ICEC IX World Congress A Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects Jin, X.-H.1, Zuo, J.2, Xia, B.3 and Ke, Y.4 1 Program of Construction Management, School of Computing, Engineering and Mathematics, University of Western Sydney, Kingswood, New South Wales 2747 Australia. Email: xiaohua.jin@uws.edu.au, Tel: +61 2 4736 0890 2 School of Natural and Built Environments, University of South Australia, Adelaide, South Australia 5000 Australia. Email: jian.zuo@unisa.edu.au, Tel: +61 8 830 219143School of Civil Engineering and Built Environment, Faculty of Science and Engineering, Queensland University of Technology, Brisbane, Queensland, Australia. Email: paul.xia@qut.edu.au, Tel: +61 7 3138 4373 4School of Architecture and Built Environment, Faculty of Engineering and Built Environment, University of Newcastle, Callaghan New South Wales 2308 Australia. Yongjian.Ke@newcastle.edu.au, Tel: +61 2 4921 5544 ABSTRACT Purpose of this paperOne way in which the tendering process can be further improved is by reviewing and clarifying the high costs that participants face during the course of the tendering phase. The study aims to provide project teams working in construction tender preparation a clear picture of what to expect when tendering for infrastructure projects. Design/methodology/approachFirstly, a review of current literatureon tendering in infrastructure projects is conducted to identify the associatedcostsaffectingtraditionalandPPPprocurementsaswellasthepotentialmeasures contributingtotenderingcost-reduction.Atheoreticalframeworkanditscorrespondingresearch hypotheses,whicharebasedontheliteraturereviewed,arethenproposed.Anindustry-wide questionnaire survey is currently under design to solicit industry practitioners views on tendering costs and the associated tendering cost-reduction measures. The data collected in the survey will subject to statisticalanalysistotesttheproposedresearchhypotheses,whichwillbereportedinaforthcoming paper. Findings and valueThedirectandindirectcostsinpublic-privateprocurementhavebeenidentifiedandhavebeen categorised into internal and external costs arising from working on tender submissions.A theoretical framework,mainlycomposedoffivemechanismsofcostreduction,hasbeenproposedandwillbe tested in a forthcoming industry-wide questionnaire survey. Originality/value of paper The findings are expected to lead to a transparent tendering process in infrastructure procurement, in whichthereisincreasedengagementfromtheprivatesectoraswellasanincreaseincompetitive tendering. Keywords: Tendering cost, Infrastructure, Public-Private Partnership, Australia 1 INTRODUCTION 1.1 Background Information Tenderinginlargescaleinfrastructurehashistoricallybeenanarduousanddrawnoutprocessas Contractorsarefacedwithhavingtofillalongbillofpre-requisitespriortobeingshortlistedand consideredforaroleintheproject.Asaresult,tenderinginbothPublic-PrivatePartnership(PPPs) and Traditional Procurement Projects (TPPs) deliver a high factor of cost uncertainty in infrastructure projectsinAustralia(Duffieldetal.2010).Therefore,infrastructureprojectsareundertakenbylarge-scale contractors orconsortiums of companies capable of delivering large-scale government projects (BusinessMonitorInternational,2013).Thisisduetothefactthattenderingcostsfortheseprojects HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 2 arerelativetothevalueofthetotalconstructioncontract(Arditi,etal2011).Consequently,smaller contractorsfindthemselvesunabletotenderinthesescenariosthroughthelackofavailable resources.Dalrymple(2006)showedthatwhilstgovernmentandindustrybodiesdorecognisetheneedto stabilizetheprocess,therehasbeenlittleifnoefforttomakebidding/tenderingsustainableforall partiesinvolved.Incontrast,areportbytheOECD(2007)ratedAustraliaastheworldsmost developedPPPmarket,highlightingtheFederalGovernmentsconsistentworkinimprovingand advancingPPPprocurementpractice.Onewayinwhichthetenderingprocesscanbefurther improvedisbyreviewingandclarifyingthehighcostsparticipantsfaceduringthecourseofthe tenderingphase.KPMG(2010)reportedthatContractorstenderingforPPPprojects in particularare frontingcostsofbetween1%-2%ofcapitalvalueforwinningbiddersand0.8%-1.2%forlosing bidders.InNSWalone,thetotalvalueofstateinfrastructureprojectsalreadycontractedouthas exceeded $15.3 billion. 1.2 Research Problem The figures shown in the previous section, as well as the ever increasing number of private contractors workingonpublicprojects,statethatthereisagrowingneedtoidentifytheindirectorex-antecosts associatedwithtenderingforlargescalepublicprojects.Identifyingthetheoreticalcostsand complexitiesinvolvedininfrastructuretenderingwouldeventuallyleadtoatransparentprocessin whichthereisincreasedengagementfromtheprivatesectoraswellasanincreaseincompetitive tendering. The study aimsto provide project teams working in construction tender preparation a clear picture of what to expect when tendering for PPP projects. At the moment, there is no existing theory that allows professionals to determine the transaction costs in PPP projects (Solio & Santos 2010). As the Australian Construction market becomes increasingly aware of success in foreign PPP projects, so does the requirement for a transparent tendering process increase. It is this studys objective to fulfil that requirement by providing contractors with the knowledge to decide the benefits of participating in PPP as opposed to non-PPP projects beginning with the tendering process. AcomparativepicturewillbedrawntohelpparticipantsdeterminethebenefitsofthePPPmodelas opposed to traditional procurement such as Design & Construct, and Lump Sum/Managing Contractor agreements.AbenchmarkingstudyundertakenbytheUniversityofMelbourneandAllenConsultingreleasedin 2008 found that an average of 14.8% of PPP projects are frequently delayed prior to the execution of contract. The study will help to give insight into these delays and subsequently give weight to the notion that PPP projects are more mature when they go to tender. In addition, the research will serve to assist future studies that aim to identify whether this increase in maturityprovidesabasisformajorcostsavingsduringthelaterstagesofAustralianinfrastructure projects.Inparticular,theresultsfromthispaperwillsupportstudieslookingtodeterminingthe justificationbehindtheincreaseinpre-contracttransactioncostsandwhetherthesecostsaffectthe success of the overall project. 