Selecting a procurement model

A procurement strategy generally includes:

• a statement of the procurement objectives
• an overview of the scope of works (if this is a stand-alone report)
• project-specific issues or characteristics that may influence the procurement model, including:
  • inherent risk and ability to transfer this risk
  • the degree to which innovation vs control is desired
  • timing and degree of operational interface/disruption during the works
• determination of the packaging of works, where some elements have a materially different risk profile or timing requirements (i.e. enabling works, or major upgrades to existing facilities that are required to continue to be operational vs new build in a quarantined part of the site)
• assessment of procurement models against procurement objectives and other key project issues
• a review of the market capability and capacity, including consideration of market capability and capacity to deliver the project under relevant procurement models and any implications for the go-to-market strategy
• consideration of internal capacity and capability to deliver the project.

Factors, such as project scale and complexity, will determine the level of detail in the procurement strategy. Further guidance on developing a procurement strategy can be found on the Buying For Victoria website.

When considering the most appropriate procurement model, analyse:

• the project, its program’s strategic outcomes and their relationships to the various aspects of different delivery models
• project risks and characteristics
• how different procurement models optimise project or program strategic outcomes/objectives, including value for money
• how different procurement models align to key project risks to optimise risk management opportunities.

In determining the appropriate model, Infrastructure Australia recommends selecting a model that:

• facilitates achievement or optimisation of project objectives and outcomes
• achieves the most suitable balance between the level of control required and the degree of risk that is optimal to bear
• optimizes the schedule, cost and quality outcomes for the project
• best suits the characteristics of the project
• provides best value for money
• achieves the risk management objectives for the TAFE and the project
• provides the most appropriate risk allocation between the TAFE and the contractor.

Guidance on the different types of procurement models, and when they may be applicable, is outlined below.

Generally, TAFEs tend to procure construction through the following procurement models:

• construct-only (lump sum or fixed-price contract)
• design and construct
• design, novate and construct
• construction management.

For medium complexity and high-value-high-risk (HVHR) projects you may also wish to consider alternative procurement models such as managing contractor and private partnering type arrangements.

Construct-only (lump sum or fixed-price contract)

Under a construct-only model, the TAFE undertakes all design work and the contractor is responsible for construction in accordance with the detailed design specification. Under this scenario, you will typically engage a specialist design team to develop the detailed, fully documented design that forms the basis of the request for tender (RFT) documentation. The tender process is primarily focused on achieving the best price for constructing the detailed design. The contractor’s design innovation is not a primary consideration as the design has been undertaken by the TAFE, noting some limited construction innovation may be possible.

The construct-only model is typically employed when the TAFE:

• requires a high level of control and certainty regarding the project scope (the design consultants will have developed a set of detailed documents which fully describes and defines the scope prior to works commencing construction)
• seeks to reduce the uncertainty of the project costs before construction commences
• wishes to lower the potential cost of tendering for tenderers
• wishes to attract a larger pool of tenderers to increase competition
• wishes to drive price competition over innovation.

Further guidance on the pros and cons of this model, as well as how to assess whether the construct-only model is appropriate for the project is available.

Design and construct

In the design and construct model, the TAFE undertakes a limited level of design work to inform the preparation of an output specification to be released to the market as part of the tender. The contractor is responsible for completing the detailed design in accordance with the requirements outlined in the functional brief and technical specification. Under this scenario, you will typically engage a specialist design team to help develop the reference design, associated functional brief and technical specification required for the request for tender (RFT) documentation. As the detailed design is undertaken by the contractor, interface risks between the design and construction process is reduced, and design innovation can be achieved.

The design and construct model is typically employed when:

• project risks are identifiable and quantifiable
• fast project delivery is required as construction can commence ahead of full design documentation (provided there is adequate control over design quality)
• the TAFE is seeking design innovation and efficiencies to be delivered by the market.

Further guidance on the pros and cons of this model, as well as how to assess whether the design and construct model is appropriate for the project, is available.

Design, novate and construct

Design, novate and construct is a variation on the design and construct model. In this model, the contractor is responsible for finalising the design. As part of the RFT, the TAFE will include a higher level of design than under the design and construct model and require the contractor to either complete the design or improve upon the detailed design. To assist the TAFE in developing the design for the RFT, you will need to engage a specialist design team.

