Transport PPP projects: Will the new guidelines facilitate better risk allocation in NSW? - Government Contracts, Procurement & PPP

Over the next four years the New South Wales Government is anticipating a record $72.7 billion worth of infrastructure investment projects across the state.¹ 2017 alone will see the highest infrastructure spend on record. $1.1 billion of the Restart NSW fund has been allocated to the Western Harbour Tunnel & Beaches Link and F6 extension projects.² A further $103 million has been allocated to planning works for the Western Harbour Tunnel and Beaches Link project.

Following market consultation on reducing bid costs and promoting efficient PPP procurement, the NSW Government has approved the NSW Public Private Partnership Guidelines (2017) (2017 Guidelines). Effective as at 24 July 2017, these supersede the NSW Public Private Partnership Guidelines (2012) and complement the National Public Private Partnership Policy and Guidelines (2008) (National Guidelines).

There are currently 36 active PPPs in NSW, with $20 billion capital invested since 2014. PPP procurement is considered for any project where capital value exceeds $100 million. Any procurement classed as a PPP must comply with the 2017 Guidelines and the National Guidelines. It is a broad church; they include social infrastructure PPPs (e.g. availability PPPs in health, education and transport), economic PPPs (e.g. user pay PPPs in roads and water), joint financing arrangements and concessions.³

WHAT'S NEW?

Among other things, the 2017 Guidelines introduce:

clearer requirements to involve NSW Treasury at all project stages;
clearer government approvals processes;
clarification on real or misinterpreted overlaps with the Unsolicited Proposals Guide;
reliance on technical reports (where possible);
electronic bid submissions; and
various template documents, including the NSW Treasury template social infrastructure PPP contract documents (Social Infrastructure Templates) and the PPP Toolbox, a suite of Treasury PPP templates and pro-forma documents (PPP Toolbox).

THE UTILITY OF TEMPLATE CONTRACTS IN A BESPOKE PROJECT LANDSCAPE

One significant change we anticipate may spark interest is to clarify the requirement to comply with the Social Infrastructure Templates and use the PPP Toolbox. This toolbox comprises over 60 individual documents, including a template Project Deed. NSW Treasury sees several benefits in its application and use. It believes the toolbox will streamline the transaction processes by providing greater consistency across NSW projects. It has stated the toolbox will reduce bid costs and provide an opportunity for continuous improvement to reflect "lessons learned" or new thinking in the market.⁴

The Social Infrastructure Templates were most recently used as the base documents for the Social and Affordable Housing Fund and New Grafton Correctional Centre PPP projects, both social infrastructure PPPs, with government articulating a firm preference that there be no amendments.

The Social Infrastructure Template may not sufficiently accommodate the flexibility and risk allocation structure for transport infrastructure projects such as Sydney Light Rail⁵ and North West Rail Link.⁶ The WestConnex toll road and Sydney Metro Northwest Tunnel & Stations projects, with similar risk allocations and profiles to transport infrastructure PPPs, may also be unsuited to these templates. These transport infrastructure projects contemplate very different risks to social infrastructure PPPs. They will need to cater for processes not envisaged in social infrastructure PPPs, such as augmentations, changing urban planning considerations and latent underground services, and may require flexibility to renegotiate for certain events causing "material adverse effects".⁷

It would be useful to have some guidance as to the template documents that might be used as base documents for future transport projects, like the Western Harbour Tunnel and Beaches Link project. It would also be useful to have further guidance as to how bid costs might be minimised for PPPs that aren't social infrastructure projects.

Alternatively, it may be that NSW Treasury selects template documents on a project-specific basis and that risk allocation and processes for each project will be upfront considerations articulated perhaps as early as market sounding. One area for consideration for future updates of the guidelines might be to advise on 'lessons learned' from recent projects be they in NSW or further afield.

The 2017 Guidelines and template documents are designed to provide greater consistency across all NSW PPP projects. However, each individual project will have a different risk profile, so that risk is allocated to the party best placed to manage it. The objective of streamlining PPP transaction processes might be achieved to some degree by using a consistent suite of documents; but projects by their very nature are bespoke and the appropriate mechanics should be in place to permit necessary amendments, project-specific or otherwise, as a way of ensuring the best possible outcomes.

Footnotes

¹ 'NSW PPP Guidelines 2017 Official Launch', Infrastructure and Structured Finance Unit, NSW Treasury, 24 July 2017, https://www.treasury.nsw.gov.au/sites/default/files/2017-07/NSW%20PPP%20Guidelines%202017%20Official%20Launch%20Presentation%20-24%20July%202017.pdf accessed on 9 August 2017

²'NSW PPP Guidelines 2017 Official Launch', Infrastructure and Structured Finance Unit, NSW Treasury, 24 July 2017, https://www.treasury.nsw.gov.au/sites/default/files/2017-07/NSW%20PPP%20Guidelines%202017%20Official%20Launch%20Presentation%20-24%20July%202017.pdf accessed on 9 August 2017

³ 'NSW PPP Guidelines 2017 Official Launch', Infrastructure and Structured Finance Unit, NSW Treasury, 24 July 2017, https://www.treasury.nsw.gov.au/sites/default/files/2017-07/NSW%20PPP%20Guidelines%202017%20Official%20Launch%20Presentation%20-24%20July%202017.pdf accessed on 9 August 2017

⁴'NSW PPP Guidelines 2017 Official Launch', Infrastructure and Structured Finance Unit, NSW Treasury, 24 July 2017, https://www.treasury.nsw.gov.au/sites/default/files/2017-07/NSW%20PPP%20Guidelines%202017%20Official%20Launch%20Presentation%20-24%20July%202017.pdf accessed on 9 August 2017

⁵ Contract Summary of Sydney Light Rail PPP dated 25 August 2015, https://www.treasury.nsw.gov.au/sites/default/files/2017-02/Sydney_Light_Rail_PPP.pdf accessed on 9 August 2017

⁶ Contract Summary of NWRL Operations Trains and Systems PPP Contract dated 19 December 2014 https://www.treasury.nsw.gov.au/sites/default/files/2017-02/NWRL_OTS_PPP_Contract_Summary_Dec_2014.pdf accessed on 9 August 2017

⁷ Commonly known as MAE or Material Adverse Effects clauses

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