Civilution Congress 2014 CESA BreakAway Plenary Session Panel

Civilution Congress 2014 CESA: Break-Away Plenary Session Panel Discussion 1 Infrastructure Procurement Civilution : Best Practice Approach PROCUREMENT STRATEGY Dr Ron Watermeyer watermeyer@ioptions. co. za

Public infrastructure Consulting Engineers of South Africa • has little inherent value • creates value through the economic and social activities it supports. Public infrastructure which • provides improvements or efficiencies in services, production or export capabilities • is delivered and maintained in a manner which minimizes waste of materials, time, and effort in order to generate the maximum possible amount of value is most likely to contribute to economic growth Key question - “does the investment provide value for money? ” Infrastructure Procurement Civilution – A CODESA of Infrastructure Procurement

Recent cost overruns in SA Africa Consulting Engineers of South Project Initial Budget (R bil) 25. 1 90 33. 6 6. 3 Estimated or final Cost (R bil) 30. 5 121 105 90 % over budget Gautrain 21 Kusile 34 Medupi 213 Gauteng Toll 1329 Roads NMPP 11. 1 23. 4 111 OR Tambo 5. 2 8. 5 64 De Hoop Dam 7. 9 20 153 FIFA Stadiums 8. 1 18. 4 126 N 4 toll roads 2 50 Infrastructure Procurement Civilution – A CODESA 3 of Infrastructure Procurement

Value for money of concept Consulting Engineers South Africa Optimal use of resources to achieve the intended outcomes Underlying VFM is an explicit commitment to ensure that the best results possible are obtained from the money spent or maximum benefit is derived from the resources available VFM is a means for developing a better understanding (and better articulation) of costs and results so that more informed, evidence-based choices can be made

Results chain framework Consulting Engineers of South Africa Economy (cost of resources) acquiring inputs of the right quality at the right price Cost Efficiency (productivity) how well inputs are converted to outputs. Input Activities Effectiveness (achieving of outcomes) how well outputs achieve desired outcomes Outputs Outcomes Impact Equity considerations What equity (promotion of secondary objectives) can be leveraged through a project planning implementation close out 7

Gap between achieved and expected outcomes Gap Economy (cost of resources) acquiring inputs of the right quality at the right price Cost Gap puts value for money for a project at risk Input Activities Effectiveness (achieving of outcomes) how well outputs achieve desired outcomes Outputs Value for money? Outcomes Impact 8

Root causes for lackof of. South success Consulting Engineers Africa Planning (economy) Optimism bias (the human mind’s cognitive bias in presenting the future in a positive light) Strategic misrepresentation (behaviour that deliberately underestimates costs and overestimates benefits for strategic advantage effectiveness efficiency Cost Input Activities Outputs Outcomes Impact 9

Root causes for lackof of. South success Consulting Engineers Africa Organisation of work packages into contracts How to secure financial offers and to remunerate contractors What proactive action can be taken during implementation (efficiency) to minimise any gaps? Procurement strategy–selected * Packaging * Contracting * Pricing * Targeting strategy and procurement procedure? Implementation Nature of the relationship between the parties Procedures for promoting secondary procurement objectives (efficiency) Cost Input Activities Outputs Outcomes Impact

Recent cost overruns in SA Africa Consulting Engineers of South Project Initial Estimated or Budget final Cost (R bil) (RIssues bil) to 25. 1 30. 5 address 90 121 33. 6 bias / strategic 105 optimism misrepresentation 6. 3 90 % over budget Gautrain 21 Kusile 34 Medupi 213 Gauteng Toll 1329 Roads poor 11. 1 / lack of procurement NMPP 23. 4 111 OR Tambo 5. 2 strategies 8. 5 64 De Hoop Dampoor 7. 9 20 153 procurement practices FIFA Stadiums 8. 1 18. 4 and 126 in selecting contractors N 4 toll roads 2 consultants 50 Infrastructure Procurement Civilution – A CODESA 3 of Infrastructure Procurement

THANK YOU Dr Ron Watermeyer watermeyer@ioptions. co. za