1 REVIEW OF THE PUBLIC PRIVATE PARTNERSHIP PRISON CONTRACTS: National Treasury briefing to Portfolio...
-
Upload
quentin-parker -
Category
Documents
-
view
220 -
download
0
Transcript of 1 REVIEW OF THE PUBLIC PRIVATE PARTNERSHIP PRISON CONTRACTS: National Treasury briefing to Portfolio...
1
REVIEW OF THE REVIEW OF THE
PUBLIC PRIVATE PUBLIC PRIVATE
PARTNERSHIP PARTNERSHIP
PRISON CONTRACTS:PRISON CONTRACTS:
National Treasury briefing to National Treasury briefing to
Portfolio Committee on Portfolio Committee on
Correctional ServicesCorrectional Services
18 March 200318 March 2003
2
CONTENTSCONTENTS
WHAT IS A PPP?
TREASURY REGULATIONS FOR PPPs
TASK TEAM FINDINGS – November 2002
TREASURY RECOMMENDATIONS
3
What is a PPP?What is a PPP?
•A contractual arrangement between a public sector institution
and a private entity where the private party performs an
institutional function OR uses state property in accordance with
output specifications for a significant period of time, in return for
a benefit.
• It involves a substantial transfer of all forms of project life cycle
risk (financial, technical, operational) to the private party.
• Public sector role shifts: Government is purchaser of services
and/or enabler of the project - monitor and regulator of service
delivery, no longer its direct administrator.
4
What is a PPP?What is a PPP?
degree of risk transfer to private party
PPP
Private party:• Finances (whole or most)• Designs• Builds• Operates
Government purchases complete service and/or enables business
Fixed assets belong to government
Outsource
•Capitalisation is for government account
•Government buys specific services but retains risk
•Fixed and movable assets belong to government
Privatise
•Assets purchased
•Liabilities purchased
Government has regulatory function only
5
What is a PPP?What is a PPP?
Private party (special purpose vehicle)
Government institution
DebtEquity
Sub-Contractoreg construction
Sub-Contractoreg operator
PPP Agreement
Loan agreement/sshareholding
Sub-contracts
Genericproject financestructure for PPPs
6
Traditional payment mechanismExample: Govt-built and operated prison
Payment
(Rands)
Delay
costs
Overruns
Overruns
Operating costs
Construction/development
0 3 10 15
Time (years)
What is a PPP?What is a PPP?
7
PPP payment mechanismExample: PPP Prison
Payment
(Rands)
Operational period
Pre-set payment by govt against delivery
ConstructionPeriod
No initial payment by govt
0 2 10 15
Time (years)
What is a PPP?What is a PPP?
8
SSouth Africa’outh Africa’s regulatory framework s regulatory framework for PPPsfor PPPs
The Constitution
Public Finance Management Act
Treasury Regulations
First issued in terms of PFMA in May 2000.
Reg 16 deals with PPPs (amended May 2002), applies to all:
– national departments
– provincial departments
– Schedule 3 public entities and business enterprises
– [not to local govt - Municipal Finance Management Act]
9
SA’s Regulatory framework for PPPsSA’s Regulatory framework for PPPs
Regulation 16 requires all PPP deals to obtain
National Treasury Approvals for: Affordability Value-for-money Appropriate allocation of Risk
These approvals embedded in Generic PPP Project Life-cycle: TA I: Demonstrating Affordability TA II A & II B: Demonstrating Value-for-Money TA III: Financial Closure
10
ClearGovernment policy and systems now in place for PPPs
GenericPPP project life
cycleReflecting
Treasury Regulation 16 issued in terms of
the Public Finance Management Act,
1999
11Feasibility mFeasibility meethod to set thod to set affordability and calculate value-for-affordability and calculate value-for-
moneymoney [[TTreasury Approval Ireasury Approval I]]
NB: Value for money is only achieved if all appropriate risks are transferred to the private sector
Public Sector Comparator
(PSC)
Risk- adjusted
PSCPPP
referenceActual private sector
proposal
Randaffordability
Preliminary affordability
Nominal affordability
Adjustment for private sector
efficiency Value
for money
Actual affordability and value for money
12
REVIEW OF THE REVIEW OF THE
PUBLIC PRIVATE PUBLIC PRIVATE
PARTNERSHIP PARTNERSHIP
PRISON CONTRACTS:PRISON CONTRACTS:Findings of DCS, National Treasury Findings of DCS, National Treasury
and DPW Task Teamand DPW Task Team
November 2002November 2002
13
TASK TEAM TERMS OF REFERENCETASK TEAM TERMS OF REFERENCE
To understand output specifications, costing assumptions, project finance and risk allocation.
