Long Term Procurement Plan - June 2005 · 2009-11-23 · Foreword Transit New Zealand (Transit) ﬁ...

LONG TERM PROCUREMENT PLAN

JUNE 2005

Contacts

If you have any enquiries please contact:

Susan Chamberlain

Procurement Group

Transit New Zealand

P O Box 5084 Wellington

Tel 04 499 6600

Fax 04 496 6666

Foreword

Transit New Zealand (Transit) fi rst produced its Long Term Procurement Strategy (LTPS) in December 2000 and

is now renamed the Long Term Procurement Plan (LTPP). The name change refl ects the changes in procurement

practices that Transit is introducing to its state highway business.

Our review of the directional and specifi c plans established in December 2000 shows that we have been very

successful in establishing the proposed new models into our business. Model splits across both asset improvement

and asset management outputs have reached equilibrium. The drive now is to enhance and improve the

individual models and supporting processes.

In addition, the Land Transport Management Act 2003 (LTMA) was introduced with its focus on achieving a

responsive, safe, integrated and sustainable land transport system, and the need to achieve best value for money.

It is helpful to be reminded that the objective of good procurement is to achieve value for money, rather than the

more common belief of cost minimisation.

Our value-for-money plans are bonded by the strategic issue of a co-ordinated approach to the upcoming

impressive major asset improvement works programme, and the individual input level where we strive to be open

in our business dealings with our suppliers to establish strong and effective working relationships.

However, our business relies on professional services suppliers and contractors to deliver our programme.

This updated LTPP continues the publication of our plans in the upcoming four years.

I believe this will be a highly useful document to many. I commend it to you.

Rick van Barneveld

Chief Executive

Table of Contents

Par t A – In t roduc t i on 7

1 .0 Ove r v i ew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.1 Justifi cation for Update .................................................................................................................................................................................................... 7

1.2 Purpose of the LTPP ............................................................................................................................................................................................................. 7

1.3 Background ................................................................................................................................................................................................................................. 7

1.4 Since LTPS December 2000 ............................................................................................................................................................................................. 8

1.5 Reference Documents ......................................................................................................................................................................................................... 9

2 .0 M i s s i on and Ob j e c t i v e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 12.1 Background .............................................................................................................................................................................................................................. 11

2.2 Statutory Objective ............................................................................................................................................................................................................ 11

2.3 LTPP Mission .......................................................................................................................................................................................................................... 11

2.4 Value-for-Money .................................................................................................................................................................................................................. 12

2.5 Objectives .................................................................................................................................................................................................................................. 12

3 .0 D i r e c t i on o f the Long Te rm Procu remen t P l an . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 33.1 The Four Elements .............................................................................................................................................................................................................. 13

3.2 Directional Plan .................................................................................................................................................................................................................... 13

3.3 Specifi c Plan ............................................................................................................................................................................................................................ 14

3.4 Business Improvements ................................................................................................................................................................................................. 14

3.5 Implementation ................................................................................................................................................................................................................... 15

Par t B – As s e t Improvemen t P ro j e c t s 16

4 .0 Ove r v i ew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 64.1 Features of an Asset Improvement Project ...................................................................................................................................................... 16

5 .0 A s s e t Improvemen t P rocu remen t Mode l s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 65.1 Introduction .......................................................................................................................................................................................................................... 16

5.2 Asset Improvement Procurement Models ........................................................................................................................................................ 18

5.3 Value for Money .................................................................................................................................................................................................................. 24

Par t C – As s e t Managemen t P ro j e c t s 25

6 .0 Ove r v i ew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 56.1 Features of an Asset Management Project ....................................................................................................................................................... 25

7 .0 A s s e t Managemen t P rocu remen t Mode l s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 57.1 Introduction ............................................................................................................................................................................................................................ 25

7.2 Traditional Model ............................................................................................................................................................................................................... 26

7.3 Hybrid Model ......................................................................................................................................................................................................................... 26

7.4 PSMC Model ........................................................................................................................................................................................................................... 26

7.5 Proportions of Procurement Models .................................................................................................................................................................... 26

8 .0 Mode l S e l e c t i on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 88.1 Introduction ............................................................................................................................................................................................................................ 28

8.2 Model Specifi c Attributes .............................................................................................................................................................................................. 28

8.3 Contract Specifi c Attributes ........................................................................................................................................................................................ 32

8.4 Common Model and Contract Attributes ....................................................................................................................................................... 35

8.5 Procurement Model Attribute Maps ..................................................................................................................................................................... 35

Par t D – Common I s sue s 39

9 .0 Con t ra c t Fo rm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 99.1 Contract Type ........................................................................................................................................................................................................................ 39

9.2 Contract Documents ........................................................................................................................................................................................................ 39

9.3 General Conditions of Contract .............................................................................................................................................................................. 39

10 .0 Tende r Eva lua t i on Me thod s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 010.1 Introduction ............................................................................................................................................................................................................................ 40

10.2 Tender Evaluation Methods ........................................................................................................................................................................................ 42

11 .0 Common Procu remen t I s sue s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 511.1 Implication of the LTMA 2003 ................................................................................................................................................................................. 45

11.2 Best Practice Documentation and Procedures .............................................................................................................................................. 48

11.3 Tender Evaluation Qualifi cation ............................................................................................................................................................................. 49

11.4 Short-Listing ............................................................................................................................................................................................................................ 49

11.5 Interactive Tendering ....................................................................................................................................................................................................... 50

11.6 Performance Evaluation ................................................................................................................................................................................................. 50

11.7 Project Risk Management ............................................................................................................................................................................................. 51

11.8 Competitive Pricing Procedures Manual .......................................................................................................................................................... 51

Par t E – Imp l emen ta t i on 52

12 .0 Imp l emen ta t i on , Mon i t o r i ng and Rev i ew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 212.1 Ownership of LTPP ............................................................................................................................................................................................................ 52

12.2 Monitoring ............................................................................................................................................................................................................................... 52

12.3 Review and Consultation .............................................................................................................................................................................................. 52

G lo s sa r y 54

Append i c e s 57Appendix A – Specifi c Strategy for Capital ............................................................................................................. 58

Appendix B – Specifi c Strategy for Maintenance .................................................................................................... 60

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Par t A – In t roduc t i on

1 . 0 O v e r v i e w

1 . 1 J u s t i f i c a t i o n f o r U p d a t e

This Long Term Procurement Plan (LTPP) updates the original Long Term Procurement Strategy (LTPS) published

in December 2000. Having been in operation for over four years, it is now an appropriate time to review the LTPP

because of:

a ] the introduction of the Land Transport Management Act (LTMA) 2003

b ] Transit’s new Strategic Plan 2004

c ] an unprecedented major project delivery programme in Auckland

d ] completion of a major investigation into best value-for-money delivery of asset improvement projects

e ] completion of the fi rst round of Hybrid procurement model asset management contracts.

1 .2 Purpo se o f the LTPP

The LTPP establishes a proactive, future-oriented approach to implementing delivery of improvement and

management projects on the state highway network.

The document seeks to inform both Transit and the wider industry about how Transit intends to procure suppliers

and deliver services and products to achieve best value for money. It also details procurement procedures that are

currently in use.

The LTPP fi ts within a framework of documents that guide Transit’s business.

1 .3 Backg round

Transit New Zealand is a Crown entity established under the Transit New Zealand Act 1989. Its powers and

functions have since been reviewed in the LTMA 2003. Transit is responsible for preparing a state highway

programme and controlling the state highway system. These responsibilities include seeing to the highway

system’s planning, design, supervision, construction, operation and asset management. Transit is required under

its Act to outsource the development and delivery of all asset improvement and asset management projects.

Transit New Zealand Long Term Procurement Plan – 2005

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Transit is responsible for implementing over $500M of asset management and asset improvement projects on the

state highway network each year. This represents a considerable investment in the roading infrastructure, which is

vital to our national economy’s support and development.

This LTPP (2005) for asset improvement and asset management refl ects on the achievements since 2000, and

presents the procurement plan for the next four to fi ve years. It was initially drafted by internal Transit working

groups before consultation with the industry to continue to enhance and add value to Transit’s business.

1 .4 S i n ce LTPS December 2000

Between December 2000 and January 2005, the following key procurement initiatives and achievements have

happened, and are continuously being progressed:

➔ we have fi ve network maintenance areas operating in a PSMC environment and seven in a Hybrid environment

➔ seven Design-Construct contracts have been let; with the successful completion of Rangiriri to South of

Ohinewai Four-laning in (September 2003) and Hawke’s Bay Expressway (May 2003)

➔ an Alliance contract (Grafton Gully Freefl ow Alliance) was procured in late 2001, and completed in February

2004, with successful outcomes in both cost and non-cost areas

➔ another Alliance contract (Northern Gateway Alliance) has been let for the extension of Auckland’s northern

motorway from Orewa to Puhoi

➔ a local authority collaboration established between Transit and Marlborough District Council and Transit

and Western Bay of Plenty District Council with further collaborations between Transit and Tasman District

Council, the Taranaki Cluster and local authorities in east Waikato

➔ adoption of Land Transport New Zealand’s (Land Transport NZ’s) new Competitive Pricing Procedure (CPP)

PQM into Transit’s business (PQM Simple replaces Weighted Attributes Method and PQM Special replaces

Quality Price Trade-Off)

➔ PACE (Performance Assessment by Co-ordinated Evaluation) system has been continuously upgraded and

successfully incorporated into the business

➔ prequalifi cation on trial in the South Island

➔ new cost estimation procedures have been established and incorporated into Transit’s businesses (SM014

– Cost Estimation Manual)

➔ new risk management practices are being integrated into all levels of Transit’s business, which includes new

requirements for risk-adjusted programmes, and the redefi nition of risk as both a threat and opportunity

(AC/MAN/1 Risk Management Process Manual)

➔ tolling schemes are currently being developed and progressed to allow the advancement of major projects for

construction

➔ relationships established and developed with international organisations, research and development institutes

such as Austroads and the Centre of Advance Engineering

➔ formal tender evaluation qualifi cation for tender evaluators established

➔ guidelines for the evaluation of alternative tenders have been developed and incorporated into Transit’s

businesses

➔ completion of a major investigation into best value-for-money delivery of asset improvement projects.


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1 .5 Re f e r ence Documen t s

The key reference documents used to develop and document the LTPP are:

A ) New Zea l and Tran spo r t S t r a t egy (NZT S )

The NZTS is the Government’s key strategic transport document from which the LTMA (2003) and new

approaches to land transport are derived. The NZTS outlines the Government’s vision for transport in

New Zealand and provides the framework within which transport policy is developed, both for central

government, transport agencies such as Transit, and local government.

It notes that transport has a key role to play in helping New Zealand to develop economically and socially in

ways that protect the environment. The NZTS describes how an integrated mix of transport modes can contribute

to economic growth, improved public health, increased safety and personal security, improved accessibility and

mobility, and the enhanced environmental sustainability of New Zealand.

The NZTS has been developed within the sustainable development framework. This framework involves:

➔ assisting economic development

➔ assisting safety and personal security

➔ improving access and mobility

➔ protecting and promoting public health

➔ ensuring environmental sustainability.

B) Land Tran spo r t Managemen t Ac t 2003 (LTMA )

This Act was passed on 12 November 2003 with the purpose of contributing to the aim of achieving an integrated,

safe, responsive and sustainable land transport system, and exhibiting a sense of social and environmental

responsibility. This new Act has reinforced the focus on the Triple Bottom Line responsibilities (economic, social

and environmental) and on delivering best value-for-money outcomes.

C ) Tran s i t ’s S t r a t eg i c P l an

This establishes and guides Transit’s business developments over the medium to long term. Transit’s vision is

‘A transport system that builds a better New Zealand’. The associated strategic goals are:

1) Ensure state highway corridors make the optimum contribution to an integrated multi-modal land transport system.

2) Provide safe state highway corridors for all users and affected communities.

3) State highways will enable improved and more reliable access and mobility for people and freight.

4) Improve the contribution of state highways to economic development.

5) Improve the contribution of state highways to the environmental and social well-being of New Zealand,

including energy effi ciency and public health.


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D) Tran s i t ’s S t a t emen t o f In t en t

The Statement of Intent provides information on: Transit’s business objectives; the nature and scope of its

activities; performance targets, and other measures by which the performance of the Crown entity may be judged

in relation to its objectives; a statement of accounting policies; and a statement of output objectives specifying the

classes of outputs to be produced.

