Public-Private Partnerships in Construction

This assignment requires an in-depth analysis of Public-Private Partnerships (PPPs) within the construction industry. Students must evaluate the benefits and drawbacks of PPPs, considering factors like financial risk sharing, project delivery methods, and long-term sustainability. The analysis should incorporate real-world examples and case studies to illustrate successful PPP implementations and potential challenges.

Alliancing Procurement Method 1
ALLIANCING PROCUREMENT METHOD
ASSIGNMENT 2
CRITICAL ANALYSIS REPORT
STUDENT NAME
STUDENT ID
COURSE NAME
PROFESSOR
UNIVERSITY
CITY/STATE
DATE

Alliancing Procurement Method 2
Table of Contents
Executive Summary...................................................................................................................................3
1. Introduction.......................................................................................................................................4
1.1. Purpose of the Report................................................................................................................4
1.2. Project Description....................................................................................................................4
2. Factors Affecting Choice of Construction Procurement Method...................................................7
2.1. Cost.............................................................................................................................................8
2.2. Time............................................................................................................................................8
2.3. Clients’ expertise and requirements.........................................................................................8
2.4. Project characteristics...............................................................................................................9
2.5. Ability to make changes............................................................................................................9
2.6. Risks..........................................................................................................................................10
2.7. Industry preference.................................................................................................................10
2.8. External factors........................................................................................................................10
3. Procurement method used in Southern Cross Station Project.....................................................10
3.1. Characteristics of PPP Procurement Method........................................................................11
3.2. Advantages of PPP Procurement Method..............................................................................12
3.3. Disadvantages of PPP Procurement Method.........................................................................14
4. Important Procurement Characteristics........................................................................................15
5. Potential Reasons Why PPP was Selected for Southern Cross Station Project..........................16
6. Popularity of PPP Procurement Method.......................................................................................17
7. Opinion.............................................................................................................................................18
8. Conclusion........................................................................................................................................19
References................................................................................................................................................20

Alliancing Procurement Method 3
Executive Summary
Procurement method is very important in construction industry. The procurement method used
can cause project success or failure. Thus it is very important for the client to select the most
suitable procurement method. The purpose of this report is to critically analyze the procurement
method used in executing the Southern Cross Station project. This was a mega infrastructure
development project owned by the Southern Cross Station Authority on behalf of the Victorian
State Government. The project was executed using public private partnership (PPP) where the
government collaborated with private parties to implement the project. Considering the
characteristics and objectives of the project, PPP was not the most suitable procurement method.
This method contributed to the late completion of the project due to numerous disputes and cost
overruns The best method that would have been used in this project is alliancing contracting.

Alliancing Procurement Method 4
1. Introduction
1.1. Purpose of the Report
Procurement is a very crucial process in every construction project. This is the process that
determines how the project will be executed, key stakeholders and the overall efficiency of
project execution. Therefore it is very important for clients to ensure that they select the most
appropriate procurement method so as to complete their projects within stipulated time and
budget, and to the required industry standards and quality. This report aims at analyzing different
construction procurement methods so as to select the best method for Southern Cross Station
project. The project was executed using public private partnership (PPP) procurement method
and so this report will investigate if this method was appropriate or whether there is a better
procurement method for the project.
1.2. Project Description
Southern Cross Station (formerly known as Spencer Street Station) is one of the mega
projects that was designed to transform and improve transport infrastructure in Melbourne,
Victoria, Australia. The project is located in Docklands, Melbourne, on Spencer Street between
La Trobe Street and Collins Street. This station is Victoria’s civic landmark and one of the
biggest infrastructure projects in Melbourne, Australia. It is the 3rd busiest railway station in
Melbourne, having an average daily commuter traffic of 100,000 (Railway Technology, 2018).
The railway station is owned by IFM Investors and operated by AssetCo Management. IFM
Investors has signed a 30-year lease agreement with Victorian State Government to own, operate
and maintain the station until 2036. The agreement is under a PPP.
Southern Cross Station has different features, components and facilities. They include the
transport interchange redevelopment, 16 platforms, 22 rail tracks, a retail plaza, main office