To identify capital and operational costs.
To identify features for re-negotiation to address DCS affordability constraints.
To establish a sound methodological basis for comparison with existing and recently constructed conventional prisons.
To report to Ministers of Correctional Services, Finance, Public Works and Portfolio Committee.
14
TASK TEAM MEMBERSTASK TEAM MEMBERSChairperson Mr NW Tshivhase CFO DCS
Secretary Mr JJ Venter ASD Financial Planning
DCS
Adv M Ndziba Minister’s Special Advisor
Mr NS Makhani Director Financial Planning
Ms J Schreiner CDC Functional Services
Ms RST Mthabela DC Offender Control
Mr J Maako Director APOPS
Mr C Basson Deputy Director APOPS
Mr CH Paxton Director Legal Services
National Treasury
Mr VH Mbethe Chief Director
Dr K Brown Director Integrated Justice Cluster
Mr W Mothibedi Acting Director DCS
Ms S Lund Senior Transaction Advisor PPP Unit
Mr W Krause SFAO DCS
DPW Mr L van Hecke Acting Director APOPS
ConsultantsMr T Williams Director Ignis
Mr P Chipindu Associate Ignis
15
TASK TEAM FINDINGSTASK TEAM FINDINGS
Part I: Existing PPP Transactions
Overview of existing PPP transactions. Options for Re-negotiation of Existing Contracts. Conclusions and Recommendations.
Part II: Future Prison Projects Illustrative comparisons of Public and PPP Prisons Future Evaluation Methodology: Feasibility
Protocol. Conclusions and Recommendations.
Part III: Recommendations for Next Steps
16
PART I PART I
EXISTING PPP PRISONS EXISTING PPP PRISONS
TRANSACTIONSTRANSACTIONS
17
1. OVERVIEW OF EXISTING 1. OVERVIEW OF EXISTING
PPP PRISONS TRANSACTIONSPPP PRISONS TRANSACTIONS
18
BLOEMFONTEIN PRISON PPPBLOEMFONTEIN PRISON PPPPARTIES TO THE CONTRACTPARTIES TO THE CONTRACT
RSA
GOVERNMENT
BLOEMFONTEIN CORRECTIONAL
CONTRACTS (PTY) LTD
SHAREHOLDERS
Murray & Roberts (20%) Group 4 Correction Services (20%) 10 Alliance Mangaung (20%) Fikile Mangaung (20%) Ikhwezi Community Trust (20%)
CONSTRUCTION SUBCONTRACTOR
M & R Buildings (Pty) Ltd Fikile Projects CC
OPERATING SUBCONTRACTOR
Group 4 Correction Services
(Bloemfontein) (Pty) Ltd
BLOEMFONTEIN PRISON
FINANCE TRUST
LENDERS
Investec Bank Ltd ABSA Bank Ltd
EMPOWERMENT LENDERS
Investec Bank Ltd ABSA Bank Ltd
Afrox Healthcare Workshops
R437m
25 year custodial services
R54m
R270m R32m
19
LOUIS TRICHARDT PRISON PPPLOUIS TRICHARDT PRISON PPPPARTIES TO THE CONTRACTPARTIES TO THE CONTRACT
RSA GOVERNMENT
SOUTH AFRICAN CUSTODIAL SERVICES (PTY) LTD
SHAREHOLDERS
Wackenhut Corrections Corporation (50%)
Wackenhut Corrections Corporation (USA)
Kensani Corrections (50%)
CONSTRUCTION SUBCONTRACTOR (CGM Joint Venture)
Concor Holdings (Pty) Ltd Group Five Construction (Pty) Ltd Makhosi Holdings (Pty) Ltd Shumisanani Building and Civil Construction,
FMW Building Construction NKN Construction CC Mposa, Sikhwai and Tshibisi Construction CC
OPERATING SUBCONTRACTOR
South African Custodial Management (Pty) Ltd Kensani Corrections Management (Louis Trichardt)
(Pty) Ltd Royal Food Correctional Services (Pty) Ltd
SOUTH AFRICAN CUSTODIAL SERVICES
SECURITY TRUST
LENDERS
FirstRand Bank Ltd BOE Merchant Bank
R353m
R303m
R53m
25 year custodial services
20
DCS SPECIFICATIONSDCS SPECIFICATIONS
Specifications based on inputs rather than
outputs or outcomes.
