A Business Case is required to progress an investment through the Capital Framework process. It is the core component of Stage 2 – Prove (as shown in the figure below).
Within the Business Case, the Project Team is required to analyse and select the most appropriate delivery model for the project.
The Capital Framework process
There is a broad range of delivery models available for capital works projects. These models fall into three broad groups:
- Traditional models that largely allocate construction price risk to the contractor but otherwise have low to medium levels of integration, particularly of ongoing maintenance
- Integrated models that are suitable for complex projects and involve an Output Specification, a bundling of services including facilities management (FM) and a greater degree of private sector involvement
- Flexible or Relationship models that are suitable for projects where the private sector cannot bear full price risk, and/or where the project scope is necessarily incomplete at contract signature.
If an Integrated delivery model is potentially suitable for a project, the Project Team should refer to the Guidelines for Public Private Partnerships, as well as the Capital Framework guidelines. The Guidelines for Public Private Partnerships provides more detailed guidance on the factors that the Project Team needs to consider, particularly for Public Private Partnership (PPP) delivery models.
Tier requirements
These Delivery Model Guidelines apply to all projects. However, the level of analysis required depends on the project’s Tier:
- Tier 1 projects: The Project Team must complete a full assessment of potentially suitable models to determine the most appropriate delivery model (i.e. excluding those that are inappropriate, such as a Project Management Agreement)
- Tier 2 projects: The Project Team can conduct a less extensive analysis as it is unlikely to include consideration of most Integrated delivery models and some Relationship models
- Tier 3 projects: The Project Team must sufficiently document the recommended delivery model or contracting approach, but a full analysis of delivery models is not required. The Project Team does not need to consider Integrated delivery models and most Flexible or Relationship models (other than Construction Management).
Purpose of the section
This section provides the Project Team with a detailed and robust methodology to select the most appropriate delivery model for a project.
The decision on the most appropriate delivery model requires:
- An understanding of the project, Program or Precinct’s strategic outcomes and objectives
- Rigorous analysis to identify the recommended delivery model that optimises the strategic outcomes and objectives of the project, Program or Precinct, including achieving the best value for money
- Consideration of key project risks and the characteristics of suitable delivery models to optimise risk management opportunities.
The aim of delivery model analysis is for the Project Team to identify the delivery model that will achieve the best balance between the control of project cost and the risk of not achieving the project objectives and outcomes.
Summary of process
The Project Team first needs to consider potential delivery models early in the development of infrastructure projects, during Stage 1 – Develop of the Capital Framework. The Project Team should undertake a preliminary assessment of all feasible delivery models for the project to select a shortlist of potentially appropriate models for more detailed assessment. The Project Team should then undertake more detailed analysis to select the most appropriate delivery model as part of Stage 2 – Prove, to form the basis for the Delivery Model section of the Business Case.
The process for Tier 3 projects and smaller Tier 2 projects is considerably more straightforward than it is for other projects, largely because:
- The range of potentially appropriate delivery models is limited to Traditional models and two of the Flexible or Relationship models: Project Management Agreement (PMA) and Construction Management (CM)
- Many of the evaluation criteria that the Evaluation criteria describes have limited applicability.
The Project Team should make their selection of the final delivery model based on it being the most likely to deliver the best value for money in meeting the Government’s service objectives. This analysis, assessment and selection of the most appropriate delivery model should not take account of subjective preferences. Also, the Project Team should be cautious about the expressed opinions of potential bidders, who typically favour delivery models that are likely to be most profitable and/or least risky for them, rather than those likely to deliver best value for money to Government.
Although the methodology in these Guidelines applies specifically to the detailed analysis in Stage 2 – Prove, its underlying principles also apply to the initial analysis in Stage 1 – Develop.
Interdependencies
Prior to undertaking Delivery Model Analysis, the Project Team should conduct an assessment of the project’s risks, as outlined in the Risk Analysis Guidelines.
The choice of delivery model may also affect the project’s governance structure and should be reflected in the relevant chapter of the Business Case (refer to the Guidelines on Project Governance).
For Integrated delivery models, the Project Team must complete a detailed Financial Analysis within the Business Case in line with the Guidelines for Public Private Partnerships to assess the value for money of the project option(s).
The Guidelines for Public Private Partnerships provides guidance for PPP and other Integrated delivery models and the Project Team should refer to these Guidelines when considering these delivery models.
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