1.3 Research Questions The research questions proposed for this study are:i.Whatarethedirectandindirectcostscommonlyincurredinthetenderingstageofpublic infrastructure projects or PIPs using both PPP and TPP procurement models?ii.Whataretheeffectivemethodsofreducingorstabilisingthosedirectandindirectcostsin tendering for Australian PIPs?Direct costs are cash outlays that can be clearly attributed to a projects performance and are essential to its completion. In construction, these items include plant, material, labour and physical management of constructing the facility. On the other hand, indirect costs are items that are not directly related to the physicalcompletionofanactivitybutratherrepresenttheoutlaysneededformanagingdirectcosts. Theseincludeadministration,capitaltools,insurances,taxes,contractorfeesandstart-upcosts (AACE International 2013). 1.4 Research Aims and Objectives HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 3 The aim of the research is to identify direct and indirect cost outlays that Contractors and Clients face throughoutthetenderingprocessofinfrastructureprojects.AcomparisonbetweenPPPand D&C/DB/Alliance contracts will be made to help understand the differences between the cost outlays in each contract model. ThesecondaimofthestudyistoidentifyCriticalSuccessFactorsthatcontributetothereduction in those costs. This will be achieved through the Literature Review as well as a Survey used to allocate weighting to those Critical Success Factors. The objectives of the study are: i.ToidentifythecostsinvolvedintenderingfortraditionalprocurementandPPPinfrastructure projects ii.To ascertain the Critical Success Factors that that lead to a reduction in those tendering costs in each of those procurement methods 1.5 Research Scope AnoverviewofthecurrentprocurementproceduresinAustralia reveals a multitude of variations that can be applied to suit complex infrastructure projects. This study will be limited to addressing tendering costsfoundinDesign-Build-Operate-Transfercontractsinpublicprivatepartnershipprojects.A comparativepicturewillbedrawnagainsttraditionalprocurement,particularlywherethepublic procurementbodymaydecidetoimplementtwoseparatecontracts;engaginga contractorto design and build a facility, and then a second contract to operate and maintain the facility post commissioning. TheAustralianFederalandStateGovernmentshaveahandinadiverserangeofinfrastructure projectsandaggressivelypursueinvestmentinnewpublicprojects.Therefore,thisthesiswillfocus onlyontransportandhealthinfrastructureprojectsinNSWandinparticular,thecontractorsthat administeredorareadministeringthosecontracts.Inaddition,forcomparativepurposes,allprojects will be within a value category of $100 million - $1 billion. For the purpose of maintaining the fidelity of information,datawillbesourceddirectlyfromtheproponentsdirectlycontractedtoinfrastructure projects. Tohelpenhanceanaccuratecomparisonbetweenprocurementmodels,datawillonlybesourced from projects contracted since 2000. Due to the fact that, when this paper is under writing, the data collection (i.e. the questionnaire survey) is underway, the literature review of this research and the resultant theoretical framework are the focus of this paper. 1.6 Outline of Paper Section 1 provides a background to tendering in PIPs in Australia and highlights the cost related issues found in the process. The research problem is discussed, followed by the research questions, research aims and objectives, and research scope. Section2containsaliteraturereviewwhichconsistsofacriticalanalysisofpreviousliteratureof researchrelatedtothisresearch.Literatureontheinfrastructureprocurementmodelsusedinpublic projects, the majorcosts found in each practice and, a brief introduction to the factors contributing to the reduction of these costs is included.Section3introducesa theoretical framework forinvestigating costs and methods of cost reduction in PIPs.Themainhypothesisisprovidedhereaswellasthesub-hypothesesforfurtherempirical investigationfollowedbyabrokendownexplanationofthetheoriesandparadigmsofthetheoretical framework. In Section 4, the research method used for empirical testing and analysis is set forth. The design and structure of the questionnaire survey used in the study is explained and the method of results analysis is discussed. Section 5 summarises the research work carried out so far and the preliminary findings are discussed. A conclusion and the direction for future study into the field of research are included. 2 LITERATURE REVIEW Thethemesinthefirstsectionofthisliteraturereviewareconcernedwithunderlyingthetheoryof TransactionCostEconomics.Thesecondsectionoftheliteraturereviewconsistsofcomparisons betweenPublic-PrivatePartnershipcontractsaswellastraditionalprocurementcontracts.Withinthe HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 4 literaturereview,agapinthebodyofknowledgeinto publicinfrastructure procurementishighlighted takingintoaccountthefindingsofpastliteratureonthetopic.Theanalysisoftenderingcostsin traditional procurement takes examples from the Design and Construct method of procurement. 