Specifications imported from UK prison – ‘ideal’
and high level.
No prior feasibility undertaken to ensure: Affordability limits
Optimal value-for-money
Optimal risk transfer
21
DCS SPECIFICATIONS: DESIGNDCS SPECIFICATIONS: DESIGN
Cell configuration (2-man and 4-man cells). Security. Special centres (e.g. assessment, visitors, special
treatment). Utilities. Service centres (e.g. catering, health, religious). External works.
22
DCS DESIGN SPECIFICATIONS: DCS DESIGN SPECIFICATIONS: EXAMPLESEXAMPLES
Cell size*: 5.5m2 single or 8m2 double.
Cell height*: 2.7m.
Minimum 5 layers of security.
Telephone monitoring system.
CCTV, cameras, x-rays, etc.
* Minimum requirement according to Health and National Building Regulations.
23
DCS SPECIFICATIONS: OPERATIONSDCS SPECIFICATIONS: OPERATIONSGoal 1: Keep inmates in custody
Central control, number of prisoners per cell, supervision, security during visits, escorts, special category prisoners, roll checks, etc.
Goal 2: Order, control and safety Regulating remedy deficiencies, grievance procedures, use of
force, financial transactions, repairs, maintenance, drug control measures, etc.
Goal 3: Decent conditions for inmates Admission times, personal hygiene clothing, bedding, cell
equipment, meals, healthcare, etc.
Goal 4: Prepare for return to community Legal rights representation, official visits, unofficial visits, etc.
24
DCS SPECIFICATIONS: OPERATIONSDCS SPECIFICATIONS: OPERATIONS
Goal 5: Structured Day Programmes Structured Day Programme, times of unlocking, activities, time
outdoors, social work services, religion, work, education training programmes, physical education library, psychologists, etc.
Goal 6: Deliver services with maximum efficiency Strategic development plans, personnel policies, equal
opportunities, drug & alcohol free work-place, conditions of service, uniforms, recruitment & selection and training.
Goal 7: Promote community involvement Community participation and vice versa, formal & informal
community development, employment to local community, local PR policy.
25
OVERVIEWOVERVIEW
Bloemfontein Louis Trichardt
Number of inmates 2 928 3 024
Total capital expenditure (R’m) 435 392
Construction (R’m) 270 303
Pre-operating interest / fees (R’m)
104 26*
Start-up costs (R’m) 58 49
Contract signed 24 Mar 00 11 Aug 00
Opening date 1 Jul 01 19 Feb 02
Full capacity date Jan 02 Sep 02
* Interest deferred in terms of financial structure.
