procurement methodologies for identified work programmes

BR05

PROCUREMENT METHODOLOGIES FOR IDENTIFIED WORK PROGRAMMES

1 October 2013

BR05 PROCUREMENT METHODOLOGIES FOR IDENTIFIED WORK PROGRAMMES

PROCUREMENT METHODOLOGIES FOR IDENTIFIED WORK PROGRAMMES OCTOBER 2013

© TRANSPOWER NEW ZEALAND LIMITED 2013. ALL RIGHTS RESERVED. PAGE 2 OF 16

C O P Y R I G H T © 2 0 1 3 T R A N S P O W E R N E W Z E A L A N D L I M I T E D . A L L R I G H T S R E S E R V E D

This document is protected by copyright vested in Transpower New Zealand Limited (‘Transpower’). No part of the document may be

reproduced or transmitted in any form by any means including, without limitation, electronic, photocopying, recording or otherwise, without the prior written permission of Transpower. No information embodied in the documents which is not already in the public

domain shall be communicated in any manner whatsoever to any third party without the prior written consent of Transpower.

Any breach of the above obligations may be restrained by legal proceedings seeking remedies including injunctions, damages and costs.




TABLE OF CONTENTS

1. PURPOSE AND OVERVIEW ..................................................................................................... 4

2. INTRODUCTION ........................................................................................................................ 5

3. TERM CONTRACTS AND METHODOLOGIES FOR THE PROCUREMENT OF ‘STANDARD’ GOODS AND SERVICES ................................................................................... 6

3.1. Engineering Design Consultants – Framework Agreement ....................................................... 6

3.2. Grid Maintenance and Project Work Contracts .......................................................................... 6

3.3. Facilities Management Services – Building and Grounds .......................................................... 7

3.4. Capital and Line Equipment – Panel Agreement and Period Supply Agreements .................... 7

3.5. Transformers – Panel Contract ................................................................................................... 8

3.6. Information Communications and Technology ........................................................................... 9

4. OPEN TENDER METHODOLOGY FOR THE PROCUREMENT OF ‘NON STANDARD’ GOODS AND SERVICES ........................................................................................................ 10

4.1. Background ............................................................................................................................... 10

5. PROCUREMENT INFORMATION FOR IDENTIFIED WORK PROGRAMMES ..................... 11

5.1. Grid-Based Capex Identified Programmes ............................................................................... 12

5.2. Material Outsourced ICT Services ............................................................................................ 16




1. PURPOSE AND OVERVIEW

This document provides detailed information about procurement for a number of high-value programmes and projects that are ‘identified programmes or projects’ as required by section F6 of the Commerce Commission Transpower Capital Expenditure Input Methodology Determination dated 31 January 2012 and clause 9.14 of the Notice to Supply Information issued by the Commission under section 53ZD of the Commerce Act 1986 on 2 July 2013.

This document has five main sections.

Section 2 provides an update of our standard approaches to procurement.

Section 3 provides an update of the term contract methodologies for procuring key goods and services.

Section 4 provides an update of the open tender approach that we use.

Section 5 provides detailed procurement information for each of the ‘identified programmes’, with reference to the standard approaches outlined in the previous sections.




2. INTRODUCTION

We have a centre-led procurement group that provides assistance to the wider business for procurement of all assets and services and to ensure best value commercial outcomes while meeting Transpower’s obligations as a State Owned Enterprise. The process followed for any procurement is outlined in our Procurement Policy CP.B.CS.

For procurement over $500,000 in value, our Procurement Policy requires that a Procurement Plan is completed and approved prior to going to market and/or suppliers. The Procurement Plan documents Procurement Policy compliance, the approach to the management of procurement risk and how the procurement method will achieve best value across the lifecycle of the contract or project.

The procurement of assets and services is generally through:

open tender single stage or multi-stage

closed tender

direct procurement from a selected supplier (including Yours To Lose methodology1).

For multiple repeatable purchases, tender panels or period supply agreements are set up for defined time periods following an open tender process using standard terms and conditions. Section 3 has examples of term contracts and tender panel contracts:

1 Yours To Lose Methodology is the pre-allocation of work to the incumbent service provider who is responsible for the

maintenance of that area (patch). Each quotation is benchmarked via the Transpower Enterprise Estimation System (TEES). If found not to be competitive, Transpower reserves the right to then go out to open tender.




3. TERM CONTRACTS AND METHODOLOGIES FOR THE PROCUREMENT OF ‘STANDARD’ GOODS AND SERVICES

Section 3 provides an overview of the main term contract arrangements used for procuring frequently required goods and services.