2.1 Infrastructure Procurement in Australia 2.1.1 Traditional Infrastructure Procurement Regan(2009)completedaresearchreportintoalternativefinancingmechanismsandfoundthat approximately64%ofAustraliaspublicinfrastructureiscurrentlyprocuredthroughtheutilisationof short-term construction contracts under design-build arrangements. An additional 17% of projects are operatingunderalliancecontractingmethodsandafurther14%isoutsourced.Short-term contracts areessentiallymanagedbyaprivateContractorwhereinmanyinstances,iscontractedtoproject team and treated as a Design & Construct or Managing Contractor agreement.The fundamental difference between a PPP contract and a conventional procurement contract is that withaPPP,theGovernmentcontractsforaservicewhereasaprojectbasedonatraditional agreement is concerned with only the facility being constructed. Infrastructure Australia (2012) clearly definesthedistinction,asseen inFigures1 and 2between the two by stating that by utilising a PPP model, the Government is focused on the service output that will be provided by the facility rather than the facility itself. Figure 1 Typical D&C Contract (Infrastructure Australia) Figure 2 Typical PPP Contract (Infrastructure Australia) HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 5 2.1.2 The Australian PPP Market Public-Private Partnerships or PPPs is broadly defined as the relationship in which Governments work intandemwiththeprivatesectorindeliveringpublicprojectsand/orservices(Broadbent&Laughlin 2003).Broadbent&LaughlinaddthatthepurposeofthePPPprocurementmodelistoprovidean approach to delivering a public project by allowing more control over the contract than what would be normally achieved by a traditional procurement method. A typical PPP contract structure can be seen in Figure 2.TheAustralianGovernmentbecameawareofthismodelaftersuccessonPPPprojectsoverseas, specifically in the U.K. and Canada, were realised. Learning from the practices of these Governments, AustraliasoughttobecomemoreinteractivewiththeConstructionsectorespeciallyafterextensive privatisation of Government infrastructure assets in the 1990s. AsthenumberofPPPprojectsincreasedaroundtheworld,sodidAustraliasknowledgeof procurementtechniques.TheFederalandStateGovernmentsaggressiveapproachtoinfrastructure investmentaswellasreadysupportfromtheresourcesectorwasfundamentallyimportanttothe Construction boom in the 1980s-90s. Thesubsequentgrowthupuntilthemid-2000sheavilyinfluencedsurplusfiguresinthecountryand allowedAustraliatobecomeoneoffewdevelopedeconomiesrunningasurpluspriortotheGlobal FinancialCrisisof2008.AccordingtoLiyanage(TheGFCsawAustraliaincreaseheavilyin Governmentinvestmentinpublicinfrastructureprojectsaimedatrevitalisingthecountryseconomy. ThisgovernmentexpenditurehelpedrealiseastableAustralianeconomyintimeswhenadvanced economies were close to, or in the midst of, recession.Toaddtothisstabilisingfactor,theGovernmentofKevinRuddintroducedtheNationBuildingand JobsPlan(StateInfrastructureDelivery)Act2009.Thelegislationactedtoreleaseinfrastructure projectsfromplanninglegislationiftherewasaninherentdangerofthoseprojectsbreakingtime constraints. Consequently, the easing of federal planning requirements represented an opportunity for Australian infrastructure to achieve parity with demand caused by increasing population growth. Figure 3 shows the degree of maturity of Australias infrastructure market in relation to other developed countriesas reported by the Organisation forEconomic Co-operation and Development in 2007. The figuretakesintoaccountlegal,regulatoryandfinancialfactorsaswellasestablishedframeworkfor privateownershipofinfrastructure.Eventhoughthiscomparativefigureishigh,itisbasedupona limited number of projects undertaken since 1982. This year heralded New South Wales adoption of thePPPmodelthroughthecommencementoftheSydneyHarbourTunnel(Kozarovski 2006)(Johnston 2007). Figure 3 Variations in infrastructure market maturity across global markets (OECD) A report by Ernst and Young commissioned by the Financial Services Council in 2011 highlighted the flawsintheOECDsassessmentofAustraliasPPPmarket.Thefindingsidentifiedakeybarrierto marketcompetitionthroughthelackofPIPs as well as clear government commitment to investing in public-private partnership projects in Australia.

HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 6 In contrast, 39 PPP projects totalling $17 billion were contracted out between 2000 and 2006. In 2006, Infrastructure Australia identified 160 nationally significant projects that were estimated in 2007 to value $700 billion (Infrastructure Partnerships Australia 2009)(PricewaterhouseCoopers 2011). Currently, PPPs represent approximately 5% of total public infrastructure in the Australian construction sector(AustralianProductivityCommission).Inaddition,therehasbeenevidenceofincreased Governmentsupportofpublic-partnershipprojectsthroughFederalinitiativessuchasthe$15bBuild Australia Fund which was established in 2009 to finance national transport infrastructure projects.A further$350b wasput on the books by the Federal Government to invest in the next decade, all of which would be appropriate candidates for the PPP funding model (Raisbeck 2009). 