ACT Light Rail Project - Term Paper Example

Individual Report Sustainable Procurement for ACT Light Rail Project Executive Summary This report is in line with the need of the company to submit a tender to bid for the Metro Light Rail project and develop a sustainability management strategy that can effectively manager risks and opportunities associated with the project. These include evaluation, presentation of business case with strategic, and sustainability elements, identification and selection of procurement strategies based on their strength, weakness, and ability to deliver strategic and sustainable outcomes. The report considers PPP as main procurement strategy due to simplicity of contract management and ability to support sustainable policies and goals. In order to ensure compliance, design of specifications, tender documents, contract administration and management approach were improved to incorporate sustainability aspects of procurement. Similarly, useful and specific strategies for monitoring, governance, audit, and reporting were identified and incorporated to enable review and assessment of contract performance. Table of Contents Contents Contents 3 Appendix 18 1. Introduction 1.1 Context/Background The ACT Light Rail Project was a commitment made by the Labour government if they win the October 2012 Assembly Election. This government initiative is based on the result of an extensive feasibility study made regarding the impact of vehicle emissions in the environment, inadequacy of housing, high cost of transportation, and the growing traffic congestion in the area . The first phase of the project is a 12-kilometre light rail infrastructure from Gungahin to Civic with estimated cost of about $614 million, which was initially rejected by Infrastructure Australia in 2012 because it did not meet the criteria for support and funding. Specifically, Infrastructure Australia cited the lack of evidence to support the claim that it could lift development and the possible negative economic return if the project failed to stimulate development in Civil – Gungahlin area. For instance, the ACT government claim that under a “high density” scenario, the light rail network will increase population and employment levels in the area by 380% and 21% respectively despite small $1.02 expected return (that can be significantly reduced by even minor difficulty) for every dollar spent on the project under a “business as usual” scenario . Consequently, the Auditor-General was compelled to conduct a full review of the matter while the ACT government made another attempt to convince Infrastructure Australia and obtain federal funding . In July 2013 report of Infrastructure Australia on national structure plan, Canberra’s light rail is finally included in the national infrastructure priority list that will get federal support and funding. However, this support include several important recommendations such as the integration of light rail network to existing bus network and change in the pricing of parking in Civic and other relevant centres in Canberra . From ACT government’s view, the project is a sustainable solution in reducing traffic congestion and expected population growth in North Canberra in the near future. In addition, the project is an environment friendly transport alternative and can stimulate development activity in the area after completion . However, aside from uncertainties in return of investment or ROI, the project will require relocation of existing services, installation of new electricity substations, and excavation of all roads from Civil to Gungahlin that will likely negatively affect the environment, businesses, and create additional traffic problems . The plan of ACT government to enter into a private sector partnership which according to is unlikely to accept risk of payment based on passenger volume, will eventually affect taxpayers who are likely to carry the cost of operation due to low patronage. Moreover, this project according to Canberra Liberals is not in the long-term interest of people as aside from the failure of the current government to build a strong economic case for light rail, the project will likely result to further loss of opportunities, increasing traffic congestion, and continuous reduction in productivity . 1.2 Statement of Problem, Objective, and Opportunity The main objectives of this project are to minimise pollution and traffic congestion in the Northbourne Avenue corridor upon completion but building a light rail in a busy area over an existing road and relocating existing utilities and services infrastructure will likely worsen the current traffic situation and bring additional environmental problems. These include noise, dust, emissions from construction heavy equipments, and other construction related activities. However, these are only temporary and compared to opportunities offered by ACT Light Rail Project such as minimising pollution, traffic congestion, integration with other transport and amenities, positive social change, additional business and employment opportunities, and creation of diversified industries along the route, these problems seems minimal and outweighed. 