3.1. ENGINEERING DESIGN CONSULTANTS – FRAMEWORK AGREEMENT

Background

We have created a panel of Engineering Design Consultants (EDCs) with specialist expertise from which we can select for specific jobs as detailed in individual statements of work.

An intensive tender process was conducted and a framework agreement established in January 2012 for a period of 3 years followed by a right of renewal for a period of 2 years.

The benefits of having a panel include:

ensuring appropriate resources are available to meet our requirements for specialist services in an efficient manner

developing and retaining a skilled workforce sufficient to meet current and anticipated requirements

enabling the identification of innovations that lead to long-term sustainable cost reductions and efficiencies.

Current situation

The requirements of EDCs will change as the volume of large project work decreases, becomes more repetitive, and there is an increased focus on developing standard design. The future panel for EDCs (from 2017 onwards) will need to reflect these changes.

3.2. GRID MAINTENANCE AND PROJECT WORK CONTRACTS

Background

Grid maintenance and project work contracts consist of:

maintenance of transmission lines

maintenance of stations including high-voltage, direct current (HVDC) equipment

calibration and maintaining certification of metering installations

repair and investigation services of power transformers

‘Yours to Lose’ (YTL) project work.

Following an open tender process in 2012, contractual agreements were put in place with five service providers to provide the above Grid maintenance and project work services. These are in place for a term of nine years, subject to satisfactory performance.




The contractual terms are consistent across all service providers and contract pricing is transparent and comparable across all five service providers. This allows usto benchmark the service providers against each other.

The agreements provide for 3- yearly contract price reviews on the third and sixth anniversary of the contracts, along with Consumer Price Index (CPI) and Labour Cost Index (LCI) adjustments.

Current situation

We have recently undertaken a review of the Key Performance Indicators (KPIs) for these contracts to support fair and consistent management of the contracts. They will provide a clear indication of service provider performance against their contractual obligations and will support continuous improvement of the maintenance business.

Referenced documents

Board Paper 7 December 2011 ‘2012 Contractor Review Programme’

Board Paper 26 January 2012 ‘Contractor Review Programme’

3.3. FACILITIES MANAGEMENT SERVICES – BUILDING AND GROUNDS

Background

We have outsourced our facilities maintenance to the same service provider for 18 years. The service provider is engaged under a fixed management fee to competitively procure, manage and pay a nationwide network of non-electrical subcontractors to complete building related services at more than 195 Transpower sites. The current contract expires on 31 January 2014.

Current situation

We are currently managing an open tender process to explore whether new service providers, new contractual structures, new technologies, or other innovative solutions are available that might, either through a single contract, or multiple contracts, be able to meet all our service and quality needs for facility management services. This process is expected to be completed by the end of 2013.

Referenced document

Procurement Plan for Facilities Management, Version 2 dated 14 November 2012

3.4. CAPITAL AND LINE EQUIPMENT – PANEL AGREEMENT AND PERIOD

SUPPLY AGREEMENTS

Background

We have adopted a Period Supply Agreement (PSA) or Panel Agreement approach for standard capital equipment purchases.

Suppliers, their offered products, and their manufacturing facilities must be pre-qualified to supply us prior to contracts being award. The level of resource and cost allocated to the pre-qualification process is determined by risk-based assessment.




Equipment sourcing is generally through an open tender process. This provides an opportunity to establish the different types of equipment available on the market and evaluate the different options, selecting the product that provides the best value and outcome at ‘least whole-of-life’ cost.

PSA or Panel Agreements are typically for periods of 2 to 6 years, including optional extension periods.

The benefits of PSA or Panel Agreements include lowering prices through aggregating multi-year requirements, creating greater commercial leverage by aggregating purchasing requirements over a period of time, and lowering internal transactional costs due to reduced tendering activity.

Capital equipment typically subject to PSA or Panel Agreements include:

circuit breakers

instrument transformers

surge arrestors

33 kV indoor switchgear

protection relays

insulators

line hardware

concrete poles.

3.5. TRANSFORMERS – PANEL CONTRACT

Background

Transpower had previously adopted a PSA approach for the purchase of transformers, and PSA contracts were in place with two transformer suppliers. Concerns about the performance of these two preferred suppliers have led us to revert to a panel contract approach to procure transformers.

A Procurement Strategy and Procurement Plan was developed and produced in 2009 that specified a panel contract arrangement with three suppliers. Prequalification of five suppliers took place, with trial manufacture following on with three of these suppliers. The Panel contract arrangement has been developed, with PT CG Power Systems Indonesia as the first supplier (included in October 2012) and Hyundai, based in South Korea, as the second supplied (included in May 2013). A third supplier is expected to be included by June 2014.