2.2 Tendering Costs Itisimportanttounderstandthelayoutoftypicalcontractstagesinordertodeterminethecosts involved in PPP contracts. An example of a tender process for a PPP typically includes prequalification of tenderers, evaluation of tenders, negotiation, and finally, the awarding of the contract. Wing and Walker (1999) determined that the costs in tendering include the cost of drafting contracts, settingupthemechanismsforobtainingtenders,preparingothercontractdocumentationandfor ensuring the subsequent execution of the contracts by consultants and contractors. SolinandSantos(2009)found that tendering costs can be viewed as being internal and external to involvedparties.Researchperformed on transport PPP structures found that tendering parties would classifypre-procurementtransactioncostsasoverheadexpensesandwouldthereforeapplya standardfactortotakeintoaccountindirectcostsplusthecostofthestaffworking in that company. The majority of tendering costs are incorporated into organisations overhead costs or operational costs and henceforth applied to total profit percentages applied in tender proposals.ThenowdefunctAustralianCouncilforInfrastructureDevelopmentpreviouslystatedthatunless tendering processes are well run it is possible that the benefits of using a PPP for delivering the project may be outweighed by the tendering costs. The complexity of PPP tendering gives rise to the fact that theprocesscanbereformedtoallowforthereductionintransactioncostsincurredbytendering participants. The allocation of thosecosts can be subsequently transferred or shared between tender proponents or the public procurement authority. 2.3 Tendering Costs in Traditional Procurement 2.3.1 Direct Costs Birnie(1997)foundthattendercostsforPFIprojectsintheUKrangedfrom0.48-0.62%ofthetotal projectcosts,whicharehigherthanthoseforconventionalprocurement(i.e.,design-buildprojects (0.18-0.32%) and traditional design-bid-build projects (0.04-0.15%)). In 2008, Whittington completed a revisedstudyusingdatafromsixprojectsandfoundthattendercostsinthedesign-bid-buildproject procurementmodelrangedfrom0.48.8%ofthevalueofthecontract;Thestudyalsodiscovereda marked increase of 2.2% on average in cost for the design/build project procurement system. In comparing the pre-contract make up between traditional and PPP infrastructure procurement, Rajeh et al. (2013) found that less costs, as a percentage of total contract value, are realised in conventional models. Figure 4 shows the costs identified in the study to occur in all procurement models. Rajehetal.(2013)reported that in traditional procurement models, all design documentation is often completedpriortogoingtotenderandasaresult,pre-contractcostsarecertaintobelowerthanin PPPdevelopments.Incontrast,underPPPprocurementprocedures,theresponsibilityandcostsof design come down to the Contractor and are coordinated when preparing detailed tender packages.Additionally,thedesignfeesaretreatedasdirectoverheadexpensesandhencecontractorsdonot proceed with recompensing those fees from the procurement authority in the event of a lost tender. To helpabsorbandmitigatethosecosts,tendererschoosetointegrateacostingfactorintotheirprofit percentage. In traditionally procured projects such as design and construct, the direct costs incurred in tendering are normally covered in the Bill of Quantities, or are applied at the end of the project in lump sumcontracts.Alternatively,tenderparticipantsmayintegrateanoverheadfactorintotheirprofit percentage (Buchanan et al. 2003). HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 7 Figure 4 Delineation of TC activities in construction procurement systems (Rajeh et al. 2013) 2.3.2 Indirect Costs Indirect construction costs in traditional procurement tendering have been defined by Shash (1993) as the costs that go into the preparation of anything related to the operations of the tenderer in preparing thetender.Theseincludeprojectoverheadsandcontingenciesthatarisewhilstthetendereris performingtasksrelatedtotheprojectandoperationsthatarecontributorytotheoutcomeofthe contractors tender result. Chan et al. (2004) furthered this definition by stating that indirect costs could berepresentedbyexternalcostssuchaslegal,technicalandfinancialadvice,andin-housecosts includingminoroverheads(utilitiesandservices,insurancesandbonds,safety,supervision,office expensesetc.) and salaries related to ongoing pre-contract project management. Shash determined that contractors who experienced an unsuccessful bid were forced to write off these costsandothercostsrelatedtopreparingthebid.Consequently,itwasfoundthatContractorswere developingasystemofriskmitigationbymarkinguptendersinfutureproposalstocoverthelosses however this is a risk in itself. However,Chao(2009)arguedthatestimatingoverheadcostsinasubjectivemannerisproneto inaccuracy and hence developed an alternative method of assessing costs before cash outflows have commencedonanyparticularprojectproposal.Chaocreatedaneuralnetworkmodelthatallowed users to input data annually which allowed the model to interpret future costs relative to the trends of accumulated cost data. The study recognised that tender preparation stages are short in duration and highlightedContractorsunwillingness to adopt such a stringent measure that would deferknowledge basedonpreviousexperience.However,ChaostatesthatContractorshavethebenefitofusingreal cost data that can be modelled to specific requirements and attributes of the proposed project so that efficient cost savings can be made. 2.4 Tendering Costs in Public-Private Partnerships 2.4.1 Direct Costs In2010,theCommitteeforEconomicDevelopmentofAustraliadevelopedanactionplanonwhat needed to be addressed in improving Australias infrastructure. Amongst the priority list, PPPs and in particular,howthecurrentframeworkwasatthattimeaddressingPPPscameunderscrutiny.The