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Focus On Series


Alberta Schools Alternative Procurement

Alberta Schools Alternative ProcurementAudit Summary

Publication Date:
April 2010

Audit Office:
Office of the Auditor General of Alberta

Link to full report:
http://www.oag.ab.ca/webfiles/reports/OAGApr2010report.pdf

Audited Entities

  • Department of Education

Audit Scope and Objectives

To determine if:

  • The Alberta School Alternative Procurement (ASAP 1) project demonstrates that the P3 approach provides value for money by structuring the project such that:
    • lifecycle costs were minimized;
    • risks were transferred to, or retained by, the party who could most  cost-effectively manage the risk; and
    • processes developed, challenged and  validated significant assumptions  contained in supporting analyses such  as the public sector comparator and  the shadow bid.
  • A fair, open and transparent process was used during the procurement.

Audit Criteria

  • The ASAP 1 project should demonstrate that a P3 provides value for money. A public sector comparator should be prepared that contains the following components:
    • base costs that represent the base  cost to government of producing and  delivering the project, including costs associated with design, construction and operation (if applicable)
    • periodic costs such as major maintenance and cyclical renewal required to maintain the service potential of the asset.
  • The public sector comparator should be based on a full life cycle cost analysis. This analysis should include all costs and expected benefits, and include both capital and operating expenditures.

Main Audit Findings

  • The Design-Build-Finance-Maintain (DBFM) contract was awarded to the consortium whose proposal provided the lowest net present value of life cycle costs (design, construction, maintenance and cyclical renewal costs) based on the specified standards over the project’s timeframe—both as compared to the other proposals received, and as compared to the Public Sector Comparator.
  • The systems demonstrated that risks were transferred to, or retained by, the party who could most cost-effectively manage the risk. The actions the Departments took, and their expanded role in managing the design development process appears to have significantly mitigated risks of scope creep. Structuring the project as a government managed P3, enabled the Departments to bring additional rigour to the process.
  • Significant common assumptions and assumptions specific to either the Public Sector Comparator or P3 alternatives were identified in the business case. The ASAP 1 project team did not retain evidence to support all significant assumptions and risk costs were based on anecdotal evidence. Notwithstanding the quality of evidence, the audit team has been able to conclude that the decision to award the DBFM contract was appropriate.
  • The audit team did not find evidence that estimated risk costs were, in total, validated against actual experience from prior school projects.
  • A sensitivity analysis, or an explanation why a sensitivity analysis was not required, was not included in the business case.
  • A Value for Money Report was not published in accordance with the procurement framework guidance. The Departments did not demonstrate, in a transparent manner, how value for money was obtained. Summarizing relevant information in a Value for Money Report would enhance the transparency of the procurement process for Albertans.
  • The ASAP 1 procurement was conducted in a fair and open manner.

Audit Recommendations

  • The Departments of Treasury Board and Infrastructure should improve processes, including sensitivity analysis, to challenge and support maintenance costs and risk valuations.
  • The Departments of Treasury Board and Infrastructure should follow their own guidance to publish a Value for Money Report upon entering into a P3 agreement.