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building, residential towers, passenger information screens displaying real time train departure
and arrival information, 30-bay coach station, 800-cars parking facilities, 5-minute pick up and
drop off area and improved public facilities. The station is characterized by high-quality
baggage-handling, ticketing and waiting services. All these facilities are equipped with state-of-
the-art passenger information display, lighting and seating systems. The station is renowned for
its unique architectural trapezoidal roof system that covers a whole city block of approximately
600,000 m2. The main objectives of this project were to provide practical transport experience by
transforming the existing bus terminus and railway station into a first-rate inter-modal transport
facility, ease movement of passengers, improve staffs’ working environment and make Southern
Cross Station a major transport and retain hub. The station serves interstate, regional and
metropolitan bus and rail commuters. The target of the project was to manage 15 million
passengers annually and increase this number to 45 million by 2020.
Southern Cross Station project started in 2000 when the then Southern Cross Station
Authority, a representative of the Victorian State Government, was mandated to oversee the
procurement, financing, construction and operation of the project. In 2002, the Authority signed
a Services and Development Agreement with Civic Nexus Pty Ltd, a private consortium, to
design, construct and operate the station for a period of 30 years. Construction works started in
2002 and were scheduled to be completed in 2005. Nevertheless, construction works did not
commence as expected due to contractual disputes, cost overruns and delays until 2006
(McCann, et al., 2015). Other partners involved in the construction of Southern Cross Station
were: Grimshaw Jackson Joint Venture (architects), Leighton Contractors (builders), Delaware
North Australia, Honeywell Limited, ABN AMRO and Daryl Jackson Architecture. The entire

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project was executed by Civic Nexus consortium, which contracted the other partners. The
primary owner of the project is Public Transport Victoria.
As stated before, this project was executed under a PPP. It was initially estimated to cost
A$350 million but it is estimated to have cost A$700 million. Construction works commenced in
2002 and ended in 2013. Every year, Civic Nexus is paid A$30 million for operating and
maintaining the facility. This will go on until 2036 when the 30-year lease agreement expires.
Southern Cross Station Redevelopment project was not completed within stipulated time and
budget due to the wrong choice of procurement method.
Below are some photos of the Southern Cross Station

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2. Factors Affecting Choice of Construction Procurement Method
There are several factors that should be considered when selecting a construction
procurement method. Some of these include: project completion speed, project cost certainty,
authority and ability of the client to make changes, the level of quality needed, the cost of
implementing the procurement method, risk management techniques, and clarity of defining the
responsibility of each stakeholder (Zuo, 2008). All these factors affect the choice of construction
procurement method for a particular project. The choice of procurement methods helps in

Alliancing Procurement Method 8
avoiding numerous problems and plays a big role in attaining the specific project goals and
objectives (Clamp, et al., 2009). Some of these factors are discussed below:
2.1. Cost
Cost is one of the biggest factors that determine the choice of construction procurement
method. The cost is usually determined during the design stage of the project, with some
uncertainties. Some procurement methods are more expensive than others hence the client should
select a method that he/she can afford. It must be noted that the client will have to pay some of
his/her team depending on the type of procurement method chosen. Hence the client should
choose a procurement method that he/she is ready and able to pay its associated expenses. The
initial cost of Southern Cross Station project was estimated to be A$350 million but the project’s
final value was about A$700 million.
2.2. Time
Time is another factor that affect the choice of construction procurement method. Most
projects have timelines hence the procurement method selected should enable the tem to
complete it within stipulated time. Some methods allow design and construction phases to
overlap while others require the project to be designed completely before the start of
construction. If the project has a short deadline then procurement methods that allow overlapping
of design and construction phases should be considered. However, these methods also have their
challenges such as cost uncertainty and unclear project scope, among others.
2.3. Clients’ expertise and requirements
The relevant knowledge, experience and skills in construction projects also play a key role in
the selection of construction procurement method. For this reason, it is important to know the
knowledge, abilities, experience and requirements of the client before selecting the most

Alliancing Procurement Method 9
appropriate procurement method. Clients who do not have comprehensive knowledge, skills and
experience in construction projects should select a procurement method that will enable them
play their role indirectly – by involving their knowledgeable and experienced representatives
such as consultants, project managers, engineers, etc. Therefore there are different procurement
methods that are suitable for clients with different levels of knowledge and experience in the
construction industry. The most important thing is for the client to select a procurement method
that will ensure that his/her requirements are met and opinions considered in every decision that
is made by the project team.
2.4. Project characteristics
Characteristics of the project also affect the choice of procurement method used for a
particular project. These characteristics include: project size, location, complexity, uniqueness,
risks, use, etc. Each of these characteristics has unique impacts on the project hence the
procurement method selected should address them.
2.5. Ability to make changes
Different construction procurement methods give the client varied levels of ability to make
changes to the project design or scope. Some methods allow the client to make changes at any
time while others have very limited provisions for the same. It is worth noting that making
changes to the project scope during construction stage has huge implications on project cost and
time. Therefore it is usually recommended that the project scope and design are completed
before the start of construction phase. Most importantly is that each procurement method gives
the client a different level of ability to make changes to the project scope.

