

(95%probabilitythat PSCcost wouldbe lowerthan this)

Estimated net present value of the financial cost of the project (over 30 years) to DET

Estimated saving achieved through private sector delivery

$134.3 m

2.2%

$141.8 m

7.3%

$152.6 m

13.9%

$131.4 m

Privately financed projects

The New Schools Privately Financed Project is known as a privately financed project (PFP). These are a form of public-private partnership-a more general term covering any contracted relationship between the public and private sectors to produce an asset or deliver a service. PFPs have been developed and introduced extensively in the UK during the last decade. These have included the provision of improved school facilities. PFPs involve the creation of an asset through private sector financing and ownership control for a concession period. They also involve the delivery of some services associated with the asset for a defined, but typically very long, period. The public sector may make monthly payments for the services throughout the contract period. The effect is that the initial capital cost is borne by the private sector and progressively reimbursed by the monthly payments.

This type of project is structured differently from other forms of public-private partnership-such as some toll roads. For example:

• in the New Schools Privately Financed Project the contractor operates a facility under licence and receives payments from the

Government; the contractor carries no risk that the number of school children will be less than expected. The Government is considered to be the owner of the asset and an equivalent liability is recorded in the State accounts

• in a toll road the contractor typically operates a business franchise, assumes the risk that traffic might be less than expected, and charges users directly through tolls. The private sector is considered to be the owner of the asset and there are no liabilities recorded in the State accounts.

Source: This case study is based on the information provided on the following website:

<https://www.treasury.nsw.gov.au/ppp/nsw_projects/projects_which_have_been_awarded/education/new_schools_project>. More detailed information can be found there.