The Statement of Intent includes a series of performance measures that have been developed to align with and

support Transit’s Strategic Plan. Procurement performance will be measured, in part, by the following high level

performance measures:

➔ the satisfaction with Transit’s responsiveness to external views, needs and contributions from those with

whom Transit consults

➔ benefi ts forecasts for large projects which are scheduled for completion in the current year

➔ variance between actual large projects commenced in the reporting year versus what was planned in each of

the two previous years

➔ proportion of projects listed in Transit’s performance agreement that are on time

➔ compliance with legislation, legislative instruments and external policy requirements

➔ proportion of asset improvement projects completed within expected cost and time parameters.

E ) Na t i ona l S t a t e H ighway S t r a t egy

This describes Transit’s mission, goals and objectives for the state highway system. It also describes Transit’s

policies and plans for maintaining and improving state highways to meet current and future traffi c demands and

road user needs and expectations. The LTPP is a key document in ensuring the National State Highway Strategy is

achieved.

F ) S t a t e H ighway A s s e t Managemen t P l an

The State Highway Asset Management Plan links operational and asset management practice with the strategic

planning processes detailed in the Statement of Intent and Strategic Plan. It defi nes the specifi c levels of service for

maintenance of the state highway network.

G) Env i r onmen ta l P l an

The Environmental Plan contains Transit’s Environmental Policy that applies to all procurement procedures.

It also contains Transit’s objectives for a range of issues, including integrating environmental and social

responsibility into contractual processes. The LTPP is an important link between the Environmental Plan and

Transit’s procurement processes.

H) Land Tran spo r t New Zea l and ’s Compe t i t i v e P r i c i ng P rocedu re s (CPP ) Manua l

This manual contains mandatory provisions for selecting professional services and physical works suppliers.

The CPP manual will be reviewed in 2005 to fully align with the LTMA (2003). Competitive pricing procedures in

existence on 12 November 2003 were saved as procurement procedures by s95 of the LTMA 2003.


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2 .0 M i s s i on and Ob j e c t i v e s

2 .1 Backg round

In relation to procurement procedures the new LTMA (2003) states:

“... procurement procedures that are designed to obtain the best value for money spent by approved

organisations and persons, having regard to the purpose of this Act.” Section 25(1), LTMA 2003

In the context of the LTMA (2003), value for money is an emerging concept and Transit is currently learning

what it means to truly achieve it. Although Transit is familiar with this principle and has consistently developed,

implemented and monitored its procurement practices to promote the effi cient consumption of resources

to generate the maximum functional performance, its previous perspective has been heavily infl uenced by

economic parameters. The LTMA (2003) reference to value for money is in a sustainability context that requires

functionality, effi ciency, costs and benefi ts to be assessed in economic, social and environmental terms.

It looks like the industry is moving towards a supplier’s market. The LTMA (2003) has given Transit the fl exibility

to be more creative in its approach to procurement to meet the particular demands of such a market.

2 .2 S t a tu to r y Ob j e c t i v e

Transit’s Statutory Objective applies to the Long Term Procurement Plan:

Transit’s Statutory Objective:To operate the state highway system in a way that contributes to an integrated, safe, responsive and sustainable

land transport system for New Zealand.

The Statutory Objective, from the LTMA (2003), has been developed within the sustainable development

framework. Sustainable development has been defi ned as:

“Meeting the needs of the present generation without compromising the ability of future

generations to meet their own needs.” (New Zealand Cabinet, January 2000)

To achieve the Statutory Objective, Transit runs its business by procuring various services from external suppliers

such as consultants and contractors. Procurement is a key activity in Transit’s business, and the short and long-

term implications and infl uences it has on the entire business and industry is extensive.

2 .3 LTPP M i s s i on

Transit’s ability to contribute to sustainable development relies in part on the sustainability of the land transport

industry. We can do this by ensuring that we derive the maximum output from the resources we consume in a

manner that protects the environment, hence:

LTPP’s Mission:To provide optimal value for money in the delivery of services and products on the state highway network to meet

Transit’s Statutory Objective.


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2 .4 Va lue f o r Money

The concept of value for money is a principal driver of the LTPP. Transit has adopted the following defi nition of

value-for-money:

Functional Performance is described as the gain received from the investment in terms of economic, social and

environmental performance (Triple Bottom Line). The measurement of Functional Performance includes such

intangibles as innovation, design quality and integrity, safety and human development.

Resources Consumed is described as the costs incurred to deliver the functionality sought (in terms of economic,

social and environmental costs).

An industry-wide defi nition of value for money will be sought by both approved organisations (Transit and local

authorities) and Land Transport NZ, in consultation with suppliers. In all procurement procedures the criteria to

be used to judge best value for money will need to be defi ned.

One of the key objectives of the LTPP is to extract the best value for money from any activity by:

➔ extracting the greatest performance out of any activity

➔ delivering the work for the most effi cient cost

where both “performance” and “cost” are assessed in economic, social and environmental terms. These factors are

further infl uenced by the need to assess this from a whole-of-life and sustainability point of view.

Examples include:

(i) building with optimal life performance

(ii) ensuring skilled and capable resources are available to deliver our works.

2 .5 Ob j e c t i v e s

The key objectives of the LTPP are to:

➔ extract best value for money from any activity

➔ identify a sustainable mix of procurement models

➔ encourage competitive and effi cient markets which are sustainable

➔ encourage supplier innovation

➔ engage suppliers who can deliver quality and value for money

➔ increase the quality and focus during the development phase of projects

➔ move towards the whole-of-life approach

➔ further improve the management of risks and optimise the allocation of risks to suppliers where they are best

placed to manage these

Value for Money


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➔ encourage suppliers to take a long term view of their performance

➔ keep abreast of international best practice

➔ promote relationship contracting

➔ embed environmental and social responsibility in all procurement processes and contracts.

3 .0 D i r e c t i on o f the Long Te rm Procu remen t P l an

3 .1 The Fou r E l emen t s

The plan has four elements:

• Directional plan • Specifi c plan

• Business improvement • Implementation plan

3 .2 D i r e c t i ona l P l an

The directional plan covers a period of approximately 10 years.

General Directional Plan

The general directional plan is to:

a ] move to develop and use quality-based selection methods

b ] continue to move towards more relationship contracting

c ] introduce incentives to contract agreements so that supplier’s profi t is enhanced or reduced, based on

performance against prescribed standards

d ] ensure unit cost of professional services are determined for the full range of services

e ] establish packages of physical and professional services work where suppliers can have continuity of work if

performance expectations are met

f ] continue to improve communication of risks to suppliers, particularly the expectations of the party

nominated as responsible

g ] keep moving to performance-based contracts where possible

h ] pursue relationships with local authorities where better business outcomes can be identifi ed.

Several of the key fi ndings of the report to the Construction Industry Council, Best Practice Procurement in

Construction and Infrastructure in New Zealand (April 2004), have been captured in the above general direction.

In addition to the fi ndings already highlighted, Transit will continue to use the report as a guide to its

procurement practices.


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Transit has also committed to assisting in progressing the Buildability Action Plan, a key outcome of an industry

meeting with government ministers in 2004. Sustainability of the industry is not only dependent on having

profi table work, but also a regular and consistent workload. Transit has already made good progress in ensuring a

robust forward works programme with the development of its Major Projects Programme. The Buildability Action

Plan is expected to have a positive impact on the industry by providing certainty of future work.

Directional Plan Specifi c to Asset Improvement Projects

The directional plan specifi c to asset improvement projects is to:

a ] have at least one asset improvement Alliance project in operation at any one time

b ] establish Design-Construct as the preferred method of delivering projects larger than $50M

c ] improve the measures encouraging a whole-of-life approach in design and construction

d ] move from Measure & Value contracts to Lump Sum contracts for construct-only works

e ] establish PQM Complex, a tender evaluation method that involves robust risk-assessment, fi nancial audits

and negotiation of scope and price, with more than one tenderer.

Directional Plan Specifi c to Asset Management Projects

The directional plan specifi c to asset management projects is to:

a ] consolidate and enhance the current proportions of PSMC, Hybrid and Traditional procurement asset

management models

b ] steadily build the abilities of our sector to behave in a way which maximises the value creation within each

model

c ] establish an asset management Alliance project(s) within the next fi ve years

d ] enhance training opportunities in the land transport industry to assist retention of personnel

e ] continue to research and identify where value creation is being achieved.

3 .3 Spec i f i c P l an

The specifi c plan is indicative for the purpose of providing guidance to the industry to assist in planning. It covers

a period of four years. Refer to Appendices A and B for the Specifi c Plan or Transit’s 10-year State Highway Forecast

available at www.transit.govt.nz.

3 .4 Bus i ne s s Improvemen t s

A number of business processes that need to be investigated, developed or improved are associated with these

specifi c and directional plans.


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Business Improvements for Asset Improvement and Asset Management Projects

These involve:

a ] aligning our tender evaluations with the LTMA 2003, particularly social and environmental objectives

b ] continuously encouraging and improving practices for the evaluation of alternative tenders to capture and

promote innovation in the industry

c ] enhancing our national supplier performance evaluation system (PACE) and incorporating the PACE database

results in the evaluation of tenderers’ Track Record attributes

d ] aligning PACE with the LTMA 2003, especially social and environmental objectives

e ] progressing the development of 360o (i.e. contractor, consultant and client) PACE evaluations

f ] assisting the CPP working group in updating the CPP manual for PQM and the new LTMA 2003

g ] continuing to make improvements to health and safety outcomes

h ] completing the review of TQS1 and TQS2 to refl ect the recent upgrade in ISO 9000

i ] enhancing the evaluation of technical and management skills by recognising national qualifi cations and

Recognised Prior Learning

j ] developing and implementing a concession model

k ] developing and implementing mechanisms to determine the value the LTPP creates.

Business Improvements Specifi c to Asset Management Projects

a ] creating an incentive within the Traditional asset management model to optimise the timing of asset

management interventions

b ] development/improvement/refi nement of performance measures

c ] linking performance measures to road user (surveys) requirements.

3 .5 Imp l emen ta t i on

Part E of the LTPP describes the organisational framework and processes needed to implement, monitor and

review the plan. Particular emphasis will be given to monitoring value creation and quality in the land transport

industry.


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Par t B – As s e t Improvemen t P ro j e c t s

4 .0 Ove r v i ewAsset improvement projects (commonly known as capital projects within Transit) are new construction projects

that involve the procurement of various professional services and physical works contracts from suppliers to

deliver the project from investigation and design to construction completion.

4 .1 Fea tu r e s o f an A s s e t Improvemen t P ro j e c t

There are three main features involved in the delivery of an asset improvement project:

➔ procurement model

➔ contract form

➔ tender evaluation methods.

Procurement models are discussed in detail in Part B. Contract form and tender evaluation models (common to

both asset improvement and asset management) are discussed in Parts D and E respectively.

5 .0 A s s e t Improvemen t P rocu remen t Mode l s

5 .1 In t roduc t i on

Transit is responsible for the construction and delivery of various asset improvement or asset improvement

projects with different objectives, scales, risks and complexities, ranging from $150,000 minor safety

improvements to $300M motorway improvements.

Industry practices worldwide have resulted in the development of various procurement models to deliver such

asset improvement projects. Transit has actively sought to follow industry best practice to apply the appropriate

procurement model, and also constantly review and improve the models based on experience and advancements.

There are three asset improvement procurement models currently available for use in Transit New Zealand:

➔ Traditional (construct-only)

➔ Design-Construct, with two sub-models:

• Design-Construct (advanced procedures)

• Design-Construct Basic (a simplifi ed version for small contracts)

➔ Alliance.

Each procurement model has different inherent characteristics that infl uence its ability to deliver value–for–money

outcomes for different project sizes and complexity. Some of these characteristics include:

➔ the cost and duration of the procurement process

➔ level of client involvement

➔ capability for promoting competitive pricing

➔ ability to allocate risks that the suppliers can best manage

➔ ability to deliver good cost and time outcomes

➔ ability to promote whole-of-life outcomes

➔ ability to apply incentives to encourage performance in non-cost areas such as social and environmental.


B

17

The following Figure 5.1 is a theoretical depiction of the possible value for money outcomes of the various models

versus the project’s scale, risk and complexity and also a theoretical “desired” value for money level. It shows

that the models are intended to deliver value for money outcomes, but due to the inherent characteristics of the

models and projects, such as implementation costs, incentive schemes and lump sum arrangements, the models

are optimised to deliver value for money based on respective scale, risk and complexity of the project.

Figure 5.1 Delivering Value for Money

Although these are quite separate procurement models, there is room within each to include aspects of the other

methods, resulting in a hybrid method, best suiting the complexity and risks associated with a particular project.