2. Critical Evaluation of the Project in Terms of Requirements for Sustainability a. Critical evaluation and presentation of business case 2.1 Evaluation of Publically Available Business Case Based on ACT Government’s submission to Infrastructure Australia, as cited in the business case for this project is aligned with latter’s theme which is transformation of Australia’s cities through sustainable transport. In particular, provide an efficient and cost effective transport system, safe, with less emission, integrated with land use planning, and opportunities for citizens to make active travel such as walking and cycling. Statistically, the business case anticipates the population growth in Canberra between 2011 and 2026 with additional 48,000 people needing efficient, fast, frequent, and reliable public transport. Another is the social cost of congestion, which in 2005 alone incurred $0.11 billion and expected to rise to $0.2 billion by 2020. Another is reduction in greenhouse emissions by 40% in 2020 and increase development opportunities along the corridor and nearby urban areas. These by analysis is based on forecasted increase of residents and workers in Gungahlin, Northbourne Avenue and Flemington Road Corridor, Canberra CBD, and anticipated business and retail opportunities associated with highly populated and active urban areas. In terms of sustainable procurement and in managing risk and opportunities, the business case for this project may best presented in a manner following accepted sustainable public sector procurement process. These include acquiring knowledge of need and demand, supplier market analysis, stakeholder consultation and analysis, and risk and impact analysis . For this reason, the business case generally include recommended best practices in procurement planning, supplier engagement, contract management, assessment of contract compliance and performance through monitoring and review of sustainability requirements. Procurement in light rail project will recognise the need and demand, scope and comply with relevant policies in sustainable procurement, comply with stakeholders’ expectations, ensure smooth flow of supplies, and develop effective and sustainable procurement plan. Moreover, suppliers will be required to submit tender specifications with sustainability elements, must pass the sustainability assessment criteria, and undergo periodic verification and audit process. Similarly, the assigned Contract Manager will be responsible for audits, analysis of supply reports, administer contract for delivery of goods and services, monitor compliance and non-compliance, and ensure that demand and consumption of goods and services are within the limits of sustainable criteria. Along with tender documentation requirements is a strategy developed to ensure favourable contract performance through strict monitoring, governance, audit, and reporting (see Section 2.7). 2.2 Presentation of Business Case to Decision Maker of the Project Sustainable procurement by definition is a process of acquiring goods, services, and utilities in a beneficial and economical not only for the organisation but also for society, overall economy, and the environment . As discussed above, the business case for this project will be presented in line with sustainable procurement strategy including of the contract management plan (see Section 2.6), design and specification of tender with sustainability elements (Section 2.4), sustainability requirements in contract (Section 2.5), and procedures in monitoring, governance, audit, and reporting as discussed in Section 2.6. b. Procurement strategies 2.3 Procurement Strategies and their Advantages and Disadvantages Based on the above definition, the selected procurement strategy for this project is one that will meet the needs of stakeholders and customer requirements while balancing the need to procure goods and services and its social, economic, and environmental impacts . For this reason, this strategy must select the most advantageous from different procurement strategies such as PPP or Public-private partnerships, ECI, Design and Construct, and others. However, based on the following analysis of advantages and disadvantages, PPP is somewhat favourable in terms of strategic and sustainable outcomes because of its ability to improve infrastructure procurement, acquisition of most qualified parties, encourage and improve innovation, and lower project cost. 2.3.1 PPP or Public-private partnerships From the government side, PPP or its Australian model PFI or Private Finance initiative which is largely focus on the involving private enterprises in infrastructure projects , has the advantage of attracting new sources of private financing and management while retaining ownership and strategic policy setting. It is also likely to improve infrastructure procurement through private participation and contracting well-qualified private companies with ability to manage and deliver services. More importantly, it can lower down project cost and improve innovation as it encourages competition among private enterprises . However, excessive use of PPPs can lead to a number of problems such as private sector gaining leverage on decision making, government retaining majority of risks, and deterioration of public trust in government . More importantly, it often leads to higher rather than lower cost to taxpayers since private sector will likely borrow money with high interest rate . From the private-sector side, PPP allows fair and reasonable sharing of risks, cost, responsibilities, and economic return. Private partner can ask for a particular level of economic return such as nontax percentage of the proceeds or long-term lease of public land in exchange for development of a certain public facility. It also allows private partners to customise the deal structure and financing to realise their objectives and reduce development cost and enhance cash flow by asking their public partner to align a certain portion of project financing to them . 