CommitteeestablishedthatPPPswereinternationallyuncompetitive,inefficientandcontainedtoo many barriers to the local market.Infrastructure Australia, the countries peak advisory body on infrastructure development commissioned a report by KPMG that same year which consequently reported that the main barrier to procurement in PPP projects is the high costs of design documentation. Design costs are arguably the most expensive componentofanytendersubmissionandcanaccountfor50-60%ofthetotaltenderingcosts.The study highlighted what was achieved in a survey undertaken by the Australian Department of Defence HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 8 (1994). The study stated that frequently varying requirement specification, as well as the arms-length approach requiring tenderers to guess requirements contributes most to the design costs involved in documenting.Inaddition,ifallprequalifyingtendersincludethesamelevelofcomprehensivedesign documentation,theresultant pressure on the already imposed time constraints ofthe tender process becomes evident. The NSW Government (2012) states in its PPP Guidelines that tender costs incurred by tenderers are rarelyreimbursed.Aprocedureexistshowever,thatallowstendererstoapplyforrecompensefor reasonable bidding costs but this requires Cabinet approval upon the recommendations of the state Cabinet.Thepolicystatesthattherefundingofdesigncostsinparticulararedependentonthe complexity of the design proposal.TheEuropeanInvestmentBank(2005)arguedthefactthatwhilstlargeportionsofdesigncostsare frontedbytenderers,EUGovernmentsdooffsetthesecostsbyprovidinganumberofservices.An exampleofthisoffsetcanbefoundinpreparingduediligencestudiesforparticipantssothat organisations would not need to conduct their own study into the potential viability of participation. The documentationinvolvedinpreparingthisfeasibilitystudyincludesEnvironmentalimpactstudies, preliminary designs, marketing studies, and financial analysis; all with significant value attached.The allocation of capital and other resources at a later stage requires tenderers to assess whether their participationintheprocessisviable.Theavailabilityofagovernment-contractedfeasibilityreportwill helporganisationsmakethisassessment.ResearchintothecostsofduediligencebytheSouth African National Treasury in 2004 found that in submitting tenders for PPP projects, tenderers should expect to account for the risk and the costs associated with that submission. However, the report also foundthatitwasviablefortendererstosharethecostsinpreparingdocumentationwhereoutputof necessary due diligence reports would be utilised by all parties involved in the process. In addition to the preparation of preliminary documentation, Governments also front the costs involved withwritingthecontractswhichrequiresreceivinglegaladviceandcostsassociatedwith administrationandnegotiation.WingandWalker(1999)statethatalthoughtransactioncostsin negotiating contracts may be high, they may be beneficial to the long term health of the project in the sense that they contribute to the stability of the contract by defining and clarifying the future roles and expectations of the successful tenderer.Incontrast,AhadziandBowles(2001)statethatsomecontractnegotiationstagesmaybequite extensiveandhencebeadrainonresourcesoveranextendedamountoftime.However,this researchwasbasedonPFIprojectsintheUnitedKingdom;averagetender and negotiation times in U.K.rangefrom18to60monthswhereastenderphasesin Australian PPP projects are significantly lower and can range from 14-19 months for social infrastructure projects (NAO 2007). Grimsey and Lewis (2007) found that PPP tenders are more complicated and therefore more costly to prepare than traditional procurement contracts. The level of complexity found in PPP contracts depend ontherequirementsofthepublicprocurementauthority.Forexample,in2006,NSWHealthand JusticeHealthcoordinatedwithaprivateconsortiumconsistingofBrookfieldMultiplex,Babcockand Brown,andothersto delivera new 135 bed forensic hospital as well as an 85 bed prison hospital at LongBayGaolinMalabar.Thecontractrequiredtheconsortiumtofinance,design,construct,and commission the facility over a period of approximately 28 years. Consequently, pre-contract tendering andnegotiationcontinuedfor20monthsuntilthepreferredtendererwasannouncedin2005(NSW Health 2006). Birnie (2007) states that a possible method of reducing these costs could be advertising the preferred biddersatanearlystageaswellasbyadheringtoastrictdeadlineforcontractsigning.Strict adherence to these timetables would assist participants put a figure on the transaction cost input over the life of the tender phase. 2.4.2 Indirect Costs The indirect costs realised in traditional tendering practice are considered less of an impact in PPP due to amount of resources available to contractors participating in large scale infrastructure development. Companies such as Leighton Contractors and Baulderstone work autonomously under their respective conglomerates but internal accounting procedures allow for finance borrowing from parent companies. Theapproachconsequentlyprovidesthesecompanieswiththeabilitytolimittheflowofitems including interest payable to within the Conglomerate. The result is the contractor recording the interest payable and the parent company recording a Returnon Interest or ROI. The availability of extensive resourcesmeansthattendererscanavoidexternalborrowingcostsandarehenceabletominimise these costs. HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 9 Extensive negotiation and complex pre-contract tenders are the norm due to the lengthy contract term