The characteristics of the procurement models have to be matched to the project’s characteristics. These can

include:

➔ requirement for early start and completion

➔ stakeholder involvement

➔ construction environment: “green-fi eld” (new development over untouched land), “brown-fi eld”

(in populated areas, residential or urban)

➔ environmental and social requirements

➔ design and construction complexity and scale

➔ degree to which the goods and services to be procured are known at the time of engaging a supplier

➔ operation and asset management requirements

➔ scope changes and level of client input required

➔ corporate and political factors.


B

18

5 .2 A s s e t Improvemen t P rocu remen t Mode l s

A typical project life-cycle and the associated different procurement model phases are shown below:

Figure 5.2 Typical Project Life-cycle

A ) Trad i t i ona l Mode l

The majority of Traditional physical works contracts use the Measure and Value contract type (refer Section 7.1).

The delivery structure allows distinct professional services contracts for development, design and the subsequent

physical works surveillance. A contractor is engaged under a separate contract to undertake the physical works.

See Figure 5.3 below:

Figure 5.3 Traditional Procurement

Design & Project Documentation

Investigation & Reporting

MSQAConstruction

Consultant A

Consultant A or B

Consultant A or B or CContractor

Project Feasibility

Investigation and Reporting

Detailed Design & Project Documentation

Construction

Specimen Design

Design Development & Construction

Operation & Maintenance

Tra

dit

ion

al

DC

or

All

ian

ce

Note: All phases may be delivered by different

suppliers.


B

19

To a great extent the success of the Traditional model depends on the quality of the investigation, design and

contract documentation. There is an onus on Transit to ensure that adequate standards are maintained and that

the standard of investigation, design and documentation does not decline as a result of competitive pricing

procedures.

For projects in the low-risk and/or low-innovation potential segment, the Traditional delivery method is

considered appropriate because:

➔ it allows for strong competitive bidding

➔ the design is more precisely scoped and detailed at the outset

➔ the client retains most of the project risks, which are usually low, and do not warrant mitigation via risk transfer

➔ their low potential for innovation does not warrant the higher bidding costs incurred by more sophisticated

delivery methods.

However, some disadvantages of the Traditional model are:

➔ in the event of a risk occurring, the client retains accountability which may result in design and construction

phases having a higher overall cost and requiring a longer period to deliver to completion

➔ co-ordination responsibility between multiple design, construction, systems and procurement contracts is

costly to the owner in terms of staffi ng, possible delays and possible change orders

➔ increased probability of disputes and increased owner-involvement cost

➔ few incentives to optimise the design

➔ limited constructor and designer collaboration.

Signifi cant improvements have been achieved in the Traditional physical works contracts through enhancements

to the Traditional process, which have been tested and implemented throughout Transit’s business. These include:

(a) Partnering

This has been used successfully on many construction projects. Partnering encourages the contracted parties

to work together more closely to seek opportunities for improvement and to resolve disputes as quickly as

possible.

In a partnering environment, the common objectives and goals of the various parties are aligned as much as

possible to increase the project’s likelihood of success.

(b) Risk Management

Successful risk management involves limiting the impact of threats and optimising the impact of

opportunities. Risks are managed by developing and implementing risk treatment plans.

Threats can be either:

• Avoided – eliminate activity that exposes the risk

• Minimised – reduce likelihood of occurrence

• Mitigated – establish contingency or treatment plans

• Transferred – transfer the consequence to another party e.g. insurer

• Accepted – accept that the threat may occur and plan to manage.


B

20

Opportunities can be either:

• Accepted – accept the risk may occur and plan to manage

• Enhanced – increase the possible gains

• Maximised – increase the likelihood

• Transferred / shared – transfer to or share with another party

• Rejected – eliminate the scenario that triggers the risk.

Through value engineering, the consultant or contractor will be able to promote new ideas and innovative

ways of managing risk. In appropriate circumstances, it is possible to motivate the consultant or contractor

to do this by accepting a proportion of the savings as additional profi t on the job.

(c) Lump Sum

With the increasing capability of the industry to provide quality professional advice, there is opportunity to

lump sum parts of the contract works to transfer risk optimally.

Lump sum projects need to have a well-defi ned scope so that the risk can be determined and priced by the

supplier; those elements that cannot be quantifi ed or scoped remain as Measure and Value components.

Through the lump sum incentive the contractor manages the work as effi ciently as possible to explore ways of

increasing profi tability. The client, in achieving price certainty, determines whether improved value has been

created.

The Traditional method has limitations if the project risk and/or potential for innovation increases. If the

risks identifi ed are quantifi able and best managed by the contractor (either through construction methods or

by designing out the risks), a Design-Construct (DC) delivery method may be more suitable.

(d) Value Management

The purpose of value management is to ensure project effi ciency and systematic value for money through

the clear understanding of the project objectives by all those involved in the project. Value management is a

continuous process from project conception to completion.

The above improvements are inherent in the Design-Construct and Alliance models.

B) De s i gn -Con s t r u c t (DC ) Mode l

The Design-Construct model is suitable for projects with a degree of complexity that warrants the transfer of risks

to suppliers. The key difference between the Design-Construct model and the Traditional model is that following

completion of the investigation phase, a single lump sum contract is tendered for the project’s detailed design and

construction phases.

Two main contracts are usually procured (see Figure 5.4 opposite):

➔ Professional services contract for a specimen design, project development and the partial MSQA activities

➔ Design-construct contract for the detailed design, MSQA and physical works.


B

21

Figure 5.4 Design-Construct Procurement

In general, Design-Construct increases the opportunity for innovation by allocating risk to the supplier who is best

able to match his resources to the delivery requirements. In practice, risk allocation is considered on a case-by-case

basis.

During construction, the lump sum arrangement provides incentive for the contractor to optimise and seek

innovation in design and constructability issues to reduce construction costs. Summarising the advantages of the

Design-Construct model:

➔ a collaborative approach to design utilised to determine the most cost-effective solutions

➔ takes full advantage of the designer’s and the constructor’s ingenuity and innovation and provides incentives

for effi cient work practices

➔ it provides the client with a single point of responsibility

➔ it provides an incentive to manage risks e.g. prolongation

➔ eliminates the traditionally adversarial relationship between designer and constructor

➔ provides greater cost certainty at the point of contract award

➔ there are potential time savings resulting from the ability to stage the design works with the commencement

of construction activities.

Construction MSQAConstructor

Detailed Design

Investigation & Reporting (I&R)

Consultant

Specimen Design

D&PD1

DC TenderDocumentation

Principal’s Advisor

MSQAPrincipal’s Advisor

Contractor

Tender Evaluation2

DC Consortium

Key

1 = Design and project documentation, where the consultant produces a design that is suffi ciently detailed to obtain resource consents, determine land requirements, and derive cost estimates.

2 = Tenderers submit their conceptual designs for evaluation.


B

22

The disadvantage with the Design-Construct model:

➔ scope has to be well defi ned to allow the transfer of risk to the contractor

➔ increase in the cost of participating in the tender competition

➔ client-instructed scope changes may be more expensive in the absence of a set of competitively bid rates as a

basis for pricing

➔ more diffi cult to question decisions of the consultants, i.e. to have client input.

As the specifi cations for Design-Construct contracts tend to be less prescriptive and more output focussed, there is

potential that the fi nal product may be of a minimal standard. Transit is currently investigating the option of an

extended defects liability period or a maintenance requirement for inclusion in the Design-Construct contract, in

order to motivate whole-of-life decision making throughout the design and construction phases. However, in the

longer term Transit will investigate a positive incentive process, possibly linked to prequalifi cation and a quality-

based selection process. This would then encourage a higher standard of design, with the necessary whole-of-life

focus, and minimise the need for extensive maintenance requirements after project completion.

Transit recognises that there is a signifi cant cost incurred by the industry when tendering for Design-Construct

contracts. For this reason Transit will consider, on a case-by-case basis, the purchase of intellectual property.

C ) A l l i an ce Mode l

An Alliance is where the owner(s), contractor(s) and consultant(s) work as an integrated team to deliver a specifi c

project under a contractual framework where their commercial interests are aligned with actual project outcomes.

The key principle is that the Alliance assumes collective responsibility and takes collective ownership of all risks

and opportunities, with an equitable share of the “pain” or “gain” of the project outcomes in comparison with the

pre-agreed targets. The Alliance uses a specifi c type of Cost Reimbursement method that seeks to drive the required

best-for-project behaviours.

The Alliance method is suitable for high-risk, highly complex projects. The rationale for this is that as projects

become riskier, more complex and/or require an early completion, it is advantageous to engage the contractor and

designer as early as possible. Characteristics of a project that is suitable for Alliancing:

➔ numerous complex and/or unpredictable risks

➔ complex interface and external threats

➔ diffi cult stakeholder issues

➔ tight timeframes and high likelihood of scope change

➔ high-quality outcome and performance desired.

The Alliance method makes it possible to gain contractor input from the earliest stage of a project to optimally

solve diffi cult issues, ensuring maximum effort is put into risk management.

The Alliance method keeps the initial PFR delivery stage separate but merges the other stages; a single contract is

let for part of the development phase and the entire delivery phase (see Figure 5.5 opposite).

In this way the contractor engaged to undertake the construction work scrutinises all the options from the early

stages of their development for their buildability and practicality. Merging the phases expedites the project

delivery considerably, ensuring the project achieves successful outcomes in time, quality and cost performance,

and ultimately, delivers value for money.


B

23

Figure 5.5 Alliance Procurement

Key

1 = Involves short-listing to two proponents based on non-price attributes only. Typically 67% of the grading performed at this stage.

2 = Interactive workshops with the two short-listed proponents to evaluate the remaining 33% of non-price attributes.

3 = Commercial discussions to agree on basic compensation principles for the Interim Project Alliance Agreement (IPAA) and Project Alliance Agreement (PAA) phases.

4 = IPAA phase involves the determination of the Target Cost Estimate (TCE) and the Alliance will be reimbursed at cost only.

5 = During the PAA phase, the Alliance will receive a lump sum profi t margin, and any under-run or over- run of the TCE will be shared 50:50 with the client.

Construction (PAA5) MSQAConstructor

Detailed Design (IPPA4)

Investigation & Reporting (I&R)

Specimen Design

Consultant

D&PD

AllianceProcurement1

Principal’s Advisor

MSQAPrincipal’s Advisor

CommercialDiscussions3

Alliance ConsortiumWorkshops2


B

24 Transit New Zealand Long Term Procurement Plan – 2005

5 .3 Va lue f o r Money

The following Table 5.6 summarises some of the key value-for-money differentiators and how each procurement

model has its own characteristics that allows it to deliver value-for-money outcomes:

Table 5.6 Key Differentiators

Differentiator

Contract Compensation Structure

Risk transfer

Type of project suitable for delivery

Competitive price tendering

Design / construction interface

Procurement costs and complexity

Onsite overheads

Scope change

Risk and opportunity management

Alignment of goals

Whole-of-life focus

Time performance

Procurement duration (to construction)

Stakeholder management

Social and environmental performance

Traditional

Measure and ValueLump Sum

Client retains majority

Small to medium-scale, low-risk or low- innovation

High weighting on price

Low, detailed design completed in separate phase

Low to medium

Low, simple site offi ce

High to medium cost variations, based on schedule of rates, client retains risk

low, client retains risk

Low, contractor and consultant protecting own commercial interests

Low to medium, client to specify

Good time performance for medium to high-risk projects

Long (separate phases)

Poor, mostly managed by client

Low, client to specify

Alliance

Cost Reimbursement with incentive scheme

Alliance retains all risk

High-scale, high-risk, high- innovation potential

None, Alliance selected on quality non-price attributes

Very high, detailed design phase slightly overlaps with construction, and much more design resources available during construction

Medium to high

High, full site offi ce with full design and construction resources under one roof

Medium to low, based on pre-agreed compensation structure

Very high, Alliance has excellent resources available

High, Alliance is very aligned, no time wasted on adversarial relationships

High, Alliance’s own initiative, and client able to have more input

Excellent time performance for high to extreme-risk projects

Fast

Excellent

Medium to high, incentive scheme provides motivation

Design-Construct

Lump Sum

Contractor retainsmajority, but not all

Medium to high-scale, high-risk, high-innovation potential

High to medium weighting on price

High, but detailed design usually required to be completed prior to construction start

Medium to high

Low to medium

High cost variations, no schedule of rates to base on

High, risk transferred to contractor

Low, contractor protecting own commercial interests

Low to medium

Good time performance for medium to high-risk projects

Moderate

Poor to moderate

Low to medium, client to specify

Cha

ract

eris

tics

Res

ourc

es C

onsu

med

Func

tion

al P

erfo

rman

ce

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25

Par t C – As s e t Managemen t P ro j e c t s

6 .0 Ove r v i ewAsset management projects involve the procurement of various professional services and physical works contracts

from suppliers to maintain the life and condition of Transit’s existing, newly constructed, acquired or allocated

assets and services.