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2.6. Risks
Each construction project has unique risks. If these risks are not properly identified, analyzed
and mitigated or prevented, they cause a lot of problems. In this regard, the client should ensure
that the construction procurement method selected allocates or transfers risks appropriately t
various stakeholders. The persons allocated the risks should fully understand the risks and take
full responsibility.
2.7. Industry preference
This is also another factor that should be considered when selecting a construction
procurement method. The client should consider the procurement method that most stakeholders
are conversant with in the area where the project is being executed. This will make it easier for
all stakeholders to understand each other and work as a team. Choosing a familiar procurement
method also prevents the likelihood of conflicts and legal issues among stakeholders involved in
the project.
2.8. External factors
There are also other external factors that influence the choice of a construction procurement
method. Some of these factors include: legal factors, political factors, climatic factors,
technological factors, social or community factors, etc. These factors create uncertainty if they
arise when the project is ongoing.
3. Procurement method used in Southern Cross Station Project
The procurement method used in Southern Cross Station project was PPP. As stated before,
Victorian State Government signed a PPP with Civic Nexus to design, finance, construct, operate
and maintain the project. PPP is a procurement method where governments collaborate with

Alliancing Procurement Method 11
private companies so as to procure mega projects of high value, and signs an agreement to share
risks and opportunities of the project (Plantinga & Doree, 2016). This procurement method is
mainly used for public infrastructure projects such as roads, bridge, railways, etc. In this method,
a private party makes an agreement to finance the project.
3.1. Characteristics of PPP Procurement Method
PPP is an innovative procurement method of delivering mega infrastructure projects (Tang,
et al., 2010). This method involves collaboration between private and public sector so as to
design, finance, execute, manage and maintain a project (Fernandez, et al., 2016). In this method,
the project is usually financed largely by the private entity and partially by the government
(Robert, et al., 2014). The method is usually used for infrastructure development projects (Al-
Saadi & Abdou, 2016), (Ke, 2014). In PPP, the public sector and private sector involved have
specific responsibilities (Polyakova & Vasilyewa, 2016). The method transfers risks to parties
(developers, financiers, construction contractors, suppliers, service providers and operators) that
best understands them and which are able to manage them effectively. This method is gaining
popularity in many parts of the world including Australia (Wilson, et al., 2010). The main
characteristics of PPP are as follows:
Single private entity: in PPP procurement method, the government awards the whole project
to a single private entity or contractor. This allows the private entity to develop smarter and
better solutions for the project.
Financing: in most cases, the private sector consortium finances the entire project under a
PPP project. Once the project is complete, the government starts paying the private sector
consortium over an agreed period of time – usually 25-30 years. During this period, the private
sector consortium owns the project and rents it to the government.

Alliancing Procurement Method 12
Preparation time: it usually takes longer to prepare and submit bids using PPP approach. This
is because both the public and private sectors have to perform due diligence and comprehensive
analyses of the project before making the final decision.
Risk: the levels of risks in PPP are relatively high due to the size and complexity of projects
executed under this procurement method. The risks are shared between the private sector and
public sector even though former bears the highest risk (Rodriguez, 2017). The consortium
therefore factors these risks into the bid price of the project.
Maintenance: since the private sector consortium is responsible for the maintenance of the
project once it is completed, the maintenance cost is factored in the project’s overall cost.
Expertise: PPP allows governments to capitalize on the best expertise in the private sector.
Under this procurement method, the government engage private entities with the best knowledge,
skills and expertise.
Relationships: PPPs fosters building of long-term relationship between the private and public
sectors.
3.2. Advantages of PPP Procurement Method
PPP procurement method has numerous benefits. Some of these are as follows:
Innovation: PPP procurement method brings great innovation from the private sector to
deliver public projects (World Bank Group, 2016). The private consortium involved in the
project always selects the most qualified professionals to undertake specific tasks of the project.
These professionals usually provide innovative solutions that are cost effective, environmentally
friendly and more efficient.