dictatedinDesign-Build-Operate-Transfer(DBOT)andOperate-Transfer(OT)contracts,typically spanningbetween25-30years.AstudyundertakenbytheNewZealandDepartmentofTreasuryin 2006 identified that the extensive pre-contract processes are necessary due to the need to anticipate allcontingenciesthatcouldariseinsuchlong-termcontractualrelationships.Consequently,itwas foundthatthelegalcostsareamajorcontributoraffectingpre-contractcostsandtherelationship betweenthesefactorsareintertwined.Inaddition,itwasfoundthatlegalandnegotiationcostswere mostaffectedwhere there were several tenderers participating up until the call of preferred tenderer. ApartfromthelegalcostsincurredinSPV-Clientnegotiationsandtendering,thestudyalsoshowed thatcompanieswithineachtenderingconsortiumarefrontinglegalcostsincontractnegotiatingwith each other during the preparation of tenders.As previously stated, according to the Australian Productivity Commission, PPPs only represent 5% of publicinvestmentininfrastructure.Consequently,immeasurableopportunitycostsonlyrepresenta minorcomponentofparticipantsindirectcostsintendering.Blakeetal.(2010)statedthattenderers havea33-50%chanceofpassingtheRequestforProposalsstage(RFP)andsothereforecan reasonablyassumetheoutcomeoftheirtender.WestpacCorporation,intheir2008submission coveringimprovementinPPPprojects,statedthatintheirexperience,publicclientsrarelyfollowset tenderschedules.Consequently,unforeseeninterruptionsusuallyoccurhenceaddingtolost opportunity for proponents in other sectors. The report also found that the frustrations incurred by the tenderers might in fact lead to a substandard tender proposal. 3 THEORETICAL FRAMEWORK AND RESEARCH HYPOTHESES Regardingtenderinginpublicinfrastructureprojects,anumberofstudieshavebeenconductedinto developinganunderstandingofthecostsrelatedtotheprocess.Amajorityofthesestudieshavein fact,recognisedtheimpactofbidcostsinpublicinfrastructureandparticularlyinpublic-private partnerships and have stated the lack of sufficient empirical research on the topic (Rajeh et al. 2013, Hackett et al. 2007, Hughes et al. 2006, Murdoch and Hughes 2008). In addition, there are extensive studies directly related to identifying the costs in traditional procurement projects but limited research has been conducted into developing an understanding of tendering costs in public-private partnerships in the Australian Academic realm. As a consequence, current Academic literature in Australia falls short of providing a conclusive analysis of methods that can be implemented to assist proponents reduce those costs.Thegapsintheresearchbodyofknowledgehavebeenidentifiedbasedontheliteraturereviewas follows: Thepredominantlyusedtraditionalprocurementmodelsinpublicinfrastructureprocurement design-build and alliance contracts. The most popular alternative to traditional procurement contracts is the public-private partnership model.Thedirectandindirectcostshavebeenpreviouslyresearchedoverseaswithlimitedresearch having been conducted in Australia Methodsofreducingthesecostshaveatheoreticalbasisbutlimitedstudieshavebeenputinto practicetobeabletodeterminethesignificancetopublicinfrastructureprocurementinAustralia. These mechanisms include: oOpen tendering proceduresoClosed tendering procedures oDecision support systems (DSS)oCost sharing,oEarly announcement of preferred bidders and short term procurement strategies. An analysis on methodology of cost reduction in tendering for public-private partnerships and traditional procurement models is required. 3.1 Theoretical Framework The Theoretical Framework is constructed around the notion that by implementing certain procedures, proponentsparticipatingintenderingforPIPscanrealiseareductionincashoutflows.Figure5was createdtoaddresstheknowledgegapfoundintheLiteratureReview.Theflowchartdepictsthe differentprocurementmodels(innercircle)tobereviewedthroughasurveyquestionnairetargeting currentproponentsutilisingthosecontractsinpublicinfrastructureprojects.Thedifferentcost-reductionmethodsaregraphicallyrepresentedintheoutercircleswiththearrowsdepictingand HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 10 influenceoncostreductiononthosecontracts.Theinfluencecanbedefinedashavingapositiveor negativeimpactoncost-reductiondependingontheexperienceofthesurveyquestionnaire respondents. Figure 5 Theoretical Framework of tendering cost-reduction mechanisms in PIPs 3.2 Research Hypotheses Themainhypothesishasarisenfromtheliteraturereviewandhasbeendesignedtodevelopan understandingoftheeffectivenessofcost-reductionmeasures.Themainhypothesisisasfollows: Undertaking cost-reduction measures are conducive to reducing costs during the tendering stage. There are five sub-hypotheses developed to target each of the identified contracts most widely used in publicinfrastructureprocurementinAustralia.Thesub-hypotheseshavebeenconstructedafter reviewing the related literature. The five sub-hypotheses are as follows: 1.Opentenderingcreatesthemosteffective stabilising factorforcash outflows in tendering for Australian PIPs; 2.Limited tendering creates the most effective stabilising factor for cash outflows in tendering for Australian PIPs; 3.ADecisionSupportSystem(DDS)isthemosteffectivemechanism forminimising costs in tendering for Australian PIPs; 4.Thewinningtendererpayingaportionofthecostsincurredbylosingtenderersisthemost effective method of minimising costs in tendering for Australian PIPs; 5.Announcingpreferredtenderersearlieronintheprocessalongsideadherencetoastrict procurement timeframe will ensure the minimisation of costs in tendering for Australian PIPs. Thesefivesub-hypotheseswillbeusedtodemonstratetheeffectivenessorinadequacyofcost-reductionmeasuresinthemostpredominantlyusedprocurementsystemsinAustralianpublic infrastructure. 