6 .1 Fea tu r e s o f an A s s e t Managemen t P ro j e c t

There are three main features involved in the delivery of an asset management project:

➔ procurement model

➔ contract form

➔ tender evaluation methods.

Transit currently has three distinct asset management procurement models. These are described in Section 7.0.

Section 7.5 refl ects on the proportion of asset management procurement models that Transit was aiming to

achieve when the LTPS was written in 2000 and the proportions actually reached in 2004. The strategy for the

next four years is shown in Appendix B.

Section 8.0 identifi es and defi nes the attributes of the asset management procurement models and describes the

spectrum over which these attributes operate. The process of model selection is then discussed in Section 8.5,

including attribute spectrums or maps for each existing asset management procurement model.

Contract form and tender evaluation methods (common to both asset management and asset improvement) are

discussed in Parts D and E respectively.

7 .0 A s s e t Managemen t P rocu remen t Mode l s


Transit is responsible for the management of 10,786 kilometres of state highway network, which has a

replacement value of around $15.6B. The national network is divided into 24 network management areas, plus

a network operations area in Auckland. Each network management area has its own complexities depending on

location, geography and traffi c volumes.

Transit has developed three asset management procurement models for the procurement of suppliers to manage

and maintain these network management areas.

These models are:

➔ Traditional

➔ Hybrid

➔ Performance Specifi ed Maintenance Contract (PSMC).


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7 .2 Trad i t i ona l Mode l

The services within a Traditional model are separated between professional services and physical works. In general

there is no incorporation of professional services within the physical works.

Transit establishes a contract with a professional services consultant to manage the network’s day-to-day functions

such as:

➔ determining strategies for asset management and safety

➔ programming these activities

➔ preparing and administering the physical works contracts

➔ managing network controls

➔ forward planning major treatments.

Multiple physical works contracts are let to cover various activities to maintain the state highway network (for

example highway maintenance, vegetation control, traffi c services, pavement marking, resealing, bridge and

structure maintenance and drainage maintenance).

7 .3 Hyb r i d Mode l

The Hybrid model utilises output-based contracting, relying on performance measurement, reporting and self-

auditing to ensure supplier performance. The model relies on a co-operative environment between the contracted

parties and seeks to maximise the skills, expertise, innovation and systems of the roading industry.

Services within a Hybrid model are predominantly split between professional services and physical works, but

portions of the professional services are the responsibility of the network maintenance contractor. Specifi cally,

the short-term life of the asset is the responsibility of the network maintenance contractor. The long-term health

of the asset is assigned to the network management consultant. In reality the contractor and consultant work

together to develop both short and long-term programmes that seek to utilise least cost, whole-of-life maintenance

options.

7 .4 PSMC Mode l

The PSMC consists of a single contract for providing all the products or services associated with state highway

network maintenance and management. In a similar way to the Hybrid model the PSMC model utilises output-

based contracting, relying on self-compliance by the supplier to ensure performance. It seeks to maximise the

skills, expertise, innovation and systems of the roading industry so more effi cient and improved value for money

is attained.

7 .5 Propo r t i on s o f P ro cu remen t Mode l s

The Specifi c Strategy for Maintenance within the December 2000 LTPS forecast a 1/3, 1/3, 1/3 split by expenditure

across each asset management procurement model. The actual expenditure split is shown in Figure 7.1 opposite.

The discrepancy can be attributed to such factors as cost savings in the PSMC model, scope increase and changes

within network management and maintenance, funding policy changes and actual lengths of network covered by

each model.


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Figure 7.1: Model proportions by expenditure

An assessment of the relative value for money each model offers has been undertaken with inconclusive results

at this stage. Data is readily available on costs relating to each model, but as yet data relating to functional

performance is diffi cult to extract from existing sources. On balance it is felt that no one model is displaying better

results than any other in terms of performance on the network. On this basis, there is no move to try to align with

the previous specifi c strategy, but instead to stay with the model proportions we have now.

We will continue to investigate ways to quantify functional performance. As a result of the value-for-money

assessment undertaken, a better idea of the data needed to complete a robust assessment has been gained.

Mechanisms will be put in place to ensure that such data can be collected for a future assessment. It is expected

that the results will be evident in three or more years’ time.

As existing network maintenance management and maintenance contracts come up for renewal, an analysis

will be undertaken to assess the most appropriate procurement model to put in place, within the constraints

of the current model proportions by expenditure. This analysis will be based on the attributes associated with

asset management procurement models as discussed in the following sections. There are no immediate plans to

establish another PSMC.

While aiming to keep the model proportions status quo as far as possible, Transit is keen to identify an appropriate

network area to run an asset management Alliance model. The network area selection will be undertaken in 2005

with implementation of the new model over the following four years, depending on documentation development

and existing contract expiry dates.

0%

10%

20%

30%

40%

50%

TRADITIONAL HYBRID PSMC

Forecast Actual


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8 .0 Mode l S e l e c t i on


Selection of an appropriate asset management procurement model for a network area is based on an analysis of a

number of variables relating to the location, resources available, model characteristics and contract requirements.

These variables can also be described as attributes that relate to either the procurement model, the contracts

within the model or in some cases to both.

Transit has identifi ed 16 separate attributes to be considered in model selection (listed in Figure 8.1). A defi nition

of each attribute is given, followed by the spectrum over which each operates.

Figure 8.1 Model Selection Attributes

8 .2 Mode l Spe c i f i c A t t r i bu t e s

Delivery Structure

The delivery structure identifi es the suppliers engaged and how they relate to one another.

Transit has adopted two structures:

➔ Two-Tier – involves the client entering into a contract with a single supplier. In effect this is a typical

Design and Construct structure (i.e. bringing the functions of programming, design and maintenance works

together).

➔ Three-Tier – involves the client entering into separate contracts with a consultant and a contractor.

The full spectrum of delivery structure runs from work being undertaken in-house through to the full three-tier

structure. Transit contracts out all network management and maintenance work to suppliers in either a two or

three-tier structure.

MODEL SPECIFIC ATTRIBUTES

Delivery Structure

Risk Transfer

Deliverables

Annual Expenditure

Supplier Resource Availability

Transit Resource Availability

Tenure

CONTRACT SPECIFIC ATTRIBUTES

Services

Incentives

Payment Mechanism

Relationship

Procurement Basis

Scope

Asset Owner

GeographicalExtent

Flexibility


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Risk Transfer

Common risks on a typical network include:

➔ asset consumption

➔ extreme weather events

➔ traffi c incidents

➔ changes to levels of service

➔ asset management policy changes

➔ poor-quality workmanship

➔ design and quantity errors.

Certain risks are transferred from Transit to the supplier depending on the procurement model adopted. The actual

proportion of risk transferred is dependent on each party’s ability to manage a particular risk.

Risk transfer in the Traditional procurement model is relatively low. In general, Transit retains much of the risk.

Compared to the Traditional model more risk is transferred to the suppliers in the Hybrid procurement model. The

network contractor, in particular, picks up relatively signifi cant risks relating to network condition such as texture,

roughness and skid defi ciency. Transit retains responsibility for asset consumption. This risk is minimised to some

extent by contracting to minimum quantities of pavement and surface treatments.

The most risk transfer occurs in the PSMC procurement model. The contractor is responsible for all aspects of

network condition, including asset consumption and surface condition. This substantial risk transfer is undertaken

on the premise that the contractor is in the best position to identify the risks and establish treatments to manage

them. They are engaged on the basis that they know and understand the network and will put in place proactive

management and maintenance programmes that aim to minimise threats and enhance opportunities where

possible.

In all current models, Transit retains the risk of the specifi ed service levels meeting the expectations of the

customer.

Deliverables

Deliverables are the items of work or results the consultant or contractor must supply to Transit as part of a

contractual agreement.

Professional services deliverables include:

➔ annual plans

➔ forward works programmes

➔ treatment designs

➔ network inspections

➔ contract management

➔ fi nancial management.


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30

Physical works deliverables include:

➔ resurfacing and repairs

➔ pavement treatments

➔ traffi c furniture maintenance

➔ vegetation control

➔ work programming

➔ network inspections

➔ drainage maintenance.

Input-specifi ed deliverables form one end of the deliverables spectrum. In the context of a general maintenance

activity this might equate to specifying that ‘all potholes are to be fi lled and repaired’.

Output-specifi ed deliverables are described at a higher level. Using the pothole example, this results in the

contractor maintaining ‘an acceptable level of surface roughness’.

Outcome-specifi ed deliverables form the far end of the spectrum. They are described at a strategic level. In the case

of the potholes, the equivalent outcome-based deliverable might be a requirement for the contractor to ‘achieve a

high degree of customer satisfaction’.

The Traditional model contracts are predominantly output-based with some input specifi cation.

Hybrid and PSMC model contracts are fully output-based. While there are a number of performance measures at

a tactical level that describe outputs for the surfacing and pavement structure, they do not drive all work activities

on the network. Instead, several technical standards are included in the contracts to ensure all necessary work

activities are undertaken.

It has been thought that the development of the totally output-based models has allowed suppliers to use

innovations previously stifl ed by the Traditional model. Transit fi rmly believes that innovations should be

encouraged and can be implemented in all of its asset management procurement models, regardless of the way the

deliverables are specifi ed. Successfully introducing innovations into a contract relies on good communication and

and is not necessarily dependent upon a particular type of contractual arrangement. Therefore, the opportunity

for innovation exists in all procurement models.

Annual Expenditure

Suppliers invest substantial amounts to establish and operate Hybrid and PSMC contracts. In addition to this,

resource requirements within Transit increase as more client involvement is required. In recognition of this

investment, the following annual expenditure (includes all network management and maintenance activities)

boundaries are suggested:

Table 8.1: Annual Expenditure

Annual Expenditure Limit

No Limits

> $3M / year

> $5M / year

Procurement Model

Traditional

Hybrid

PSMC


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31

Supplier Resource Availability

Adequate professional services, physical works and project management resources with the appropriate skill sets

are crucial to the success of asset management.

The resource availability spectrum ranges from constrained to plentiful. Constrained resources are more likely to

be found in areas with relatively small population bases isolated from larger urban areas.

Transit operates Traditional procurement models in areas with both constrained and plentiful supplier resources.

Specialised contractors are often engaged to undertake specifi ed tasks (for example vegetation control, signs

maintenance, pavement marking and traffi c signal maintenance).

The nature of the Hybrid procurement model lends itself to larger contracting companies able to either resource a

wide range of activities, or form relationships with sub-contractors. Hybrids rely on the suppliers to build robust

relationships with each other and Transit. The contractor must also have asset management skills available to

them for the short-term management of the network.

PSMCs are resource hungry and require careful consideration before committing to a certain area. A large multi-

discipline company, or a combination of specifi c-discipline companies, is required to meet the demands of

a PSMC, which generally covers all network management and maintenance tasks. The contractor must have

asset management and fi nancial management skills, the ability to form strong relationships with Transit and

stakeholders within the area they work, together with a wide range of physical works resources and experience.

Transit has limited the use of the PSMC procurement model to areas where resources have been plentiful.

Transit Resource Availability

In terms of Transit resources it is important to identify the skills of existing asset management staff. As with

suppliers, each procurement model demands varying skill sets.

This attribute spectrum spans strong asset management skills through to strong contract management skills.

Transit staff managing a Traditional model are required to have strong asset management skills.

Transit staff managing Hybrid contracts need to understand and accept the role of the contractor, be prepared

to form a relationship with the contractor and work closely with them, in addition to asset management and

contract management skills.

Similar to the Hybrid model, Transit staff managing PSMCs are required to build robust, long-term relationships

with the contractor, understand the nature of performance-based contracting and be prepared to work in a team

environment. Financial and contract management skills are vital. The role is made more challenging through the

absence of the network consultant.

Tenure

Tenure describes the length of time a particular procurement model is operational. The tenure spectrum ranges

from 3–10 years. In recognition of the commitment required of suppliers by each model, the following boundaries

are recommended:


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Table 8.2: Tenure

Tenure of Traditional and Hybrid models beyond fi ve years requires approval from Land Transport New Zealand.

Contract tenure within the Traditional model will vary, depending on the nature of the contracted activity, but

will not exceed the full tenure of the model.

