Civilution Congress 2014 CESA: Break-Away Plenary Session

2. 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

3. 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

4. Recent cost overruns in SA Consulting Engineers of South Africa Infrastructure Procurement Civilution – A CODESA of Infrastructure Procurement

5. Value for money concept Consulting Engineers of 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

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

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

8. Root causes for lack of success Consulting Engineers of South Africa 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 Planning (economy) effectiveness efficiency Impact Activities Outcomes Outputs Cost Input

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

10. Recent cost overruns in SA Consulting Engineers of South Africa optimism bias / strategic misrepresentation poor / lack of procurement strategies poor procurement practices in selecting contractors and consultants Issues to address Infrastructure Procurement Civilution – A CODESA of Infrastructure Procurement

11. Thank You Dr Ron Watermeyer watermeyer@ioptions.co.za