Current situation

With the panel contract in place, there is a strong focus on capital efficiency, standardisation and continuous improvement. There will be a continued focus on building close relationships with the factories, which includes witnessing factory acceptance tests and attending manufacture inspections and design review meetings.

Referenced documents

PSA ‘concept’ dated November 2000

PSA ‘tender proposal’ to BoD dated February 2005

PSA ‘tender recommendation’ to BoD dated March 2006

Procurement Strategy: Power Transformers dated February 2010




Power Transformer Procurement Plan Issued dated December 2009, updated April 2013

3.6. INFORMATION COMMUNICATIONS AND TECHNOLOGY

Background

We have created a panel of IST recruitment suppliers from which we request consultants for roles where it is more beneficial to have contractors rather than fixed-term employees. The types of roles include business analysts, project administrators and so on.

An intensive tender process was conducted in 2010 and this resulted in an IST Suppliers Agreement Framework Agreement being established for a period of two years, with a further two years of automatic renewal.

Current situation

Once the current contracts expire, a new panel will be appointed following an open tender process. The rationale for a tender panel for these services continues to apply.




4. OPEN TENDER METHODOLOGY FOR THE PROCUREMENT OF ‘NON STANDARD’ GOODS AND SERVICES

4.1. BACKGROUND

Projects that require an investment greater than $5 million and/or are technically complex and/or require the deployment of ‘non-standard equipment’ will require the adoption of a turnkey or Engineer-Procure-Contract (EPC) approach to contract execution. These projects require a two-stage open tender approach to awarding contracts. First we seek Registrations of Interest (ROIs)/Expressions of Interest (EOIs) from the market via the Government Electronic Tender Service (GETS) website to establish a firm list of appropriately qualified vendors. A formal tender inquiry is then issued to these pre-qualified vendors. Typical projects that have followed the two-stage open competitive tender process include:

North Island Grid Upgrade (NIGUP) project

HVDC Pole 3 project

NAaN (North Auckland and Northland)

Wairakei/Whakamaru ‘C’ Line - Civil Works and Tower Erection

UNIDRS Project for Penrose and Marsden Statcoms

Tower painting (regional panel).




5. PROCUREMENT INFORMATION FOR IDENTIFIED WORK PROGRAMMES

Section 5 provides detailed procurement information for each of the “identified programmes”, with reference to the standard approaches outlined in the previous sections.

Outsourcing Methods Acronyms

CT Closed Competitive Tender to respondents based on approved ‘Procurement Plan’

AC Alliance Contracts

NCT Non Competitive Tendering through ‘Direct procurement from a selected supplier’ (and/or Yours To Lose)

OT Open Competitive Tendering that also establishes ‘Term Contracts’ and ‘Panel Tenders’

PCA Preferred Consultants Agreements

PSA Period Supply Agreements

PT Panel Tenders




5.1. GRID-BASED CAPEX IDENTIFIED PROGRAMMES

Expenditure Category Identified Programme Portfolio RCP2 Portfolio Expenditure

Outsourced Elements Outsourced Method

Reference Documents

Grid Replacement and Refurbishment Capex

TL Painting $187m Supply Paint

Site Works

PT The following Contracts are valid to 2017:

TBS Farnsworth SUP-9738

Tobins SUP-9636

Kaefer SUP-9635

Fitzroy SUP-9637

Cake SUP-9529

ACS Power Transformers $106m Installation included in supplier price

PT Procurement Strategy: Power Transformers February 2010

Power Transformer Procurement Plan Issued December 2009 (updated April 2013)

ACS Outdoor to Indoor Conversions

$82m 33kV switchboards Period Supply Agreement

SUP10614 33kV Indoor Switchgear Period Supply Agreement

TL Conductor $34m Supply of Overhead Conductor

Closed Tender

Product Plan Transmission line conductors

Tender SUP11-224

Maintenance Contracts

Re-conductoring works AC

TL Grillages $51m Civil works NCT Maintenance Contracts

TL Tower $2m Supply of tower steel OT to form PSA (tower Steel)

To be developed

Site works AC or NCT Maintenance contracts

SA Substation Management Systems

$47m Design PCA PCA Agreement

Installation NCT or OT TP Works 4






Reference Documents

Grid Replacement and Refurbishment Capex

ACS Indoor Switchgear $30m Design PCA PCA Agreement

Installation OT TP Works 4

TL Insulators $36m Supply of insulators

Installation

OT/PSA

NCT/AC

Contract composite long rod SUP-9601

Contract composite line post SUP-10757

Tender Glass Insulators (contract expires DEC2013)