8 .3 Con t ra c t Spe c i f i c A t t r i bu t e s

Services

Transit is primarily a project management client. Asset management and physical works are services that Transit

contracts out in order to meet its obligations.

Contracts within Transit’s procurement models are professional services standalone, a mixture of professional

services and physical works, or physical works standalone. These mixes cover the services attribute spectrum.

A Traditional model is made up of a number of contracts that are either professional services or physical works.

The Hybrid model has a professional services contract and a mixed contract and the PSMC model is a single mixed

contract.

Incentives

Incentives are used to encourage a supplier to deliver high-quality outputs, minimise programme delays and

increase effi ciency.

With the Traditional model Measure and Value type contracts, where Transit retains the risk of quantity and

design, there are no contractual incentives to improve cost-effi ciency.

Lump sum contracts (used in the Hybrid, PSMC and in some Traditional models), incentivise the supplier to

manage and undertake the works in the most effi cient manner (given appropriate historical records and supplier

skills).

Payment Mechanism

The payment mechanism is an integral part of any contract. It determines how a supplier is going to be paid and

refl ects the risk transfer.

The spectrum ranges from cost plus, through unit rates and then to lump sum, where:

➔ Cost plus pays the supplier the cost of the activity plus some agreed margin beyond that.

➔ Unit rates, or schedule of rates, breaks activities into components and an agreed rate is paid each time that

component is achieved. The unit rate includes the profi t margin.

➔ Lump sum is a fi xed price to undertake a nominated quantum of work. The supplier must price risk and profi t

into the lump sum amount.

Tenure

3-5 years

5 years

10 years

Procurement Model

Traditional

Hybrid

PSMC


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33

Selection of the most appropriate payment mechanism requires consideration of a number of factors that are

summarised in the following table:

Table 8.3: Payment Mechanisms

Transit is tending to put out more asset management contracts under a lump sum payment mechanism. In the

PSMC procurement model, the lump sum will cover signifi cant parcels of work. In the Traditional model, ‘lump

sum per kilometre per month’ is a common payment mechanism applying to individual items in the schedule.

The ability to schedule lump sum payments is increasing with:

➔ a greater awareness of the outcome expected

➔ ongoing improvement to suppliers’ QA systems

➔ a higher degree of certainty within contracts.

Cost-plus payment mechanisms are generally only considered in Traditional contracts, and are entirely

appropriate where there is a high degree of risk or uncertainty and an expectation of signifi cant input by the

network consultant.

Cost Plus

Low

Useful if the work cannot be well defi ned (for example, slip removal)

Low

High. May require fulltime supervision or very robust QA system

Will generally require all initiatives to come from the engineer

Does not encourage innovation

Transit

Low

No incentive

N/A

Schedule of Rates

Medium

Input requirements well defi ned, but quantity may be uncertain

Medium

Reliance on contractor’s QA system will generally suffi ce, but audit is important

Contractor initiative with engineer tensioning timing and appropriateness of interventions

Limited innovation potential

Neutral

Depends on wording of document and degree of understanding

Medium incentive

Favoured where the market is limited

Lump Sum

High

All elements (inputs and quantity) and expected outcome, well defi ned

High

Low. In many cases only requires verifi cation of outcomes

Can rely on high degree of contractor initiative

High degree of innovation expected

Contractor

High

High incentive

Favoured where the market is very competitive

Factor

Preferred degree of price certainty

Defi nition of inputs affecting price

Pricing premium

Extent of surveillance required

Responsibility for work identifi cation and programming

Degree of external initiative sought

Transit risk carried by

Proactivity level

Implicit effi ciency by supplier

Competitiveconsideration


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Relationship

A relationship between contracted parties is the way they work together to achieve the contract objectives. Strong working relationships or partnerships maximise the chances of successful contracts.

The full relationship spectrum ranges from purely contractual to a joint decision making environment with varying degrees of partnering in between.

The Traditional model was originally run on a purely contractual basis but working relationships were naturally established between Transit and suppliers. When the Hybrid and PSMC models were introduced, partnering between the various contracted parties was recognised as a valuable mechanism to understand each other’s objectives and the benefi ts of working as a team.

Informal partnering is relatively low key. It may involve regular meetings between parties, open lines of communication and identifi cation of joint goals and objectives. Many Traditional and Hybrid model contracts now include informal partnering.

Formal partnering involves parties signing up to a Partnering Charter. This is developed through facilitated workshops that bring contracted parties, and sometimes other stakeholders, together to agree direction and joint objectives for the contract. The Partnering Charter then becomes part of everyday business, reinforced by regular meetings, reconvening partnering workshops and social interaction. Formal Partnering Charters have been seen as benefi cial to the success of Transit’s PSMCs.

Transit has not yet put in place the next level of partnering, that is, a true partnership where joint decision making is undertaken. This may come with the trial of an Alliance maintenance model within the next fi ve years.

Procurement Basis

Suppliers are procured through the selection of a tender evaluation method (discussed in Part E).

Price sits at one end of the procurement basis spectrum and quality at the other. The determination as to whether price and/or quality should be given greater focus in supplier selection is dominated by the need to attain value for money. Where the scope of work is well defi ned, the resources available in the market are evenly matched and a confi dent estimate of cost can be defi ned, price may be suffi cient to distinguish suppliers. Some contracts within a Traditional model may be awarded on a price basis.

As the complexity of the contracted activity increases, or the level of risk transfer to the supplier increases, the emphasis on quality increases and price becomes only one of the supplier selection criteria.

With the clear focus of the LTMA 2003 to ensure value for money is secured, more quality-based CPP methods are likely be developed for use in asset management procurement.

Scope

Scope describes the work activities to be undertaken, or end results to be achieved by a contract.

The scope spectrum ranges from single maintenance activity contracts (fully divided scope), to all asset management and maintenance activities, plus asset improvement works combined into one contract.

The scope of a Traditional procurement model is divided.

Professional services are divided from physical works in the Hybrid model, but maintenance activities tend to be combined into one large physical works contract including a degree of asset management.

Under the PSMC model, there is one contract covering all professional services and physical works, plus limited asset improvement.


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Asset Owner

An asset owner is the individual or organisation assigned the responsibility for its management and maintenance.

The asset owner spectrum starts at one and runs to many. In the case of the state highway network, Transit is the

only asset owner.

8 .4 Common Mode l and Con t ra c t A t t r i bu t e s

Geographical Extent

The geographical extent describes the location or coverage of a particular contract or procurement model.

The spectrum for geographical extent has been limited to the known range in the existing 24 network

management areas (100–800km).

The geographical extent of a network management area has some bearing on the most appropriate procurement

model. The investment expected of suppliers in PSMC contracts is substantial and can be better justifi ed for longer

length networks.

Flexibility

A signifi cant risk to successful asset management is a change at a policy, funding or political level. The degree of

fl exibility to deal with such changes varies with procurement model.

In terms of Transit’s current procurement models, the Traditional model allows more fl exibility than either the

Hybrid or PSMC.

In letting a long-term, lump-sum contract such as a PSMC, there is a contractual expectation that the level of

funding required will be maintained throughout the contract period. Any drop in the funding received by Transit

may result in a level of service reduction and a need to make a signifi cant variation to the contract.

The shorter the contract term and less risk transfer, the easier it is to vary the contract to meet any new funding or

policy requirements.

8 .5 Procu remen t Mode l A t t r i bu t e Maps

Attribute maps for each asset management procurement model have been developed from the attributes described

previously, as shown in the following pages. The maps show that the Traditional model covers a wide spectrum of

most attributes whereas the Hybrid and PSMC models are more constrained.

Appendix B has been developed by assessing the actual attribute maps for each network area and overlaying these

against the three standard maps. From this, the best fi t procurement model for each network area was determined.

Until such time as we complete the value-for-money analysis of our current asset management procurement

models, there is an expectation that Appendix B will be followed. Any reasons to deviate from the plans in

Appendix B will need formal approval from the Asset Management Best Practice Group. This will be done by

presenting the attribute maps of the particular network area and justifying variations from the standard model

maps.


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Figure 8.2 TRADITIONAL Asset Management Procurement Model Attribute Map

Attributes Spectrum

Delivery Structure In-house Two-tier Three-tier

Risk Transfer Low Joint High

Deliverables Inputs Outputs Outcomes

Annual Expenditure $1M/year $3M/year $5M/year

Supplier Resource Constrained PlentifulAvailability

Transit Resource Asset FinancialAvailability Management Management

Tenure 3 years 5 years 10 years

Flexibility Low High

Geographical 40km 250km 800kmExtent

Services Physical Professional Professional Works Services and Services Physical Works

Incentives Low High

Payment Cost Plus Schedule of Lump SumMechanism Rates

Relationship Contractual Informal Formal Joint Partnering Partnering Decision Making

Procurement Price QualityBasis

Scope Single Multiple All All Activity Activities Activities Maintenance + All Improvement Projects

Asset Owners One Many (Transit)


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Figure 8.3 HYBRID Asset Management Procurement Model Attribute Map

Attributes Spectrum











Incentives Low High







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Figure 8.4 PSMC Asset Management Procurement Model Attribute Map

Attributes Spectrum











Incentives Low High







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Par t D – Common I s sue s

9 .0 Con t ra c t Fo rm The term ‘contract form’ is used to describe the:

➔ contract type

➔ contract documents

➔ the general conditions of contract.

9 .1 Con t ra c t Type

The selection of an appropriate contract type is often largely dependent on the procurement model selected.

There are three contract types:

• Measure and Value (M&V) – based on a schedule of rates

• Lump Sum – agreed fi xed-price sum where some risk is allocated to the contractor

• Cost Reimbursement – utilises a target cost estimate verifi ed by independent auditors together with a

pre-agreed compensation structure. This helps to drive the correct contractual behaviours.

9 .2 Con t ra c t Documen t s

Proforma contract documents have been developed for most professional services and physical works projects.

The use of standard professional services and construction contract proforma is mandatory in all projects.

The contract proforma documents are located in these respective manuals:

➔ SM030 – State Highway Professional Services Contract Proforma MANUAL: contains the proforma contract

documents for each of the asset management procurement models and the asset improvement professional

services phases. This manual is reviewed and updated on a regular basis.

➔ SM031 – State Highway Construction Contract Proforma MANUAL: contains the asset improvement proforma

contract documents for all of Transit’s procurement models and contract forms (M&V, Lump Sum, Cost

Reimbursement), and includes various other proformas and guidelines. This manual is reviewed and updated

on an annual basis, with feedback and input from the industry to continuously develop a robust and effective

proforma system.

➔ SM032 – State Highway Maintenance Contract Proforma MANUAL: contains the asset management proforma

contract documents for all three current models. This manual is reviewed and updated on an annual basis,

with feedback and input from the industry to continuously develop a robust and effective proforma system.

9 .3 Gene ra l Cond i t i on s o f Con t ra c t

General conditions of contract are discussed in Part D, General Procurement Issues for Asset improvement and

Maintenance Projects, Section 14.3. In general, Transit’s general conditions of contract are based on:

➔ NZS 3910:2003 Conditions of Contract for Building and Civil Engineering Construction (physical works)

➔ Conditions of Contract for Consultancy Services (February 2000) (professional services)

➔ PSMC Conditions of Contract

➔ Interim Project Alliance Agreement (IPAA) and Project Alliance Agreement, used for Alliance Full Delivery

contracts.


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10 .0 Tende r Eva lua t i on Me thod s


The LTMA 2003 lists three key requirements for Transit to achieve in its procurement practices:

➔ deliver best value for money

➔ encourage competitive and effi cient markets

➔ enable suppliers to compete fairly.

Transit recognises and meets these requirements by using various tender evaluation methods from Land Transport

New Zealand’s Competitive Pricing Procedures (CPP) MANUAL.

To decide the appropriate tender evaluation method to engage the appropriate suppliers to meet the requirements,

Transit may consider the:

➔ procurement model used

➔ cost of completing the tender proposal

➔ project’s complexity and cost

➔ level of risk within the project

➔ number of potential bidders

➔ contract tenure or timeframe for completion or delivery.

A ) Va lue - f o r -Money

Quality, in terms of demonstrating understanding of the job and providing confi dence of success, is fundamental

to Transit’s tender evaluation as it is essential in ensuring a successful fi nal project.

The following Figure 10.1 depicts the concept of quality-based selection, versus the level of risk and complexity of the project, and the requirement to achieve a certain level of value-for-money outcome. It also roughly indicates the tender evaluation methods available to the relevant level of project quantum.

As can be seen from Figure 10.1, the desired level of value-for-money outcome is a function of the willingness of

the client to pay more for higher quality suppliers.