26
FEES PAYABLE BY DCSFEES PAYABLE BY DCS
BloemfonteinR/inmate/day
Louis TrichardtR/inmate/day
Fixed Fee for Construction Debt
Base Date (1 Jan 98) 65.91 72.35
Opening 83.50 84.34
Operating Fee
Base Date (1 Jan 98) 88.50 73.06 Opening 103.97 81.51
October 2002 132.20 86.45
Total Fee
Base date (1 Jan 98) 154.41 145.41
Opening 187.47 165.85
October 2002 215.70 170.79
27
COMPARISON OF FEE STRUCTURECOMPARISON OF FEE STRUCTURE
Fee comparison complicated by: Different start dates. “K-Factor”:
Real increases above inflation. Bloemfontein: from 0.623% to 0.789% six monthly. Louis Trichardt: six monthly increases:
Years 2-3 6% Years 4-5 5% Year 6 4% Years 7-9 2% Years 10-13 1% Years 14-25 3% decrease each 6 months
Net Present Value of all fees (8% discount rate): Bloemfontein R1.3 billion Louis Trichardt R1.2 billion
28
REAL INDEXED FEE ADJUSTED FOR REAL INDEXED FEE ADJUSTED FOR “K-FACTOR”“K-FACTOR”
020406080
100120140160180200
1 2 3 4 5 6 7 8 9 10111213141516171819202122232425
Bloemfontein Louis Trichardt
29
BREAKDOWN OF OPERATING COSTS BREAKDOWN OF OPERATING COSTS (BLOEMFONTEIN) (BLOEMFONTEIN)
Staff, 46%
Catering, 11%
Programmes, 10%
Health Care, 13%
Utilities / Supplies, 13%
FM / Insurance, 8%
30
BREAKDOWN OF OPERATING COSTS BREAKDOWN OF OPERATING COSTS (LOUIS TRICHARDT)(LOUIS TRICHARDT)
Administration, 27%
Maintenance, 6%
Health Care, 9%Operations, 38%
Programmes, 12%
Food Services, 8%
Procurement, 0.4%
31
EXISTING PPP PRISONS: FINANCEEXISTING PPP PRISONS: FINANCEBloemfontein Louis Trichardt
R’m % R’m %
Equity 54.0 11 53 13
Debt 437.0 89 353 87
Total 491.0 100 406 100
Base Interest Rate 14.58% (deferred start swap rate)
15% (ytm of R157)
Cost of Debt 2.25% margin 2.50% margin
Return on Equity (including inflation)
± 29.9% * ± 25.1% nominal *
Return on Equity (excluding inflation)
± 20.3% ± 15.57%
Weighted average cost
18.27% 18.50%
* Based on 8% inflation.
32
RISK ALLOCATION:RISK ALLOCATION:TECHNICAL / OPERATIONALTECHNICAL / OPERATIONAL
Risk Type Contractor DCS
Construction – Design
Construction – Cost
Construction – Delays
Change in technology
Operating Costs
Damage to prison Force Majeure
Prison security Residual
Cell availability
Cell usage
33RISK ALLOCATION: LEGAL / RISK ALLOCATION: LEGAL / FINANCIALFINANCIAL
Risk Type Contractor DCS
Capital outlay
Interest rates
Inflation
Available cash flow
Residual market value
Financial viability Residual
Change in tax legislation
Change in prison legislation / MAGA
Land
Environmental
34
2. OPTIONS FOR RE-NEGOTIATION 2. OPTIONS FOR RE-NEGOTIATION
OF EXISTING CONTRACTSOF EXISTING CONTRACTS
35
OPTIONS FOR RE-NEGOTIATIONOPTIONS FOR RE-NEGOTIATION
Construction Expenditure None.
Operating Expenditure Changes in levels of service. Amendments to fee payment structure. Change in prisoner numbers.
Refinancing Possible conversion of debt portfolio to
inflation-linked funding.
36
OPTIONS FOR RE-NEGOTIATION:OPTIONS FOR RE-NEGOTIATION:OPERATING EXPENDITUREOPERATING EXPENDITURE
Staff costs Hours out of cell. Service specifications.
Rehabilitation and Health Care Change in specifications.
Fee payment structure Amendments to “K-factor” adjustments to improve cashflows.
Change in Prisoner Numbers Bloemfontein: 2 new units. Louis Trichardt: convert 2-bed cells to 4-bed cells and use
reception/special treatment centre.