At the time of construction contract award, usually once the design is finalised, but not the detail of the construction, the TAFE’s design (and often the design team) is novated from the TAFE to the contractor. This model ensures the contractor is incentivised to ensure the facility is fit-for-purpose and if the design team is also novated, continuity of the designer’s input from project inception to completion. Following novation, the contractor and the designer will either develop or improve upon the detailed design provided as part of the RFT. The contractor takes on full responsibility for the design including payment of the post-novation designer’s fees. However, it is recommended that the design team be engaged to fully document the critical design elements to ensure compliance with statutory construction codes and standards prior to novation.

The design, novate and construct model is typically employed when:

• project risks are identifiable and quantifiable
• fast project delivery is required as construction can commence ahead of full design documentation (provided there is adequate control over design quality)
• the TAFE is seeking to have further control over the design but allow for some innovation.

Further guidance on the pros and cons of this model as well, as how to assess whether the design, novate and construct model is appropriate for the project, is available.

Construction management

Under the construction management model, the TAFE engages a construction manager to manage construction works on its behalf. Typically, the TAFE will manage the project scoping and engage the designer and the trade contractors directly, via the construction manager, who acts as the TAFE's agent. The TAFE is responsible for paying the designer and trade contractors directly, as well as paying a management fee to the construction manager.

The construction manager performs a purely management role and does not take on any delivery risk. The construction management model typically requires less in-house delivery expertise than other procurement models by outsourcing the construction management to a third party. The TAFE will take on design, time, cost and quality risk. Under this model, the TAFE may also consider the use of incentive payments to the construction manager to encourage the delivery of the project on time and on budget.

The construction management model is typically employed when the TAFE:

• may lack the in-house capability or capacity to manage and supervise contractors
• wishes to select the architect or design consultants
• wishes to retain a high degree of control over works while engaging an expert professional to administer and coordinate the project
• is prepared to accept all risk related with the delivery of the project.

Further guidance on the pros and cons of this model, as well as how to assess whether the construction management model is appropriate for the project, is available.

In addition to the commonly used procurement models outlined above, for medium complexity and high-value-high-risk (HVHR) projects you may also wish to consider the following forms of procurement.

Partnership arrangements

A partnership arrangement can take various forms and may involve an ongoing commercial arrangement between the TAFE and the private sector, including the utilisation of private finance for opportunities such as:

• industry partnerships, creating mutually beneficial work-integrated learning opportunities for students
• precinct redevelopments, leveraging the TAFE's balance sheet and capturing value from its assets, while potentially releasing capital to invest in additional core organisational priorities.

For example, a partnership arrangement may be suitable where an opportunity exists for industry partners to deliver specialist equipment and infrastructure, as well as onsite training and work opportunities, in exchange for access to long-term leases over surplus land holdings upon which to develop significant commercial operations.

A partnership arrangement may be appropriate for large, complex projects such as precinct opportunities and where there is an opportunity to leverage investment from industry to create innovative solutions that align with the TAFE’s strategic objectives.

As part of a partnership arrangement, the TAFE may also seek to engage a contractor to deliver new purpose-built facilities for its teaching and training requirements, with associated maintenance services over the long term, such as a 25-to-30-year operational period. Under this type of arrangement, you might consider the preparation of an output-based specification that allows tenderers to respond to providing design, financing, construction, maintenance and operations of those facilities. This approach is more akin to the Partnerships Victoria social infrastructure availability public-private partnership (PPP) model. The investment in facilities would need to be significant to consider this type of procurement model (or it could provide benefit where new purpose-built facilities are linked with broader commercial development opportunities, such as those outlined above).

Partnership arrangements are typically bespoke procurement arrangements. To assist in navigating this type of procurement strategy, you may wish to consider engaging appropriate advisors for support throughout all stages of the project.

While commercial opportunities are most likely to be realised under partnership arrangements, you should seek to optimise value creation and capture under any procurement model as best practice.

Managing contractor

The managing contractor model involves the TAFE appointing a head contractor (the 'managing contractor') to engage subcontractors to deliver the works. The managing contractor is responsible for administering these subcontracts and may accept some delivery risks. Generally, you will need to negotiate a fixed lump sum management fee with the managing contractor as well as potential incentive payments for achieving cost and schedule targets. Under this procurement model, you will need to engage the managing contractor early in the process to manage the scope definition, design documentation and construction of the works. The managing contractor model is best used for:

• complex projects with uncertain scope and risks
• projects where the TAFE has a high level of expertise and capacity to provide input
• where early contractor involvement would be beneficial.

Further guidance on the pros and cons of this model, as well as how to assess whether the managing contract model is appropriate for the project, is available.