For example, for relatively straightforward and simple projects, the client is able to select suppliers based on lowest

price, as long as the supplier meets the minimum required quality threshold in order to deliver the desired value-

for-money outcome.

In the reverse scenario, a client is willing to pay more for higher quality suppliers to manage a high-risk project,

as the eventual out-turn of the project will still deliver the desired value-for-money outcome, accounting for the

higher design cost.

It is important to note that a fundamental value-for-money concept is that it is refl ected and derived from the

entire project life-cycle, from development to completion, operation and asset management.

Higher expenditure to achieve quality outputs during the investigation and design phase, which usually only

involves 3-5% of the total project cost, can easily contribute to signifi cant savings during the construction phase

and then throughout operation and asset management.


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Figure 10.1 Quality-based Tender Evaluation

B) Compe t i t i v e and E f f i c i en t Marke t sThe keyword here is sustainability in the industry, and it is a form of a mutual long-term benefi t to all parties. A sustainable equilibrium is established as the client delivers a quality level of service to the public using various suppliers, while the suppliers are able to enjoy sustainable profi t levels to develop and grow their business. Transit recognises that the sustainability of the industry relies on three key elements:

(1) Retention of small, medium and large-sized supply companies. Transit’s challenge, in conjunction with the industry itself, will be to ensure companies retain a profi table position in the market.

(2) Effi cient delivery of projects to the market.

(3) Investment in developing skills.

Transit has many tender evaluation methods to match the scale and complexity of the project being procured, and this helps to keep tendering costs to an effi cient level, and yet provide the ability to select quality suppliers to deliver the desired outcomes.

The market has its own mechanism of competitive bidding and maintaining sustainability. Transit’s selection of evaluation methods should avoid constraining or forcing the market to bid unsustainable prices, as the long-term consequences will be adverse.

Comprehensive forward programming and communication with the industry are currently used to ensure a smooth fl ow of work to the market. Transit will continue with these initiatives and seek improvements, where appropriate, to minimise market peaks and troughs.

Transit will work with the industry to identify mechanisms to ensure the ongoing development of skills within the industry. This is particularly important to avoid shortages of skills within the workforce. It is likely that off-site training facilities will have to be identifi ed and recognised, as the chances of providing on-site training diminishes.

To achieve value-for-money outcomes for projects of varying scales and complexities...


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C ) Enab l e Supp l i e r s to Compe te Fa i r l y

Transit has the responsibility of using public funds effi ciently and equitably to develop New Zealand’s land

transport system. Procedures and systems have been in place for many years, and are continuously reviewed

and improved to ensure that tendering processes meet legal and ethical requirements by demonstrating equity,

transparency and effi ciency.

The shift to Price Quality Method (PQM) has further increased transparency, by having a more structured

evaluation method and having a Supplier Quality Premium (SQP) clearly identifi ed. This SQP is a dollar premium

that differentiates the quality between suppliers, and bridges the evaluation complexities between non-price

attributes and the tender price.

In some circumstances a fast track tender evaluation method may be needed to create value. The best example

of this is where there have been a series of fatal accidents. Fast tracking will reduce delays in minimising further

occurrence and ultimately, save lives.

10 .2 Tende r Eva lua t i on Me thod s

There are various tender evaluation methods, for example from Land Transport New Zealand’s Competitive Pricing

Procedures (CPP) Manual, as listed in Figure 7.1 and described in the Glossary.

The procedures in Land Transport New Zealand’s CPP manual are mandatory and must be followed to be eligible

for their Land Transport New Zealand’s funding. However, specifi c procurement models may require a unique

tender evaluation method, and Transit may and has approached Land Transport New Zealand to seek approval to

trial new CPPs.

There are three distinct groups of phases in a project’s life-cycle:

➔ Project Development – feasibility and investigation to determine if it is suitable for construction

➔ Project Delivery – detailed design, construction and monitoring

➔ Project Operation and Asset Management – management and maintenance of the network.

The following sections describe the characteristics of the phases and which evaluation methods are preferred to

deliver value-for-money outcomes. It does not describe the details of the tender evaluation methodologies. In

addition, Transit’s Prequalifi cation trial is discussed.

A ) P ro j e c t Deve l opmen t Pha se

It has historically been challenging to be able to accurately defi ne the scope and the risks during a project’s

development phase. The outputs from this phase have a signifi cant impact on the future objectives, i.e. a poor

option selection will result in a project being built that does not meet the functional requirements of the network.

To cope with the emphasis on quality and the diffi culty in defi ning the scope, the evaluation methods are more

focused on non-price attributes such as technical skills, relevant experience, management skills etc.

One of the preferred tender evaluation methods for procuring a quality supplier is Brook’s Law, which is used for

high-risk development projects where Transit seeks the best quality consultant available at current market rates.

However, for medium to low-scale and/or low-risk projects, PQM Simple is used for selecting quality at a

competitive price. It enables Transit to clearly identify a dollar value that it is prepared to pay to secure a higher

quality tender relative to the lowest quality tender.

For small-scale projects with low risk, Expedited Procedures may be used.


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B) P ro j e c t De l i v e r y Pha se

The tender evaluation methods for the professional services contracts (detailed design and MSQA) are discussed

separate to those for the construction contracts.

(a) Detailed Design and MSQA

Detailed design and MSQA are generally more easily scoped than development phases, but both quality and value

for money are still an emphasis. A quality design output will help the construction phase to proceed smoothly

with minimal rework.

However, to achieve value for money, a balance needs to be gained between obtaining quality outputs and the cost

to achieve that quality. Consideration should be given to the whole-of-life perspective too, and the impact of this

phase on the future.

Similar to the development phase, Brook’s Law and PQM Simple are used accordingly for medium to high-scale

and risk projects. Lowest Price Conforming, Expedited Procedures or Target Price are used for low-scale and risk

projects.

For larger-scale projects where the detailed design and MSQA can be complex, PQM Special is used to enable a

more risk-based evaluation methodology.

(b) Construct-only Contracts

Construct-only contracts can vary in scale and complexity. The selection of contractors is usually more price-

orientated, but depending on the project risks, the focus of the evaluation can shift to non-price attributes to

emphasise quality.

The Lowest Price Conforming tender method may be used on projects up to a value of $3M. In some instances,

it can be used for low-risk projects of higher value.

For medium to high-scale/risk projects, PQM is used when Transit is prepared to pay more to secure a higher

quality tender. The two versions of PQM are applied as follows:

➔ PQM Simple – contracts up to $15M.

➔ PQM Special – contracts above $15M, but can be applied to any contract deemed as high risk and complex of

any value requires a more robust risk assessment.

For construct-only contracts above $15M, Transit reserves the right to short-list tenderers if there are substantial

potential innovations within the project and/or tendering costs are high. Where construction costs are greater

than $25M, the short-list will be limited to three.

An interactive tender period may also be used on projects as required.

(c) Design-Construct Contracts

Design-Construct contracts are inherently large contracts with scope and price risk. Transit would usually use

PQM Special. Short-listing and an interactive tender period are usually utilised to maximise the effi ciency of the

process.

Transit is proposing to trial a simplifi ed form of Design-Construct contracts for small-to-medium-scale, high-

risk and technical projects that require close collaboration between the designers and constructors. This could

potentially be evaluated using PQM Simple or Lowest Price Conforming.


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(d) Alliance Contracts

The evaluation method for Alliance contracts is based on a specially approved trial CPP, known as Full Delivery

for Early Completion (FDEC). The evaluation focuses on selecting the best quality suppliers, and hence on non-

price attributes only. Transit usually utilises a short-listing process and then the following stages of evaluation are

performed:

➔ Stage 1 – Two proponents are selected from the short-list by evaluating a portion of the non-price attributes.

➔ Stage 2 – The two proponents are invited to attend a two-day interactive workshop to further evaluate the

remaining non-price attributes. An industry expert usually facilitates the workshop, and the

objective is to seek and confi rm the alignment of principles, structure, methodology, compensation

framework etc.

➔ Stage 3 – Transit then enters into commercial discussions with the preferred proponent, and if alignment

cannot be reached, the second placed proponent will be approached.

C ) P ro j e c t Ope ra t i on and A s s e t Managemen t

The tender evaluation methods used for professional services (network management) are discussed separate to

those for the physical works contracts (network maintenance).

(a) Network Management (Professional Services)

Increasingly, value for money is driving the selection of consultants for Network Management contracts. The focus

is therefore on engaging a quality network consultant at a fair market rate. Transit also acknowledges there

is benefi t in minimising the loss of network knowledge and retaining expertise where it has been developed.

Transit will therefore consider the use of Brook’s Law in the fi rst instance.

In larger and/or high-risk areas, PQM Special may be used to allow a risk-based evaluation. PQM Simple will be

used when it is important to retain competition.

(b) Network Maintenance (Physical Works)

In the Traditional model, where the scope of works tends to be split, the tender evaluation method selected

will depend on the complexity and the level of risk associated with a particular activity. The tender evaluation

methods used are Lowest Price Conforming, PQM Simple and PQM Special.

In the Hybrid model the network maintenance activities tend to be combined into one contract. In addition to

the physical works, the Hybrid model network maintenance contracts include asset management responsibilities.

PQM Simple and PQM Special are used to refl ect the level of complexity and risk in these contracts.

(c) PSMC

To date, Quality Price Trade-Off (QPTO) has been used to evaluate PSMCs. PQM Complex (a variation to QPTO)

was trialled in 2002. Transit intends to undertake industry consultation with a view to seeking full approval from

Land Transport New Zealand for this CPP. Essentially PQM Complex follows the evaluation steps of QPTO, but

allows a fi nancial audit of tenderers’ prices and negotiation with one or more tenderers, of not only the contract

scope but also price. The desire to secure value for money has driven the development of PQM Complex.

(d) Other Asset Management and Maintenance Contracts

A variety of smaller or more specialised contracts are let in addition to the main network management and

maintenance contracts. These contracts may cover, for example, area wide treatments, emergency works, traffi c

counting and network operations. The full range of tender evaluation methods apply to these contracts depending

on the nature of the activity, its complexity and risk level.


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D) Prequa l i f i c a t i on

Prequalifi cation is a joint Transit and industry value-for-money initiative aimed at simplifying the tendering

process and reducing tendering costs.

Prequalifi cation is a trial CPP, approved by Land Transport New Zealand for trial for two years in the South Island

from 1 July 2003, and may only be used in the procurement of physical works contracts. If successful, there will be

further plans for application in the North Island.

The prequalifi cation process consists of contractors being assessed over a range of quality criteria and then being

registered for specifi c types and sizes of work. Transit tenders will specify a minimum prequalifi cation level, and

only contractors who are prequalifi ed to at least the specifi ed level will be able to submit a tender.

Low-risk and routine projects will be awarded to the lowest price, and for more complex, higher-risk projects,

tenderers may be asked to provide some project-specifi c non-price attribute information. PQM Simple will then be

used to select the preferred tenderer.

Successful tenderers will be monitored for compliance against their prequalifi cation level, and depending on

performance, a contractor may retain their existing level or be promoted to a higher level.

11 .0 Common Procu remen t I s sue s

The section deals with general procurement issues commonly dealt with in asset improvement and maintenance

areas. The objectives of having these procedures or systems are to achieve value-for-money outcomes in the

procurement of suppliers to deliver on Transit’s objectives.

11 .1 Imp l i c a t i on s o f the LTMA 2003

The LTMA 2003 has reinforced Transit’s perspective on achieving a sustainable land transport system. Some of the

generic strategic imperatives for sustainable development are:

(a) conserving and enhancing the asset base

(b) changing the quality of growth

(c) reorienting technology and managing risk

(d) considering the long-term impacts of activities

(e) merging environmental, social and economic impacts in decision making.

Over the years, Transit has worked on the fi rst three imperatives by developing and establishing a very strong

‘technical’ foundation, in the sense that it has created systems, technical skills, strategies, business directives and

models that allows it to consume resources effi ciently.

Amidst this ‘technical’ expertise, a more ‘holistic’ business directive is growing and expanding quickly. With the

adoption of Triple Bottom Line reporting, Transit entered a new era of environmental and social responsibility.

Transit is achieving more value for money by enhancing the functional performance of its business and pursuing

sustainability.

Obviously, enhancing value for money involves a two-prong strategy that focuses on effi ciently managing the

resources consumed and enhancing the functional performance, where functional performance is based on

environmental, social and economic imperatives. There are many more opportunities for advancement in both

areas, especially with regards to functional performance.


