Annex B
POINTS MADE TO COMMISSION OFFICIALS
ASSURANCE
We see significant value in independent scrutiny
of the project business case at key decision points. This allows
decision makers some confidence in the information presented and
seeks to reduce the likelihood of future cost increase and/or
delays. For a project of the importance of Galileo, we would ideally
expect such scrutiny to cover the costs, revenues, benefits and
delivery strategy.
We understand that the Commission are concerned
that it may be difficult to find suitably qualified and independent
experts in the time available. An alternative approach could be
to request formal assurance letters from the financial, legal
and technical advisers that (i) the project is appropriately structured
to achieve its objectives, (ii) the costs, revenue and risk assessments
are appropriate for the stage of development of the project, (iii)
the delivery strategy is realistic, (iv) the commercial aspects
of the project are sufficiently mature, (v) the timetable is realistic,
and (vi) that the technical specification is appropriate and optimised
to the strategic requirement.
PROCUREMENT MODELS
The original PPP model had been designed to
deliver some key benefits, namely (i) transfer of systems integration
risk to the private sector, (ii) commercial incentivisation to
reach full service commencement, (iii) optimisation of design
and revenue generation potential, (iv) optimise whole life costs,
(v) gain the benefits of third party funder scrutiny, (vi) have
a single point of accountability for the project delivery, (vi)
to transfer any inherent design or latent defect risks to the
private sector and (vii) provide a strong financial incentive
to continue to provide a fully functioning system for the contract
duration.
We believe that these objectives are still appropriate
and, to varying degrees, achievable in a new procurement structure.
To the extent that the Commission is proposing a different commercial
structure we are very keen to understand how these features are
being replicated or compensated for and would expect this to be
set out in any forthcoming analysis.
We also believe that there remains considerable
potential for value for money in an availability based PPP concession
structure, although removing the link, at least initially, to
revenue generation. In particular the ability to incentivise successful
service delivery rather than asset deployment must be a key goal.
With regard to the model currently favoured
by the Commission, we suggest its ability to deliver the project
depends on a number of key factors (i) the ability to have genuine
and ongoing robust competition in all elements of the supply chain.
To the extent that single or noncompetitive supply for any material
part of the programme is the only option then this would present
huge obstacles to the viability of the approach proposed that
it may not be possible to overcome; (ii) the ability to incentivise
ESA to act as efficient procurement agent when it has no obvious
ability to take and manage risk, and (iii) the need for a very
strong client function in the Commission/GSA to oversee the process,
in particular to ensure that the costs are being controlled properly
and design is optimised in terms of value for money and compliance
with the high level requirements. Again we would expect the approach
to these challenges to be explicit prior to approval.
On (ii) we would suggest that the introduction
of a commercial "risk integrator" into the structure
could add significant value and make the approach more appealing.
Such a body would need to be independent of the supply chain and
experienced in specifying and managing complex system projects.
The more we reflect on this matter, the greater
the need that we perceive for a clear and detailed procurement
strategy to be set out in advance of any further decision. As
has been seen in the past this aspect has the ability to both
drive increases in cost through inefficiency and introduce delay
for non-project reasons.
COSTS, RISKS
AND REVENUES
On costs we welcome the intention to proceed
with an independent review of the underlying costs and would ask
you to ensure that it covers not only the unit cost elements but
also the necessary risk premia to come to a price for a delivered
and functioning system.
On revenues, in the absence of any new external
work, I would suggest that it would be helpful if revenues were
presented as a range of outcomes to assist in communicating the
material uncertainties that exist in the underlying business case.
Overall, we would repeat that the absence of
a quantified risk assessment is a major deficiency in the robustness
of the business case and we would urge you again to consider if
this could be addressed appropriately.
GOVERNANCE
We support the objectives of seeking an efficient
and proportionate governance structure. The key features of this
could include a reduction of the "distance" between
the GSA and Commission, alongside a unification of the member
state oversight groups. But changes in member state involvement
in programme decisions could only be assessed if there was a robust
underlying business case, clearly defined project delivery parameters
bounding the freedom of the delivery agent and transparency of
process to member states with escalation rights back to the appropriate
Councils.
In the absence of ESA funding, we think there
would be no need for any ESA member states decision making roles
although it may be considered appropriate to include the additional
member states in the single oversight body as appropriate.
| 