4 RESEARCH METHODOLOGY The purpose of this study is todetermine the effectiveness of tendering cost-reduction approaches in publicinfrastructureprocurement.Thiswillbeachievedthroughaliteraturereviewand questionnaire survey.Initially,areviewofcurrentliteratureisutilisedtodeterminethedirectandindirectcosts affecting Traditional and PPP procurement as well as the critical success factors contributingto those costs.Aquestionnairesurveyandsubsequentstatisticalanalysiswillfollowtotesttheproposed theoretical framework and research hypotheses, which are based on the literature reviewed.Aquestionnairesurveywillprovidegreaterinsightintohowtheidentifiedtenderingcost-reduction measurescouldimpactvarioustenderingcosts.Theinformationandfindingsarisingoutofthe respondents answers will be used to help compare the effects of these measures between PPP and traditional procurement models in public infrastructure projects. HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 11 4.1 Research Approaches The research study will adopt a qualitative and quantitative mixed questionnaire survey to help test the practicalities of the cost-targeting measures identified in the literature review. The qualitative approach of the questionnaire survey will allow the respondents the opportunity to convey their perceptions and opinionsonquestionswithanemphasisondescriptivewordedresponses(FellowsandLiu,2003). Neuman (2011) considered quantitative methodology to be a data condensing approach in the sense that the results from this process allows the research to depict the results of the questionnaire survey throughmeasurablenumericalanalysis.Neuman(2011)addedthatqualitativedatacompliments quantitative sources by adding context to give perspective on survey responses. 4.2 Survey Research Questionnaire surveys are effective tools that allow for quick access to easily quantifiable data that can beanalysedinamorescientificandobjectivemannerthanotherformsofresearch(Popper,1959; Ackroyd&Hughes1981).Thequestionnairesurveywillbedesignedanddistributedtotheidentified respondents via the online survey platform Survey Monkey. The online platform allows for the testing of multiple hypotheses and variables through the use of a single questionnaire survey and hence only one survey distribution run is required to fulfil the objectives of the study. Questionnairesurveysarebeneficialinthesensethattheycanbedistributedtotherequired respondents with relative ease, can be easily constructed according to the requirements of the study, can test multiple hypotheses and variables on the one survey, and have provisions for output to other programsforgraphingandtabulation(Ackroyd&Hughes1981;Popper2004).Apartfromthose benefits, the obvious advantage are the low-costs associated with administering the survey online, as well as the mobility and geographical reach that can be achieved by making the study available online. This study may be limited by a possible low response rate that is common with questionnaire surveys. AccordingtoKumar(2011),receivinganextremelylowresponserate,thefindingswillresultinlow applicabilitytothepopulationstudied.Financialincentivesand/orgiftswillnotbemadeinreturnfor feedback.Tocounterthesedrawbacks,asystemtoremindthepotentialrespondentswillbe implemented to help boost the response rate and reach the goal of 50%. In addition, another limitation ofthesurveywillbethetimeconstraintsimposed;athoroughanalysisreviewingmoreprocurement models will not be achieved and so only the most popular procurement models will be included in the questionnaire survey. 4.2.1 Questionnaire design The structure of the questionnaire will be based on the following headings (Norman, G 1932): 1.Background of respondent- these questions will endeavour to determine the role, experience and, expertise of the respondent. 2.Procurementhistoryofcompany/briefcompanybackground-thissectionwillseekto determine the procurement methods the respondents' company have participated in as well as to help gain an understanding of the number of tenders the companies have taken part in.3.Tendering costs - a series of questions employing the Likert psychometric scale to determine high-low cost factors 4.Costreducingmeasures-brokendownandutilisingtheLikertpsychometricscale-asks respondents to determine practicality of cost-reducing mechanism to procurement model 5.Discussion-allowing respondents to provide unstructured feedback on issues not covered in the previous sections. The first set of questions in the questionnaire survey will be made up of qualitative questions designed toprovidebackgroundtothequantitativequestionsinthesurvey'sfollowingsection.Specifically,the quantitativequestionsinthequestionnairesurveywillseektodocumentrespondents'experiencein tendering for public infrastructure projects, note their experience in other projects as wellas their role within their company. The second set of questions will be based on the quantitate method and will be structuredtodocumenttherespondent'sviewsonthepracticalityofadoptingthecost-reduction measures found in the literature review. HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 12 Thequestionnairewillbemadeavailableviatwomethods;initially,thequestionnairewillbesent directlytorespondents'identifiedemails.Thesecondsurveyportalwillbewebsite'SurveyMonkey' with the aim of achieving a 50% response rate. 4.2.2 Survey sample size Jin(2008)completedasimilarresearchstudytothisthesisinwhichthepopulationsamplewas identifiedasalltheprofessionalsthathavebeenorarecurrentlyinvolvedintenderinginpublic