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46

This section attempts to highlight some key but generic initiatives that Transit is contemplating in all aspects of its

business to achieve sustainability and value for money.

A ) Recogn i s i ng Soc i a l and Env i r onmen ta l Bene f i t s

One of the key interpretations of the LTMA 2003 is the reinforced focus on recognising the benefi ts of good social

and environmental management during the development and delivery phases of a project. It is general qualitative

knowledge that these benefi ts do exist, both in the short term and long term, internally and externally, tangibly

and intangibly.

For example, noise-reduction characteristics in the design of roads will reduce complaints against Transit

for unreasonable noise levels. Good aesthetics and biodiversity in landscaping will contribute to a pleasant

environment, encourage positive development in the vicinity and contribute to other environmental values

such as improved water quality. Good management of stakeholders will minimise complaints, legal actions

and abatement notices. Mitigation of effects during construction will minimise the effects of disturbance on

neighbours etc. The list goes on, and it is obvious that these benefi ts will fl ow back internally, or externally, into

the community.

This further justifi es the expenditure of resources to satisfy these social and environmental requirements, but

the diffi culty is quantifying these benefi ts, and thus the diffi culty of making investment decisions. Up to now,

such intangible benefi ts are valued qualitatively, and the industry is only warming up on what is known as

‘environmental accounting’.

To a certain extent, the value of such intangible benefi ts is determined by society norms about what they are

willing to pay to have or to avoid the intangible effects. Apart from the technical assessment of these intangibles,

consultation with the stakeholders is essential to ensure that Transit’s investment decisions in the social and

environmental arena have the desired impact.

B) Who l e o f L i f e

Besides meeting the increasing demands of the network, Transit has a long-term tenure and responsibility in the

development and operation of the transport network. Prevention is always better than cure, and applying smart

design and construction techniques during the development and delivery phases will have signifi cant long-term

savings.

However, the whole-of-life concept is not limited to just physical assets; it applies to holistic approaches in the

business such as stakeholder relationships, environmental enhancement activities, professional development,

effective work cultures etc. These are intangible long-term benefi ts to society that exist in many forms, and should

not be ignored.

C ) Ach i e v i ng Tr i p l e Bo t tom L ine Repo r t i ng

The LTPP sets strategic plans, business models and business directives that will impact on the Triple Bottom Line

reporting requirements.

For example, the Alliance procurement model has an incentive scheme and compensation structure that enhances

cost and time performance, yet also promotes excellent performance in environmental and social areas.

On the other end of the spectrum, the Traditional model is applied on simple and low-innovation-potential

projects, and focuses on minimising the resources consumed through competitive bidding and detailed

specifi cations.


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47

However, there is plenty of opportunity to enhance the outcomes of projects of all scales. It is possible to cross-

pollinate effective measures from one model to other models, such as applying incentive schemes and relationship

principles from the Alliance to Traditional and Design-Construct projects and from PSMCs to Traditional asset

management procurement models to promote better social and environmental outcomes.

D) Re l a t i on sh ip Con t ra c t i ng and Cu l t u r e

The Alliance has demonstrated the power of relationship contracting, where all parties have common goals and

do not waste time and money protecting their own interests. A culture of positive relationships between the client

and suppliers recognises the quality of the people, strength of the relationship, and developing mutual respect

and trust that enables transparency and information sharing that is the foundation for a successful outcome.

The biggest barrier to good performance is often a lack of communication or a poor relationship between the

contracted parties.

There are inherent diffi culties in applying the same principles to a Design-Construct or Traditional procurement

model, as such relationship contracting models often rely on an elaborate compensation structure and applying

incentive schemes to drive the correct behaviour.

But it is not impossible, and there are lessons to be learnt from the Alliance, Hybrid and PSMC models, which can

be effectively applied to all aspects of Transit’s business.

E ) Con su l t a t i on w i th S t akeho lde r s

The LTMA 2003 has reinforced the need for consultation with stakeholders. Stakeholders are individuals, groups or

organisations that are affected by or have an interest in a development outcome or network activity.

In relation to procurement, Transit recognises the impact of its procurement initiatives on the construction

industry. Transit maintains relationships with various industry organisations, and consults with them on

procurement issues such as:

➔ Business direction – this LTPP itself is a consultation and communication tool to highlight Transit’s

procurement direction.

➔ Business procedures and systems – introduction of new initiatives such as performance evaluation (PACE) and

prequalifi cation are consulted with the industry to obtain feedback and acceptance.

➔ Construction and maintenance programmes – the industry needs to be well informed of Transit’s works

programmes so that they are able to effi ciently match their resources to the demand.

It is important for the industry to develop an understanding of Transit’s business, to assist with the day-to-day

effi ciency of processes and to avoid confl icts and misinterpretations.

Transit is also in the process of establishing more formal working relations with transportation partners such as

local authorities and supplier industry associations, to seek alignment of goals. Establishing strong relationships

ultimately helps all parties to achieve sustainability and generate value-for-money outcomes.

F ) Innova t i on

New Zealand is a small country with limited natural resources and a small population base, and is unable to match

other countries’ output volume. It is important to recognise that to achieve sustainability in the consumption of

resources and the functional performance derived from that consumption, New Zealand has to rely on effi ciency

and innovation to maximise value-for-money outcomes.


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Procurement initiatives for achieving and promoting innovation in its business include:

➔ constantly reviewing, updating and evolving current practices to achieve best practice

➔ association with local and international organisations’ research and development such as Austroads, the

Centre for Advance Engineering (CAE)

➔ actively seeking local and international industry best practice examples.

G) A l t e r na t i v e Fund ingThe LTMA 2003 opens the way for a more integrated and sustainable approach to transport planning in

New Zealand. The LTMA (2003) provision for road tolling is integral to this new approach.

The LTMA (2003) allows for alternative funding as a means of bridging the funding gap, with major changes

relating to tolling and concession agreements. Under the LTMA (2003), tolls can now be used to help pay for

new roads and bridges, subject to community support and ministerial approval.

The Act also allows concession agreements – also called Public Private Partnerships or PPPs – that enable Transit

and other RCAs to access private sector fi nance to fund and advance projects.

The benefi ts of such concession agreements:

➔ ensures better value for money as the private sector shares the risk (optimal risk allocation)

➔ ensures that high quality roads are provided sooner, by adding private fi nance to government funding

➔ facilitates private sector innovation in areas of scheme design, construction and long-term operations

➔ ensures long-term operation and asset management of new assets to a high standard, with due regard to

whole-of-life costing

➔ ensures enhanced environmental and social outcomes during construction.

Transit has yet to announce any defi nite plans to undertake a Concession. At this stage Transit’s preferred

approach is to deliver its toll roads under existing delivery models.

11 .2 Be s t P ra c t i c e Documen ta t i on and Procedu re s

Transit will continue to develop consistent best practice documentation and procedures to support the

development and delivery of asset improvement projects’. In this way, project managers will be well briefed and

trained in the subtleties of major project management. Transit will concentrate on:

(a) Managing tender processes to ensure the client’s requirements are well defi ned and the risk of scope change is

minimised during any contract term.

(b) Encouraging consultants to proactively manage contracts to minimise surprises. Forecasting time completion

and subsequent costs of phases is also seen as a high priority.

(c) Ensuring all parties establish a co-operative environment through either formal or informal partnering, where

completing the project is seen as a team result.

(d) Ensuring the Transit project manager and the supplier clearly understand their respective responsibilities,

roles and accountabilities for the project delivery.

(e) Ensuring Transit project managers seek help from people who have been involved in similar projects so that

previous experience is put to the best effect.

(f) Ensuring Transit project managers use carefully documented project plans that permit careful and systematic

investigation and planning for the next project phase.


D

49

11 .3 Tende r Eva lua t i on Qua l i f i c a t i on

The tender evaluators’ skills are a key input into successful tender evaluation. Transit has a very strong skill base

in this area.

It is mandatory under Land Transport New Zealand’s CPP that a qualifi ed evaluator lead the evaluation team for

any contract subsidised (in part or in full) by Land Transport New Zealand. This requirement applies to projects

with estimates over $50,000 for professional services and over $100,000 for physical works.

The Tender Evaluation Qualifi cation is within the National Qualifi cations Framework, and currently this is a ‘one-

off’ qualifi cation. However, there may be a future requirement to maintain this competency.

11 .4 Sho r t - L i s t i ng

Short-listing prospective suppliers carries out three important functions to promote value for money:

➔ it reduces the cost of tendering for the industry by reducing the number of full submissions called for, as

ultimately these costs are borne by the client

➔ it ensures only high quality suppliers are selected for the work

➔ it reduces the administrative burden of evaluating tenders.

Tenderers are requested to submit a Statement of Interest and Ability (SIA) that contains the following attributes to

select the short-list of tenderers to submit a full bid:

➔ relevant experience in similar types of work

➔ track record

➔ technical skills

➔ management skills.

Short-listing will generally only be required for Traditional delivery method projects over $15M in construction

costs and/or projects with high levels of complexity. Physical works and professional services tenders for the

projects may be short-listed.

Table 9.1 Short-listing Limits

1 = Short-list margin; the standard number of tenderers requested to submit a full bid, based on the tenderers’ ranking after evaluating the Statement of Interest and Ability (SIA).

2 = If the TET is not able to clearly distinguish between tenderers at the short-list margin (i.e. grades between the two are less or equal than1.0) then it will take accept the next placed tenderer through the full tender evaluation process. For example, if the short-list were determined to be four, but the fourth and fi fth ranked have a marginal grade difference, it would be unfair to exclude the fi fth ranked tenderer.

3 = For projects of signifi cant value, Transit reserves the right to short to three tenderers only.

Contract Type Construction Costs ($M) Number Short-listed

Traditional (asset improvement <15M (No short-listing required) or maintenance) 15-25 41 + 12 >253 3 + 1

DC <10 3 + 1 + 1 >10 3 + 1

Hybrid <25 (No short-listing required) >253 4 + 1

PSMC All contracts 3 +1


D

50

Over-using the short-listing process could decrease smaller suppliers’ sustainability and the industry’s

competitiveness. Tender evaluation teams must take the cost of tendering, complexity of tender process and

project complexity into account before deciding to use the short-listing process.

It is important to understand these recommendations about short-listing are not rules but guidelines. Transit will

decide on a project-by-project basis whether short-listing is necessary and the number of suppliers to be short-

listed. The number short-listed will be limited to between three and fi ve.

11 .5 In t e ra c t i v e Tende r i ng

Interactive tender meetings provide a useful means of assuring clients the expected project quality will be

delivered and project outcomes will be as specifi ed. The meetings are commercial in confi dence and are non-

contractual in nature. Any minutes or tender variations that are issued following these meetings form part of the

contract documents.

Interactive tender meetings are generally used for asset improvement projects and maintenance projects valued

over $15M, as required, to facilitate the tendering process. They will generally be used after the short-list has been

selected to reduce the number of tenderers involved in the interactive process.

The key purpose of the meetings is to:

➔ allow the tenderer to put forward an outline of their concept designs and alternatives, and for the client to

provide feedback on the designs’ acceptability

➔ clarify the intent and improve the standard of the contract documentation to ensure both parties are

comfortable with the specifi ed requirements

➔ provide a forum for an open exchange of information

➔ allow additional investigations to more clearly identify risk, so it can be better managed and reallocated to

the party best able to manage it

➔ align client and supplier’s objectives.

A substantial tender period is needed if interactive tender meetings are included during the tender phase.

After the tender process is complete and the contract awarded, it is important the unsuccessful tenderers are able

to discuss their tenders with the evaluation team. This will benefi t everyone involved and provides opportunities

for everyone to improve, to achieve continuous improvement for all parties.

11 .6 Pe r f o rmance Eva lua t i on

Transit has increased its focus on supplier performance through establishing a formal supplier performance

evaluation system, PACE (Performance Assessment by Co-ordinated Evaluations). Separate performance

evaluations are conducted for professional services providers and contractors.

A goal of this system is to ultimately raise the importance, objectivity and consistency applied to track record in

tender evaluation. This will encourage good performance and give suppliers the incentive to improve their project

delivery performance, and achieve sustainable development in the industry.

Where Transit has traditionally focussed on price, time and quality in evaluating performance, it now includes

attributes such as co-operation and innovation.


D

51

To ensure co-operative contract relationships between all suppliers, performance evaluations are subject to a

full appraisal at the end of any project. All parties (client, consultant, and contractor) have equal input into the

fi nal performance evaluation. The client project manager mediates between the consultant and the contractor,

ensuring the free fl ow of information, and fair and reasonable fi nal performance evaluations.