37
OPTIONS FOR RE-NEGOTIATION:OPTIONS FOR RE-NEGOTIATION:INDICATIVE FEE CALCULATIONINDICATIVE FEE CALCULATION
Bloemfontein Louis Trichardt
Current inmates 2 928 3 024
Potential additional 976 696
Potential total inmates 3 904 3 720
Capital expenditure required
Yes Limited
Current rate per day (R) 132.20 86.45
Average rate / day after expansion
112.37 73.48
Rate / day for additional inmates
52.88 17.13
38
OPTIONS FOR RE-NEGOTIATION:OPTIONS FOR RE-NEGOTIATION:REFINANCINGREFINANCING
Methodology
Net Present Value of unexpired portion of debt (settlement estimate).
Convert into new CPI-linked bond debt and calculate new repayments and NPVs.
Compare with existing payments.
39
OPTIONS FOR RE-NEGOTIATION: OPTIONS FOR RE-NEGOTIATION: RE-FINANCING ASSUMPTIONSRE-FINANCING ASSUMPTIONS
Assumptions Bloemfontein Louis Trichardt
Original value (R’m) 437 353
Current annual repayment (R’m)
83.3 68.9
Settlement estimate (R’m) 530.9 556.6
Benchmark refinance date 30 Sept 02 31 July 02
Benchmark Ref. Base Rate (R153 as at 24 Sept 02)
11.80% 11.80%
Benchmark Ref. Real Rate (assume Full Gov. borrowing)
4.50% 4.50%
Margin for refinancing (full) 2.25 2.50
Margin for refinancing (reduced)
1.75 1.75
40
OPTIONS FOR RE-NEGOTIATION:OPTIONS FOR RE-NEGOTIATION:RE-FINANCING BENEFITS RE-FINANCING BENEFITS
(BLOEMFONTEIN)(BLOEMFONTEIN)
Inflation %
Excluding Margin
Reduced Margin
Historical Full Margin
Payment 02/03 R’m
NPV R’m
Payment 02/03 R’m
NPV R’m
Payment 02/03 R’m
NPV R’m
3.00 50.9 379.3 57.2 426.4 59.1 440.3
4.50 51.6 413.5 58.0 467.8 59.9 480.0
6.00 52.4 451.5 58.9 507.5 60.8 524.0
7.50 53.1 493.7 59.7 554.9 61.7 573.0
41
OPTIONS FOR RE-NEGOTIATION:OPTIONS FOR RE-NEGOTIATION:RE-FINANCING BENEFITS RE-FINANCING BENEFITS
(LOUIS TRICHARDT)(LOUIS TRICHARDT)
Inflation %
Excluding MarginReduced Margin
Historical Full Margin
Payment 02/03 R’m
NPV R’m
Payment 02/03 R’m
NPV R’m
Payment 02/03 R’m
NPV R’m
3.00 53.4 397.7 60.0 447.0 63.3 471.6
4.50 54.2 433.6 60.9 487.3 64.4 514.2
6.00 55.0 473.4 61.8 532.0 65.2 561.4
7.50 55.7 517.6 62.6 581.7 66.1 613.8
42
APOPS Prisons - Real Fees
-
100,000
200,000
300,000
400,000
500,000
600,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
Fixed
Variable
Need to re-shape cash flows through negotiations.Both contracts Real (excl inflation) total fees due
43
3. CONCLUSIONS & 3. CONCLUSIONS &
RECOMMENDATIONS: RECOMMENDATIONS:
EXISTING PPP CONTRACTSEXISTING PPP CONTRACTS
44
CONCLUSION: CONCLUSION: EXISTING CONTRACTSEXISTING CONTRACTS
The PPP Prison Projects delivered according to DCS’ specifications, notably achieving:
Competitive construction costs. Construction on time, on budget. Fast-track delivery (< 2years full capacity). Comparative operating costs. Significant black equity and sub-contracting Significantly higher-quality facilities. Significantly higher-levels of service. Appropriate risk allocation.
But …
45CONCLUSIONS: CONCLUSIONS: PROBLEMS WITH EXISTING PROBLEMS WITH EXISTING
CONTRACTSCONTRACTS
DCS specifications were too high (the PPP prisons
remain driven by DCS’ input specifications).