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Cost certainty: in PPPs, determination of project costs is done in advance. The
government, which is the contracting authority, will only pay this cost of the private entity
delivered the agreed project outputs. Cost certainty also helps the government to know the exact
amount it will pay, when and how to pay it.
Faster delivery: most PPP projects are completed on time. This is because each task is
assigned to specialists who are able to execute it faster and better. The method also allows
overlapping of design and construction phases.
Cost savings: projects executed under PPP are said to be cost effective mainly because of
the greater innovations used and the alternative solutions provided (Yuan, et al., 2009). Even
though some of these solutions may be expense during the construction phase, they reduce the
cost of the project in the long term.
Proper utilization of public resources: PPP projects ensures that public resources are used
properly. This is because PPP projects involve participation of communities and based on their
size, the projects attract strict monitoring from the general public. Since the expected project
outputs are known even to the public, the private entity is compelled to put resources into
appropriate use.
Better quality: the final product built from PPP is usually of high quality (Rodriguez,
2017). This is mainly because the products are created by the most competent professionals in
their areas of specialization. The infrastructure built is also maintained properly throughout its
lifecycle.

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Collaboration: PPP promotes collaboration between public and private sectors. This
collaboration helps in building strong relationships between the two sectors, which is good for
the economy.
Incentives: the government is likely to give the private consortium incentives to complete
the project on time and within stipulated budget, and to improve the commercial and operational
performance of the project.
3.3. Disadvantages of PPP Procurement Method
Some disadvantages of PPP procurement method include:
Complexity: PPP projects are usually more complex than other projects in terms of
design, structure, construction, operation and maintenance processes. This great complexity is
associated with high risks and may lead to disputes, which was the case for Southern Cross
Station project.
Bidding cost: the cost of bidding a PPP project is quite high. For instance, design
professionals will spend a lot of time preparing the designs but all these efforts will be useless if
their company loses the bid. Therefore if a company bids and fails to win the contract, it will
have lost a significant amount of money used in the bidding process.
Political exposure: PPP projects are susceptible to politics. If there is a political change
before the project is complete, the new government may abandon or reduce funding of the
project thus causing delay and wastage of public resources.
Procurement time and cost: procurement process for PPP projects takes a lot of time. The
government has to do a lot of due diligence and consultation before choosing the private

Alliancing Procurement Method 15
consortium to award the contract. This length procurement time is also associated with higher
transaction costs. The cost is even higher considering the complexity of PPP projects.
There is also the fear that people will have to pay in order to use the facility or
infrastructure being developed. These claims are usually not true and therefore the involved
parties have to educate the public on this issue.
When executing a project under PPP, there is a possibility of the private consortium
being after making profits and not giving other issues adequate attention. This may also not favor
the government and public sector because taxpayers’ money will be used to pay for the project
(Sazonov, 2012). This may also lead to low quality work as the private investor may focus on
cost reduction instead of quality.
4. Important Procurement Characteristics
There are several procurement characteristics that were very important in selecting PPP as
the procurement approach for this project. Some of these characteristics include the following:
Cost: the initial cost of Southern Cross Station project was estimated to be A$350 million
but the final cost was more than this value. Therefore the client of this project selected a
procurement approach that did not deliver the project at the stipulated budget.
Time: this project was scheduled to commence in 2002 and be completed in 2005.
However, the project was commenced in 2002 and completed in 2013. Therefore the
procurement method used did not complete the project within the stipulated time. Part of the
project was completed in 2007.
Quality: this is another very important procurement characteristic. PPP was selected
because it had the potential to deliver the project at the required industry standards and quality.

Alliancing Procurement Method 16
Impact: the procurement method selected was also aimed at ensuring positive impacts of
the project on the economy, environment and society. Through PPP contracting, the interests of
the general public are always considered.
Relationship/collaboration: this is another important procurement characteristics that
prompted the selected of PPP. The federal and state government definitely chose this
procurement method so as to build relationships with private parties in the construction industry
so that they can do business together in the future. These governments have several similar
projects in the future and therefore they can always work with these parties when necessary.
The success factors of a PPP are: capacity of the public sector to effectively manage its
part of the project, political stability and commitment, level of competitiveness in the bidding
process, appropriate allocation of risks, and affordability and viability of the project.
5. Potential Reasons Why PPP was Selected for Southern Cross Station Project
The likely reasons why PPP may have been selected for Southern Cross Station project are:
Project value: the value of Southern Cross Station project was about A$350 million even
though the final cost was approximately A$700 million. Therefore PPP procurement method was
appropriate since the project value was over A$50 million.
Risk transfer: considering the characteristics of Southern Cross Station project, t was not
necessary to transfer risks since the Victorian State Government will assume responsibility of the
project at the expiry of the contract period. This was useful in avoiding problems that would
result to project delays and high cost overruns. What this project required was for its risks to be
shared among participants. Therefore PPP was not the best method as it transfers most of the
risks to the private entity.