2.3.2 Relationship contracts or alliance Alliance contract is typically an agreement between parties who will undertake work cooperatively thus sharing risks and rewards. Its primary advantage is that only parties that are best for the project are selected. However, in reality this so called “no blame culture” as only those with uncompromising commitment to work collaboratively, innovative, and capable of mutual supporting each other are selected, often involve numerous companies and therefore takes considerable time and effort to establish. More importantly, the government or client often carry the risks for project outcomes . 2.3.3 Early constructor involvement or ECI ECI is applicable to different procurement forms as constructor usually work with the project owner as early as design and preparation of detailed project plan. ECI is similar to Design and Construct model but with added benefit of RAP or “risk adjusted price” developed and agreed by the parties when all risks are assessed . However, although ECI advantages outweigh the disadvantages, ECI generally limit the opportunity for price competition as determination of competitive lump sum price is not possible that early in the project . 2.3.4 Managing contractor The project owner in this model usually engages a head contractor to act as agent and given powers to administer, engage other services, and deliver the project. In other words, the owner brought in a specialist resource to assist in developing project scope and delivery strategy. The advantage is that payment mechanism in this model is dependent on the risks allocated to the managing contractor. From this perspective, the owner is disadvantage by trading off the benefits gained from specialist resources against uncertainties associated with project duration and budget until such time that work are detailed and arranged . 2.3.5 Project Management In contrast to the above model, contractor in project manager act as consultant of the owner. The advantage of this model is the fact that the contractor will have the responsibility to arrange, administer, and engage other services required for the project. However, the owner is disadvantage as risks contrary to managing contractor model are allocated to the owner rather than the consultant managing the work . 2.3.6 Design and Construct Similar to ECI, the constructor is responsible for detailed design with the designer as subcontractor. The advantages of this model include efficiency in terms of constructability, lower cost, and timely delivery of project. However, the risks in this model are allocated with the constructor and it is more suited to private clients where public accountability as this procurement strategy is often marked with aggressive marketing and strict requirements to achieve business objectives . 2.3.7 In House or Construct Ourselves Route As the name implies, owner will take full responsibility under this model using design and construction resources. The advantage of this model over the other is the ability to decide sole which direction the project will move in terms of budget and scope. For instance, government may engage an architect to design the work and invite contractors to bid and construct the design based on fixed price contract. The disadvantage however, is the fact that it will involve significant number of contractors (civil works, maintenance, design, suppliers, landscapers, and others) thus; contract management will be very difficult. For instance, it will very difficult to ascertain which party or parties are responsible when defects arise. Moreover, most standard forms of construction do not allow multi-party arbitration thus government will likely encounter various parties blaming each other in multiple arbitration proceedings . These conflicts can lead to financial losses due to delays, complex maintenance management, security, and procurement problems due loss of interest of some parties. c. Design of Specifications and Tender Documents 2.4 Design and Tender Improvement for Sustainability APCC recommendation suggest that tender specifications should contain sustainability elements and requirements as specified in the procurement process . For this reason, the following possible sustainability specifications that may be included in the statements of requirements for Metro Light Rail project are contained in the table below. Note that these requirements will be the basis for later sustainability assessment criteria. Table 1- Recommended Sustainability Specifications in Tender Area of Sustainability Statement of Requirements Finance and Economics Customer specification requirements Number of people to be employed Average life of product including warranty period Maintenance frequency Energy use of product (in use or standby) Environmental Estimated carbon emission per day and over the entire life cycle of the product if applicable Payment terms, billing, and call arrangements Recyclability of the product (part or whole) Manufacturing process and toxic chemical handling Supplier environmental initiatives such as noise reduction, recycled packaging, minimisation of transport miles, and compliance with indoor air emissions requirements Compliant and certified under SA 8000 Social Accountability Standard and AS 8003:2003 Corporate Social Responsibility Social Employment and working conditions such as working hours, benefits, and others Community engagement programs Record of incidence due to non-compliance of occupational health and safety codes Workplace diversity and employment of disadvantage people All Areas Capability in terms of supply chain influence and audit frequency Certified ISO 28002:2011 for Supply Chain Security Supply chain auditor qualifications d. Contract Preparation 2.5 Ensuring sustainability and strategic outcomes In ensuring sustainability and strategic outcomes, the contract as shown below will contain sustainability requirements specified in Section “c.”