Relatively high cost of debt.
Higher than normal return on equity.
Additional budgeting pressures for DCS.
Despite overcrowding in DCS system, no ability to
over-populate PPP prisons.
46
RECOMMENDATION: RECOMMENDATION: EXISTING PROJECTSEXISTING PROJECTS
Operating Engage contractors in order to improve Value for
Money by: Reviewing standards and specifications. Amending fee payment structure. Consider options for extra prisoners on a marginal cost
per prisoner basis. [Proposed Feasibility Protocol will be used by DCS to determine optimal value for money]
Finance Engage contractors to:
Improve cash flows and NPV and Consider converting debt portfolio to inflation-linked
funding.
47
PART II PART II
FUTURE PRISON PROJECTSFUTURE PRISON PROJECTS
48
1. ILLUSTRATIVE 1. ILLUSTRATIVE
COMPARISONS:COMPARISONS:
PUBLIC AND PPP PRISONSPUBLIC AND PPP PRISONS
49BARRIERS TO DIRECT COMPARISON BARRIERS TO DIRECT COMPARISON BETWEEN PPP AND PUBLIC BETWEEN PPP AND PUBLIC
PRISONSPRISONS
CAPITAL COSTS
Dates of construction Type of prison Inmates per cell Location Risk transfer Split functions: DPW/DCS Inclusion of staff housing Capacities Security levels Technology and design
OPERATING COSTS
Overcrowding Standards of facilities Standards of activities Hours out of cell Rehabilitation Health facilities Risk transfer – penalties In-house food & services Availability of information
50ILLUSTRATIVE COMPARISON: RISK ILLUSTRATIVE COMPARISON: RISK TRANSFER IN RESPECT OF CAPITAL TRANSFER IN RESPECT OF CAPITAL
COSTCOST
PrisonConstrDate
Inmate Capacity
Original Budget (R’m)
Final Cost (R’m)
%
BudgetReasons
Bloemfontein 03/00 2 928 270 270 100% Fixed price contracts.
Louis Trichardt
08/00 3 024 303 303 100% Fixed price contracts.
Kokstad Max 11/00 1 440 232 360 155% Increase due to civil works.
Empangeni 06/00 1 392 195 200 103%Increase due to escalation (Haylet Formula).
Emthonjeni 05/98 640 122 124 102%Increase due to escalation (Haylet Formula) civil works.
Malmesbury 11/97 1 217 134 190 142%Increase due to civil ground works & escalation.
51 REASONS FOR DIFFICULTIES IN REASONS FOR DIFFICULTIES IN COMPARING PRISON CONSTRUCTION COMPARING PRISON CONSTRUCTION
COSTSCOSTS
Prisons differ by: Type (e.g. super max, max, medium, youth centres, etc.)
Size (inmates varies from <1000 to >3000).
Constructed at different times, different operating philosophies.
Different geographic locations = construction/logistical problems.
DCS does not have a cost centre focus & PPP operators have different cost allocation structures.
Functions and costs split between DCS & DPW.
Historical procurement problems created inefficiencies.
52ILLUSTRATIVE COMPARISON: ILLUSTRATIVE COMPARISON: FUNDED CONSTRUCTION COST FUNDED CONSTRUCTION COST
FORGOVERNMENTFORGOVERNMENTConstruction amount (R’m) 300
% overrun 15%
Base interest rate (benchmark government rate in 2000) 15%
Inter-government margin 1%
Debt period 15 years
Construction period 24 months
Vat Rate 14%
Number of prisoners 3 000
Results
Capital expenditure (R’m) 393
Pre-operating interest (R’m) 63
Total Debt (R’m) 456
Annual payment (R’m) 82
Cost per constructed inmate place per day (Rands) R74.70
53ILLUSTRATIVE COMPARISON: OPERATING ILLUSTRATIVE COMPARISON: OPERATING COSTSCOSTS
Cost Description
Public (R/prisoner/day)
Private (R/prisoner/day)
Budget 2002/03
Bloemfontein October 02
Louis Trichardt October 02
Staff costs - 51.54 -
Administration 35.54 - 23.18
Security / Operations 41.22 - 32.40
Health 4.24 14.14 7.76
Programmes 5.62 10.71 10.08
Facilities Management 1.80 5.72 5.45
Utilities 0.16 5.48 -
Catering 5.09 11.96 7.26
Supplies / Procurement - 8.80 0.32
Insurance - 3.67 -
Co. costs / Redemption - 20.18 -
Total 93.67 132.20 86.45
Total inmates172 048
(incl. 70% overcrowding)
2 928(not overcrowded)
3 024(not overcrowded)
54 REASONS FOR DIFFICULTIES IN REASONS FOR DIFFICULTIES IN COMPARING PRISON OPERATING COMPARING PRISON OPERATING
COSTSCOSTS Overcrowding of public prisons.