11 .7 Pro j e c t R i s k Managemen t

Transit has updated the Risk Management Process Manual (RMPM) AC/Man/1, to become the central repository for

risk management processes. The updated manual seeks to minimise threats and maximise opportunities across all

of Transit’s businesses.

A Triple Bottom Line approach has been adopted in determining the outputs of the manual. Effective

risk management will ensure that time, cost and image attributes are managed to achieve Transit’s social,

environmental and economic objectives.

It is envisaged that the risk management processes will ensure that:

➔ risks will be managed

➔ risks will be communicated through all business levels

➔ cost estimates are risk adjusted

➔ programmes are risk adjusted.

Risk management is not limited to fi nancial uncertainty; it includes all sources of uncertainty that impacts on

Transit’s ability to meet stakeholder expectations in relation to all anticipated outcomes.

The key principles of Transit’s risk management processes are:

(a) cost estimates are risk adjusted

(b) programmes are risk adjusted

(c) risks will be managed and risk registers established

(d) a risk can be a threat or opportunity

(e) value engineering will be risk based

(f) Transit’s risk management processes follow those in AS/NZS 4360: Risk Management.

Transit is also aware that there are risks taken by suppliers during the procurement process. Such risks include

work programme peaks and troughs and delays in awarding tenders. Further understanding of these risks is

required to improve procurement process and reduce tendering costs.

11 .8 Compe t i t i v e P r i c i ng P rocedu re s Manua l

With the introduction of the LTMA (2003) and the development of new CPPs, Land Transport New Zealand

will rewrite its CPP Manual in the next 12 months. The objective in reviewing the CPP manual will be to ensure

alignment of procurement procedures with the LTMA 2003. Most of the standard procurement procedures are

likely to remain, although they may be modifi ed. One part of the current manual that will be thoroughly reviewed

will be the non-price attribute defi nitions, because they are central to the defi nition of value for money and to the

determination of what ‘we are prepared to pay a premium for’ on the basis that it is of value.

Transit has a great interest in this manual and will be assisting Land Transport New Zealand where possible.


E

52

E – Imp l emen ta t i on

12 .0 Imp l emen ta t i on , Mon i t o r i ng and Rev i ewThis section describes the ownership of the LTPP, as well as the associated monitoring, review and consultation.

12 .1 Owne r sh i p o f LTPP

Transit’s Best Practice Groups for Capital Projects and Asset Management own the LTPP and are responsible for

ensuring that the specifi c plan and business improvement projects are implemented and monitored.

The Best Practice Groups will support the managers of projects targeted by the specifi c plan. Subsets of the

business improvement projects will be incorporated in the following year’s Business Plans, prioritised by the Best

Practice Groups and implemented.

12 .2 Mon i t o r i ng

Monitoring is an essential aspect of the implementation process to ensure the specifi c plan and business

improvement projects meet the LTPP’s goal and objectives. Some key monitoring activities to be performed as

required:

A ) Indu s t r y Capab i l i t y

The aggressive delivery of many asset improvement projects in a short timeframe will place a strain on the

industry’s capability to supply the required estimating and construction resources. Transit has a role to monitor

these effects by consulting with the industry and adjusting the delivery programme of works as required.

B) Pe r f o rmance o f Mode l s

Transit will monitor the performance of its delivery models to ensure that optimal value-for-money is achieved.

This may take form as a qualitative or quantitative review at periodic timeframes or as required.

C ) Pe r f o rmance o f Suppo r t Sy s t ems

Value for money cannot be achieved, whichever procurement model is engaged, without effective systems within

Transit to support the implementation of the LTPP. Monitoring of the performance of support systems will be

continued through model audits and contract management reviews.

12 .3 Rev i ew and Con su l t a t i on

Transit is committed to obtaining supplier input into and ownership of its:

➔ Long Term Procurement Plan

➔ contract documentation

➔ project-by-project selection processes.


E

53

A ) Long Te rm Procu remen t P l an

The entire plan is subject to a thorough review on a four-yearly basis.

The specifi c plan is reviewed and updated bi-annually. This identifi es any new projects that fall within the four-

year specifi c plan and addresses any changes regarding existing projects. Examples include changes in start dates

or procurement models.

B) Documen ta t i on Suppo r t i ng the P l an

Transit will consult with the industry about new documentation. It will also seek industry input if it changes the

focus of the documentation it uses to contract for the development or delivery of asset improvement projects.

C ) P ro j e c t -by -P ro j e c t Tende r Eva lua t i on

Because of Transit’s interactive tendering processes, there will be ongoing consultation. This will focus on the

application of contract type, procurement models, tender evaluation methods and management processes for

each project. This is a valuable process as, over time, the suppliers bidding for work help to strengthen the

documentation and processes.


54

G lo s sa r y

Alliancing

Delivery method where a contractor is selected to

work with the Professional Services Consultant on

the project development and take the entire project

through to completion.

Alternative

Alternative tenders propose alternative methods, forms

or materials which might produce different quality or

durability but fall within the scope specifi ed in the RFT.

Asset Improvement

Works undertaken to improve the network. Also

known as Capital improvements as they are generally

funded from the capital works allocation.

Asset Management

Those activities undertaken to maintain the network

to a given level of service. Also known as maintenance

works as they are generally funded from the

maintenance allocation

Brook’s Law (BL)

Tender evaluation method where tenders are selected

on quality alone and a tender price is negotiated with

the tenderer providing the best quality.

Concession Model

A contractual relationship between Transit and private

sector suppliers for designing, constructing, fi nancing

and operating public infrastructure. The infrastructure

is fi nanced by the private sector supplier for the period

of the contract. The private sector supplier recovers its

costs solely from government payments structured over

the life of the infrastructure. Can with or without tolls.

Contract Type

Refers to the service delivery payment mechanism –

Measure and Value, Lump Sum or Cost Reimbursement.

Cost Reimbursement

One of the three contract types used in New Zealand.

Suppliers receive their costs incurred for the completed

work and a certain pre-agreed amount or percentage as

their profi t. A specifi c adaptation of this contract type

is used under the Alliance method and involves the use

of a Target Cost Estimate.

CPP

Competitive Pricing Procedures. Defi ned in

Land Transport New Zealand’s CPP Manual.

Delivery

This process includes the product design, contract

documentation development, tendering and awarding

the contract and the subsequent physical construction

and construction surveillance of the product.

Delivery Structure

Refers to the service delivery supplier structure – e.g.

Traditional, Design-Construct.

Design-Construct

Delivery method that combines the project’s design

and construct elements into a single contract.

Design-Construct Basic

Similar to the Design-Construct method but specifi cally

tailored to small projects under $1M.

Development

Overall title given to the initial phases in the project

life-cycle including the PFR and I&R phases. Includes

the process of undertaking project feasibility reporting,

scoping of options, option selection, assessment

of environmental effects on the preferred option,

application for a designation and providing necessary

support to see the application through submissions

hearings and possible appeals.

Focus

Refers to the how the service delivery is specifi ed

– either an input, output or outcome basis.

Hybrid

One of the three asset management procurement

models used in New Zealand. Incorporates features of

Traditional and PSMC asset management procurement

models.

I&R

Investigation and Reporting: a phase in a project’s life-

cycle.


55

Incentives

These are described as mechanisms used to encourage

suppliers to improve effi ciency or add value to a

particular project.

Interactive Tendering

Interactive tendering involves meetings between

the client and tenderers to provide a forum for open

exchange of information, ensuring both parties are

comfortable with the specifi ed requirements and

aligning client and supplier’s objectives.

Lowest Price Conforming (LPC)

Tender evaluation method where tenders are fi rst

sorted on the basis of price. The lowest priced tender is

evaluated on whether it conforms to certain attributes

and is judged to pass or fail. A fail results in the tender

being rejected and the next lowest tender is considered.

A pass results in the tender being successful.

LTMA (2003)

Land Transport Management Act 2003.

Lump Sum

Work activities lumped together under one heading

and one price. The risk sits with the supplier to provide

the service, or output within the agreed lump sum

amount.

MS&QA

Management, Surveillance and Quality Assurance: a

phase in a project’s life-cycle.

Negotiation

Tender evaluation method where Transit selects a

suitable supplier and negotiates the contract price. This

is constrained to works valued at less than $50k for

professional services and physical works.

NZS 3910:1998

The general conditions of contract for physical works in

New Zealand.

PACE

Performance Assessment by Co-ordinated Evaluations.

The national supplier performance evaluation system.

Partnering

The process of bringing organisations together through

strategic and informed co-operation to achieve the

different but complementary goals of each.

Partnering Charter

A formalisation of partnering between client and

supplier, beyond the contractual arrangements.

Partnering Charters are signed by all of the Partnering

participants.

PFR

Project Feasibility Report: a phase in a project’s life-

cycle.

PSMC

Performance Specifi ed Maintenance Contract.

One of the three asset management models used in

New Zealand.

PQM Simple

Tender evaluation method where tenders are fi rst

graded in terms of quality by assessing their non-price

attributes. The quality difference is then converted into

a dollar value – the Supplier Quality Premium (SQP)

– which is then deducted from the submitted tender

price.

PQM Special

A variation of PQM Simple. The SQP is calculated using

a risk-based assessment with a focus on the selection

of quality suppliers who are able to manage risk well.

The risk-based assessment is customised to meet the

specifi cs of the project.

Resources

Usually referred to in terms of human resources of

either Transit or a supplier. Can also refer to physical

resources such as plant and materials.

RFT

Request for Tender.

Scope

Refers to the project’s principal purpose/s and service/s

to users as specifi ed in the RFT.

G lo s sa r y


56

Short-listing

Short-listing involves limiting the number of suppliers

who can tender for the contract. It is only used with

large projects or projects with high levels of complexity.

It reduces the cost of tendering and the administrative

burden of evaluating tenders, while ensuring only high

quality suppliers are selected for the work.

Target Cost Estimate

Associated with the specifi c adaptation of the Cost

Reimbursement contract type that is used with the

Alliance method. The Alliance consortium agrees a

fi gure for the total cost of the project (that is, the target

cost estimate). They also agree a compensation/cost

structure should the fi nal project cost be below or

above the target cost estimate.

Target Price

Tender evaluation method where a target price is set

and the best quality tender is selected.

Traditional (Model)

The main procurement model used in New Zealand.

The term is used for both asset improvement and asset

management models.

Transit

Transit New Zealand.

Value

Achieving desired levels of service through effi cient

delivery and effective processes. The systematic focus

on value across discrete projects will ensure continuous

improvement and sustainable innovation.

Value Engineering

The process where value is created following the

contract award by improving design or construction

methods not contemplated at the time of the award.

Value management is a similar concept referring to

value creation at any stage of the project. Examples

include I&R and design.

Whole of Life

The life of an asset from new to total replacement.

G lo s sa r y


57

Append i c e s



Append i x A – Spec i f i c S t r a t egy Fo r Cap i t a lR

egio

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AUCKLAND HAMILTON

59Transit New Zealand Long Term Procurement Plan – 2005

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NAPIER CHRISTCHURCH WELLINGTON DUNEDIN


B Append i x B – Spec i f i c S t r a t egy Fo r Ma in t enance

NETWORK AREAA Model 2004 2005 2006 2007 2008

Northland PSMC

Auckland North PSMC

Auckland South TraditionalTraditional

Auckland NetworkOperations

TraditionalTraditional

West Waikato HybridHybrid

PSMC 001 PSMC

East Waikato HybridAs Noted

Central Waikato TraditionalTraditional

Tauranga District TraditionalTraditional

Bay of Plenty (East)

TraditionalTraditional

Bay Roads PSMC

Rotorua District TraditionalTraditional

Gisborne TraditionalTraditional

Hawke’s Bay TraditionalTraditional

West Wanganui TraditionalTraditional

East Wanganui HybridHybrid

Wellington HybridHybrid->Maint. Alliance

Nelson TraditionalAs Noted

MarlboroughRoads

HybridHybrid

North Canterbury

HybridHybrid

South Canterbury Traditional

West Coast Traditional

Coastal Otago HybridHybrid

Central Otago TraditionalAs Noted

Southland Traditional

2004 2005 2006 2007 2008

Possible

12mths Hybrid then possible LA Alliance Hybrid or Traditional

(subject to review)

(subject to review)

Possible

Possible

Traditional plus some Local Authority Alliancing/ Hybrids

Hybrid / LA Alliance (remarkable Roads)

Extend 1 more yr

PSMC Hybrid Traditional Maintenance Alliance

Long Term Procurement Plan - June 2005 · 2009-11-23 · Foreword Transit New Zealand (Transit) ﬁ...

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