. This contract is divided into three important sustainability related sections to ensure compliance with agreed risk and environmental management approach for light rail project, compliance with existing and acceptable standards, comply with recycling and waste management best practices, and ensure smooth flow of supplies. See Appendix A for SAMPLE contract requirements. Sustainability Requirements of the Contractor for Metro Light Rail Project Item 1: Quality and Management Assurance This item contains specific requirements and obligations of contractors. Item 2: Recycling and Waste Management This item contains specific requirements for environmental code compliance such as recycling and waste disposal practices. Item 3: Supply Chain Audit This item specifies contractor’s obligation to conduct its own supply chain audit and report at specific periods during the execution of the contract. e. Contract Administration and Management Regime 2.6 Design of Contract Administration and Management Regime As recommend in APCC document for PPP strategy and in terms of sustainability contract, full life cycle consideration, monitoring and auditing ability, for Metro Light Rail Project may be administered by the appointed Contract Manager with the following specific tasks. Record any variation in contract. Identify obligations, deliverables, and requirements and maintain an updated copy of audits. Require contractor to submit a monthly, quarterly, and annual reports and assess the details against contract requirements. Arrange regular meetings with contractors and record minutes for future reference. Assess contractor performance through data and lifecycle costing analysis. Submit report regarding contract performance and risks to top management. Conduct audits and manage innovation and improvements particular those offering values adds. This contract and management approach is different from in-house or built ourselves strategy where contract administration, auditing, performance, and sustainability criteria assessment is complex due to presence of significant number of contractors . f. Monitoring, Governance, Audit and Reporting 2.7 Strategy for Monitoring, Governance, Audit and Reporting Monitoring enable review and assessment of contract performance thus, information from beginning to end of contract must be gathered effectively. One strategy is to require contractor to submit performance information on a regular basis not as contract requirement but as shared responsibility. Since changes can occur during the execution of the light rail project, it is necessary to assess the current needs and changes in requirements consistently. In terms of governance, review of assessment of sustainability policies and goals are critical because outdated policies will likely result to conflict. For this reason, audit and reporting must be done accordingly in order to get a clear view of current contract performance situation and opportunity to compare and assess compliance with latest policies and goals for the project. 3. Conclusion Managing risks and opportunities associated with light rail project is complex particularly in terms of sustainability requirements thus developing sustainable management strategy systematically is critical. These include evaluating business case for the project and the methods by which it can be presented, understand, and favoured by decision makers. Another is selecting the most appropriate procurement strategy out of several models based on applicability and ability of such strategy to incorporate sustainability requirements and outcomes. Moreover, to ensure sustainability is central to the procurement process, the need to improve the design of specifications and tender documents is unavoidable particularly in terms of economic, financial, social, and environmental impacts. Similarly, the contract and its administration must be in line with sustainability outcomes otherwise contract performance will be contrary to project policies and goals. Finally, in order to attain acceptable level of compliance, contractors must be monitored and assess against performance expectations consistently. 4. Recommendation As discussed in this report, selection of the most appropriate and beneficial strategy is critical to the success and sustainability of the Metro Light Rail project. This report therefore recommends PPP for future projects involving public infrastructure not only because it lower the cost of the project due to competition and innovation but from the fact that it can adequately support sustainability initiatives that are economically, socially, and environmentally beneficial. 5. References Appendix A. Sample Contract Requirements from APCC Read More