Prisons differ by: Type (e.g. super max, max, medium, youth centres, etc.)
Standards of facilities (health, catering, recreation, etc.)
Standards of activities (education, vocational training, work).
Hours out of cell.
Different operating philosophies, often result of different design.
DCS does not have a cost centre focus to accounting.
PPP operators have different cost allocation structures.
Risk transfer differs.
55
2. FUTURE EVALUATION 2. FUTURE EVALUATION
METHODOLOGY: METHODOLOGY:
FEASIBILITY PROTOCOLFEASIBILITY PROTOCOL
56
PROPOSED FUTURE EVALUATION PROPOSED FUTURE EVALUATION METHODOLOGY FOR NEW PRISONSMETHODOLOGY FOR NEW PRISONS
Applicable for projects as both PPP and
conventional procurement.
Purpose is to assess all options based on clear
output specifications.
For all choices, DCS needs to demonstrate:
Affordability
Value for Money
Acknowledgement and treatment of risk
57FUTURE FUTURE EVALUATION EVALUATION
METHODOLOGY: METHODOLOGY: FEASIBILITY FEASIBILITY PROTOCOLPROTOCOL
22
21
No
Base Design and Operation Input
Specification 3
Determine Outcomes for Preferred Option
1
Determine Output Specification
2
Def
init
ion
Needs Analysis
Options Analysis
Stra
tegy
PR
E
FE
AS
IBIL
ITY
Private Sector Input Specification
5
Capital Cost Lifecycle Cost
Operating Cost 6
Unitary Payment Model
11 Unitary Payment Model
12
Public Sector Input Specification
4
Shadow Project Bid
7
Probability Risk Adjustment 10
Costed Risk Adjustment 9
Cos
t M
odel
ling
Shadow Project Bid
8
Yes
Public Sector 18
Private Sector 20
Other Procurement 19
Implementation Decision 17
Aff
orda
bilit
y an
d V
alue
for
Mon
ey
Affordable Public Sector
Project 14
Available Affordability
Budget
13
Value for Money? 16
Affordable Private Sector
Project 15
FE
AS
IBIL
ITY
58FUTURE EVALUATION FUTURE EVALUATION
METHODOLOGY: FEASIBILITY METHODOLOGY: FEASIBILITY PROTOCOLPROTOCOL
22
21
Base Design and Operation Input
Specification 3
Determine Outcomes for Preferred Option
1
Determine Output Specification
2
Def
init
ion
Needs Analysis
Options Analysis
Str
ateg
y
PR
E F
EA
SIB
ILIT
Y
FE
AS
IBIL
ITY
59
Private Sector Input Specification
5
Capital Cost Lifecycle Cost
Operating Cost 6
Unitary Payment Model
11 Unitary Payment Model
12
Public Sector Input Specification
4
Shadow Project Bid
7
Probability Risk Adjustment 10
Costed Risk Adjustment 9
Cos
t M
odel
lin
g
Shadow Project Bid
8
FE
AS
IBIL
ITY
FUTURE EVALUATION FUTURE EVALUATION METHODOLOGY: FEASIBILITY METHODOLOGY: FEASIBILITY
PROTOCOLPROTOCOL
60FUTURE EVALUATION FUTURE EVALUATION
METHODOLOGY: FEASIBILITY METHODOLOGY: FEASIBILITY PROTOCOLPROTOCOL
No Yes
Public Sector 18
Private Sector 20
Other Procurement 19
Implementation Decision 17
Aff
orda
bil
ity
and
Val
ue f
or M
oney
Affordable Public Sector
Project 14
Available Affordability
Budget
13
Value for Money? 16
Affordable Private Sector
Project 15
FE
AS
IBIL
ITY
61