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Clients’ knowledge and experience: another reason why alliancing contracting was the
most appropriate procurement method for this project is the knowledge and experience of the
client. The Public Transport Victoria – a government agency, has vast knowledge and experience
in this kind of infrastructure projects. Therefore the Authority understands the likely challenges
to be faced and how to overcome them so as to complete the project as planned.
Building relationships: alliancing contracting is a procurement method that is based on
collaboration. The parties involved are able to work as a team, build a working relationship and
probably work together in the future. Since Melbourne and Australia as a whole are still
developing, the government wanted to work with parties and build good relationship for the
purposes of similar projects in the future.
6. Popularity of PPP Procurement Method
The popularity of PPP procurement method has continued to increase in many parts of the
world (Anderson, 2012). Mot governments are preferring this approach because of their potential
benefits and advantages (Roehrich, et al., 2014), some of which have been discussed above.
Some of the reasons contributing to the popularity of PPP procurement method are:
Policy implications: PPPs have great policy implications in the construction industry. The
experience the government has when implementing projects through PPP determines the kind of
policies that the government establishes. In most cases, the government formulates policies that
favor it and the private parties.
Organizational structure: PPPs have systematic management and organizational structures
that specify the roles and responsibilities of the private and public sectors involved. This helps in
avoiding conflicts and disputes.

Alliancing Procurement Method 18
Government commitment: increased popularity of PPPs is also being contributed by the
government’s commitment to treat private parties equally and fairly, and reward them
appropriately. As a result of this, the private sector is now embracing this procurement method.
Utilization of private finance and expertise: PPPs enable governments to utilize the finance
resources and expertise in private sector. Through this method, these resources and expertise are
transferred from the private sector to the public sector. In other words, PPPs make it possible for
governments to attain long-term development goals without having to mobilize vast resources at
once (Quelin, 2015).
7. Opinion
Procurement method contributes significantly to the success or failure of execution of a
construction project (Sethuraman, et al., 2016). There are different construction procurement
methods, each suitable for different kinds of projects executed under various situations. These
methods have varying risk levels that are transferred onto the contractor, client or other key
stakeholders. They differ significantly in terms of risk sharing and liability, management
structure, design management, determination of contract price and tendering procedures, among
others. The most suitable construction method has to be selected after comprehensive analysis of
the project’s risks, opportunities, budget constraints and time constraints.
PPP is a procurement method that is majorly suitable for government infrastructure projects.
This method is mainly suitable for projects valued above A$50 million and those that require risk
transfer and not risk sharing. Considering these essential requirements, PPP was not the most
suitable procurement method for Southern Cross Station Redevelopment project.

Alliancing Procurement Method 19
There are several other construction procurement methods that would have been used instead
of PPP. Each of these other methods has its own advantages and disadvantages (Naoum & Egu,
2016). Some of them include: traditional procurement method, design and build method,
construction management, management contracting and alliancing, among others (Davis, 2008).
From these options, the most appropriate procurement method for Southern Cross Station
Redevelopment project is alliancing.
Alliancing is an innovative and strategic construction procurement method. It is suitable for
mega government infrastructure projects, such as the one in this paper. Advantages of alliancing
include: greater flexibility that allow the client and other key stakeholders to make changes
easily; greater innovation; allows parties involved to negotiate, agree and build strong
relationship for future works (Davis & Love, 2011); improved collaboration among stakeholders;
equal sharing of risks and benefits; responsibility sharing; interest alignment; and quick dispute
resolution (Rooney, 2011).
8. Conclusion
Construction projects are very dynamic in nature as they are usually executed by parties from
different fields or professions. These projects are executed using varied procurement methods.
Each of the procurement method used in construction industry has unique characteristics,
advantages and disadvantages. This report has analyzed the procurement method used in
executing the about A$700 million Southern Cross Station Redevelopment project. Construction
of this infrastructure project started in 2002 and was completed in 2013. Its completion was
delayed and it ran into cost overruns mainly because of the wrong procurement method that was
used. The procurement method used in this project was PPP. The Southern Cross Station
Authority, the agency that represented the Victorian State Government, entered into a partnership

Alliancing Procurement Method 20
with Civic Nexus Pty Ltd to design, finance, construct, maintain and operate the project. The
partnership is a 30-year agreement. However, PPP was not the most appropriate procurement
method because of the project’s characteristics. This project required a procurement method that
promotes equal risk sharing among parties instead of risk transfer. Therefore alliancing was the
most suitable method for Southern Cross Station Redevelopment project. This procurement
method has greater flexibility, promotes collaboration among parties, is based on risk sharing
among parties instead of risk transfer, has less disputes and it brings parties with common
interests together.
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Alliancing Procurement Method 25