ACS Instrument Transformers $16m CTs, VTs and CVTs Panel Agreement (CTs), Period Supply Agreements VTs, CVTs

SUP10844 Outdoor CT Panel Agreement

SUP10845 Outdoor VT Period Supply Agreement

SUP10846 Outdoor CVT Period Supply Agreement

Maintenance Projects Opex

TL Conductors $34m Supply of Overhead Conductor

Closed Tender

Product Plan Transmission line conductors

Tender SUP11-224


Re-conductoring works AC

TL Tower $47m Supply of tower steel OT to form PSA (Tower Steel)

To be developed

Site works AC or NCT Maintenance contracts

ACS Indoor Switchgear $6m Design PCA PCA Agreement







Reference Documents

Routine Maintenance AC Stations $162m Site works AC Maintenance Contracts

Supply equipment PSA/CT

Transmission Lines $128m Site works AC Maintenance Contracts


HVDC $50m Site works AC Maintenance Contracts


Training $23m Specialist training of service providers and Transpower staff

PCA Grid Performance – Grid Skills – Vision and Strategy Technical Workforce Capability – 15 October 2012

Grid Enhancement and Development Capex

Otahuhu-Wiri Transmission Capacity



Relieve Generation Constraints $17m Design PCA PCA Agreement


Bus Fault Reliability $14m Design PCA PCA Agreement


Wellington Supply Security $11m Design PCA For power transformers see ‘ACS Power Transformers’

Installation OT

Otahuhu and Penrose Interconnection Capacity

$17m Design PCA For power transformers see ‘ACS Power Transformers’

Installation OT

Bunnythorpe Interconnection Capacity



Upper North Island Reactive Support 2015–2020


Installation OT TP Works 4 or FIDIC






Reference Documents

ICT Capexi IT Shared Communications

Infrastructure $44m Design CT Information Services Strategic Plan

Implementation NCTii

Software NCTiii

Hardware NCTiv

IT Data Centre $3m Facilities OT Information Services Strategy Plan

Transition NCT

IT SCADA/RTS $32m Upgrade

Software

AC/PCA Information Services Strategy Plan

IT Enabling Infrastructure $26m Design OT Information Services Strategy Plan

Installation and Maintenance

OT

IT Finance $22m Upgrade OT Information Services Strategy Plan

Software OT

ICT Opex IT Telecommunication Services $126 Lease costs are $55m and outsourced support services are $35m

CT Information Services Strategy Plan

IT ICT Shared Services $46 Service desk services NCTv Information Services Strategy Plan

Database services OT

Storage services NCTvi

IT Transmission Systems Plan $23 Design CT Information Services Strategy Plan

Upgrade CT

Maintenance CT




5.2. MATERIAL OUTSOURCED ICT SERVICES

Business Service Contract Vendor Term Nature and Scope of Contract

ICT Shared Services ITT01/06 Fujitsu 1 Sep 06 - 31 Aug 14 On-going Operational Contract for the provision of IT service and operational management and support including Service Desk, Data Centre, Network and End User.

Telecommunications Services CMS3192 Alcatel To 30 Oct 14 On-going Operational Contract for the provision of operation and support of WAN, LAN and telecommunications facilities.

IT Shared Services TP0309102-001 Datacom 16 Nov 10 - 16 Nov 15 On-going Operational Contract for the provision of support of middleware applications and database support (Oracle and MS)

IT Shared Services TP0309102-002 Datacom 16 Nov 10 - 16 Nov 15 On-going Operational Contract for the provision of Mid-range (Unix and Linux) Server support.

IT Security Services TP0509202C Dimension Data 11 Dec 09 – 30 Jun 15 plus 2 x 1 year renewals

On-going Operational Contract for the provision of Security devices support.

IT Network Services TP0509202C Dimension Data 11 Dec 09 – 30 Jun 15 plus 2 x 1 year renewals

On-going Operational Contract for the provision of Fixed line telephony device support.

Asset Management Systems Certus 1 Sep 13 - 30 Aug 14 plus 2 x 2 year renewals

On-going Operational Contract for the provision of Maximo (AMIS) system support and development.

i ICT approach depends on the ability to benchmark transaction costs, risks and market maturity ii Mainly through panel arrangements

iii Mainly through panel arrangements

iv Mainly through panel arrangements

v Leveraging benchmarking where possible

vi Leveraging benchmarking where possible