3. CONCLUSIONS & 3. CONCLUSIONS &
RECOMMENDATIONS: RECOMMENDATIONS:
FUTURE PRISON PROJECTSFUTURE PRISON PROJECTS
62
RECOMMENDATION: FEASIBILITY RECOMMENDATION: FEASIBILITY PROTOCOL FOR FUTURE PROJECTSPROTOCOL FOR FUTURE PROJECTS DCS to clearly establish output specifications (for design &
operations). Establish budget constraints. Develop comparable accounting standards for both PPP and
DCS-operated prisons. Adopt clear rules for DCS staff movement during any future
PPP procurements. Comprehensive feasibility:
Cost private design, finance, build and operate, versus Risk-adjusted Public Sector Comparator.
Results: If clear distinction – Adopt. If depends on assumptions – Policy decision or pilot
comparisons.
63
PART IIIPART III
TASK TEAM’S TASK TEAM’S
RECOMMENDATIONS FOR RECOMMENDATIONS FOR
NEXT STEPSNEXT STEPS
64TASK TEAM’S RECOMMENDATIONS TASK TEAM’S RECOMMENDATIONS FORFOR
NEXT STEPSNEXT STEPS
Next Steps ResponsibilityTarget Start Date
Engage PPP contractors to improvevalue for money by: Reviewing standards &
specifications; Amending fee payment
structure; Accommodating additional
inmates; Negotiating debt funding.
DCSsupported by
National Treasury and
Financial & Legal Advisors
1 Dec 02
Adoption of the Feasibility Protocolfor all future prison projects.
DCS 1 Dec 02
65TASK TEAM’S RECOMMENDATIONS TASK TEAM’S RECOMMENDATIONS FORFOR
NEXT STEPSNEXT STEPS
Next Steps ResponsibilityTarget Start Date
Setting of clear DCS policy, processes and decision-makingstructures for procurement offuture prisons.
DCSsupported by
National Treasury1 Dec 02
Setting and public announcement of DCS policy on unsolicited bids.
DCSsupported by
National Treasury1 Dec 02
Training of key DCS personnel in: DCS’s Prison Feasibility Protocol
and DCS’s Procurement policy,
methods and standards.
DCSsupported by
National TreasuryMarch 03
66
MINISTERS OF: MINISTERS OF: CORRECTIONAL SERVICES, FINANCE, PUBLIC CORRECTIONAL SERVICES, FINANCE, PUBLIC
WORKSWORKS andand
PARLIAMENTARY PORTFOLIO COMMITTEE ON PARLIAMENTARY PORTFOLIO COMMITTEE ON CORRECTIONAL SERVICESCORRECTIONAL SERVICES
November 2002November 2002
REVIEW REPORT REVIEW REPORT SUBMITTED TO:SUBMITTED TO:
67
TREASURY RECOMMENDATTREASURY RECOMMENDATIIONSONS1. Negotiations on current contracts must begin now:
Fees are not linked to budget inflation increases. More
value can be achieved. PPPUnit will help.
2. Partnership relationship with 2 private partners must
be built. Value must be acknowledged and optimised.
SA needs private investment in public infrastructure and
services.
3. Feasibility work must be done as per Feasibility
Protocol before 4 new prisons are commissioned. Initial
R1b capital sum at stake; much more in opex at stake.
PPPUnit will help.
68
CCONTACTONTACT
PPP Unit National Treasury 240 Vermeulen St, Pretoria Tel 012-315 5741/ 5459 Sue Lund tel 082-898 5758 [email protected] www.treasury.gov.za