infrastructureprojects.Theyincludeconstructioncontractors,maintenanceandrefurbishment contractors,governmentagencies,subcontractors,andsuppliers.Jin(2008)foundthatitwashighly difficult to identify the exact number present in the population of a complex and highly specialised study sothereforeamethodofutilisingjudgementalselectionaswellasthekeyinformantapproachwere adopted (Tan 2004; Marshall 1994).Firstly,thejudgementalselectionofsamplesinvolvesmakingsubjectivedecisiontosampling-a process that relies on intuition and non-quantitative methods in the evaluation process. Secondly, the keyinformanttechniqueinvolvesselectinganexpertthatduetotheirpersonalskills,positionwithin societyorcompanies,haveadeeperinsightintothefieldofknowledgeandcanthereforecontribute most as "natural observers" (Marshall 1994; Tremblay 1958). Jin (2008) selected these key informants byinitiallyidentifyingprojectsrelevanttohisstudy,identifyingtheproponentsinthoseprojects,and finallyidentifyingthemajordecisionmakersandprofessionalswithinthoseorganisations.Thisstudy willfollowthatmethodologyintandemwithjudgementalselectioninordertoensureaneffective sample size is taken from the population. A sample size cannot be found in this research study due to the highly specialised sector that is PPP and Traditional procurement public infrastructure tendering. 4.3 Data analysis Dataanalysiswillbeconductedonboththequantitativeandqualitativesectionsofthesurveyto achieveanefficientcoveroftheresultsobtainedfromrespondents.FellowsandLiu(2003) recommend using a first and second pass method on qualitative data which allows systematic multiple passes and categorisation of data to ensure a complete analysis of that data. Quantitative data will be analysed statistically to test or confirm or contradict the conclusions that have been drawn on the basis of understanding of analysed data (Kumar, 2011). The statistical analysis of quantitative data from the questionnaire survey will be carried out using the SPSSStatisticssoftwarepackagewhichallowstheabilityto"clarifyrelationshipsbetweenvariables, createclustersandidentifytrends"indata(Field2013).Thereturnratewillbebasedoffthe recommendationsmadebyRubinetal.whostatedthatatleast50%isadequateforanalysisand reporting for social science research (Rubin & Babbie 2009). As this study relies on comparison, an independent-samples test procedure will be required which will allowthemeansofboththePPPandTraditionalpublicprocurementmodelresultstobecompared. Results from the questionnaire survey will be categorised according to the procurement model tested in order to apply the t-test comparison effectively. Levene (1960) introduced the process of analysing a differenceinthemeanusinganullhypothesiswhich,putsimply,worksasareferencepointforall testedhypotheses. Levene's (1960) theory also provided a test forequality of variances which stated thatadifferenceofmorethan0.05fromthisreferencepointindicateda high difference between the variables, and a difference of less than 0.05 indicated a low factor. Thenullhypothesesrepresentssimilargroundandcharacteristicsfoundthatboththehypotheses share and for this study, the similarity, once tested could perhaps be the magnitude of tendering costs in PPP and also the magnitude of costs in Traditional tendering procurement systems. The differences inmeancouldrepresentthedifferencesfoundin the cost-reduction suitability index of both PPP and thecost-reductionsuitabilityindexofTraditionalPIPs,resultsofwhichwillbedrawnfromtheLikert-scale questions. 5 CONCLUSION In this paper, the direct and indirect tendering costs in public-private procurement have been identified andcategorisedintointernalandexternalcostsarisingfromworkingontendersubmissions.A theoreticalframeworkwasformulatedtohelpidentifythemeasuresinwhichthestudywilltackle tenderingcostsinAustralianPIPs.Thestructureofthetheoreticalcomponentofthestudyhas been HOME INDEXA Theoretical Framework for Reducing Tendering Costs in the Procurement of Infrastructure Projects 13 designed to demonstrate how the different cost reduction mechanisms will be compared against each other. A consequence of this delineation will be the ability to determine how eachprocurement model reacts to each mechanism and how these reactions contribute to the weighting contributory to the main hypothesis. The five mechanisms of tendering cost reduction that have been derived from the literature reviewwillbethefocusofthequestionnairesurveyinthisresearch.Theyare:Opentendering procedures; Closed tendering procedures; Decision support systems (DSS); Cost sharing; and Early announcementofpreferredbiddersandshort term procurement strategies.A gap has been foundin thebodyofknowledgeanditwillbebasedongivingweighttoordisprovingthosecostreduction factorsintheformofaquestionnairesurveyaimedatproponentsworkinginpublicinfrastructure procurement. The methodology of carrying out the research has also been discussed in detail. This methodology will beutilisedtotestthehypothesisandsub-hypothesesviaaquestionnairesurveyputforwardto participants.Quantitativeandqualitativedatasourceswereintroduced,aswellastheindependentt-testing analysis methodology which will be applied to the participants results. The method of selecting an appropriate sample from the population as well as the acceptable return rate for the study was also identified.Limitationsinthequestionnairesurveytoolwerediscussedaswell.Thequestionnaire survey is underway when this paper is being prepared. The survey results and findings will be reported in a future paper. 6 ACKNOWLEDGEMENT The authors are grateful to Mr. S. 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