Case #3 Health services facility
Proposal familiarisation
A major new health facility was proposed for a greenfields site in regional NSW. A design, document and
construction procurement method applied.
The objective of the project was to provide an up-dated facility with substantial private sector
involvement in both the areas of planning and construction, and service provision. The assessment
criteria for the procurement concerned the capability of the tendering parties and cost competitiveness of
both construction and recurrent costs.
The key elements of the project were the main project phases including concept development, design
briefing and contract, expressions of interest and tender, stakeholder consultation, design development,
construction, operation and maintenance.
Risk analysis
A schedule of procurement risks was prepared reflecting contract conditions, contractor performance
and client and principal responsibilities. Risks included inadequate performance by the contractor, client
service specifications and communication and key contract provisions.
Consequences of individual risks were itemised and their significance rated. Generally the consequences
represented either additional cost implications, delays to construction or facility commissioning or the
potential for dispute under the contract.
A sample of identified risks and consequences are included in the following table.
Risk Management
Risk responses ranged from briefings and confirmation of contingencies to the client to procedural
provisions, confirmation and adjustment of contract provisions and requirements placed on the project
management team or contract principal.
An extract of individual risk measures are included in the table below.
Consequences
Risk measures
Design fails to meet Client
requirements
Additional cost and delays for the
Client
Produce accurate design brief and
check tender submissions for
compliance
Poor consultant performance
Deterioration of relationships, delay to
project
Performance monitored and reported
and eligibility for future commissions
controlled
Design or documentation
errors/omissions
Rework or extra work necessary
Risk placed with contractor under
terms of contract
User group changes design
Cost and delay to project
Manage changes to ensure only
essential changes are made and that
they are made in adequate time
Currency fluctuation excessive
Equipment costs become prohibitive
Methodology for adjustment
incorporated in contract and early
ordering of equipment
Risk Management table (extract): Health facility
Risk Management table (extract): Health facility – continued.
Consequences Risk measures
No interest rate on overdue payments
stated
Unrealistic rates charged Rates stated under standard
documentation and within General
Conditions of Contract
Public liability and contract works
insurance policy not taken out by
contractor or lapses
Principal exposed to cost of loss Insurance taken out by Principal
Subcontractor/subconsultant
insolvency
Contractor attempts to pass on loss Risk stays with contractor under terms
of contract
Progress payment delays
Breach of contract by Principal Notices of breach received and
payment delegation can be withdrawn
or revised
Variation disputes
Deterioration of relationships, recourse Contract structure requires review and
to arbitration
determination before arbitration can
proceed
Process to include Client participation
Access denied for private sector
participation
Client in breach of separate contract
Contract structure provides for access
to work and for progressive handover
Project Director to concur in clauses
relating to interface with contractor
Principals equipment not delivered
Commissioning delayed
Program monitored and contract
structure allows for conditional
completion and handover
Project Director required to report
status of Principal supplied items each
month
Faults during defects liability period
Facility operation hindered
Security deposit retained and contract
structure gives right to repair and
recover costs
Budget overruns
Client dissatisfaction
Onus placed with Project Manager to
provide suitably skilled staff to monitor
and manage the budget process
Unfavourable media reports
Client dissatisfaction
Contractual restriction on media
releases
Risk
Case #4 Toll road development (feasibility stage)
Proposal familiarisation
The proposal involved extensive improvement of a regional road system on a major corridor. Two main
options were under consideration — developing a new tollway or upgrading the existing road system.
The project objectives were to improve safety, reduce travel times and costs and provide opportunities
for private sector participation.
Assessment criteria for the project included the timeliness and viability of the upgrade and flowthrough
effects on safety, traffic flow, regional development, requirements for Government support and the
environmental and community impacts of the development.
Key elements of the project were drawn from the major phases of the project including concept
development, economic and financial analysis, environmental assessment, procurement and tendering,
community consultation and construction planning.
Risk analysis
Five major areas of risk were identified. These were:
Risk areas
Examples of risk
Economic
Population and traffic growth
forecasts, discount rates, benefit
values
Financing
Ownership, funding sources, debt /
equity ratios, residual risks for
Government
Environmental
Environmental approval processes,
community involvement, potential
need for new legislation
Political
Taxation, toll charges,
parliamentary support
Construction
Physical construction problems,
site access, spoil locations,
disruption to community services,
contractor insolvency, industrial
disputes
Likelihood and priorities
Likelihoods and impacts were assessed for the principal risks. The following matrix (figure 4) shows the
assessments for a sample of the risks.
