Australian contractors may face challenges under update to Partnership Victoria requirements, says expert

Out-Law Analysis | 03 Nov 2016 | 12:58 pm | 3 min. read

FOCUS: The state government of Victoria has said that it will introduce standardised documentation and an updated contract management guide for public private partnership (PPP) projects.

Contractors need to be aware of all the updates announced this week to the requirements for PPP projects and the effect they will have on project planning.

The Partnerships Victoria framework applies to public infrastructure projects where the estimated spend by the state is in excess of $50 million. This is consistent with the national Australian PPP policy and guidelines, which require PPP procurement to be considered when expenditure of over $50m is anticipated.

The updates released this week include the introduction of template documents for expressions of interest, requests for proposals and interactive tender processes, a standard base contract for PPPs and an updated contract management guide. The contract and guide have yet to be released, so we do not yet know what the 'standard' risk profiles look like, but many commentators believe it will mirror the last few signed Victorian PPP contracts. Victoria has signed nearly 30 PPP contracts since the adoption of the PPP model in the state.

Any departure from the standard documents, whether instigated by the procuring agency of the tendered, has to be approved by the Department of Treasury and Finance (DTF).

The templates have been created to minimise bid costs and to increase certainty for participants and investors, the state treasurer said. However, their true effect remains to be seen. Standardised documentation has not always been well received by contractors in the past, and a similar approach in the UK led to an increase in derogations, or requested changes to some of the clauses in the standard contract.

When the new base contract is released it will be interesting to see the extent to which contractor-friendly provisions have been stripped out or watered down. If there are limited entitlements in the base contract for contractors or if there are too many overly onerous risk positions favourable to the state, there is bound to be push back from the industry leading to increased derogations, and delays arising out of the need for DTF approvals of these changes.

If the risk allocation in the standard base contract is not sufficiently balanced, the DTF may find that its goal of generating value for money solutions is missed because contractors are forced to adapt their pricing to reflect the additional risks.

The financing structures in the requirements have also been changed, and alternative structures may be considered if it can be demonstrated that they would deliver better value for money or early repayment of debt. Investors and participants are encouraged to consider state capital contributions, taking into consideration factors including risk allocation, cost and complexity, preservation of the benefits of private finance, competitive tension, alignment with the project's risk profile, and promotion of innovation.

The updated management guide is expected to be available shortly. The guide will be designed to assist and improve project delivery outcomes, provide guidance to contract managers and procurement teams and to cover best practice principles.

In theory, this is welcome assistance, but the level of oversight and control proposed may not be welcomed by the industry. Requirements include approval of the contract management plan by the portfolio minister in consultation with the treasurer, and consultation with the DFT on any changes in control, refinancing, or material modification, augmentations or disputes.

It is unclear how this additional oversight and control will impact on procurement timetables, particularly where project time frames are tight for political reasons. It is also unclear whether this will allow the private sector to deliver flexible, creative solutions while offering a value for money proposition. At best there may be no impact at all, particularly if the state rehashes well known risk profiles and at worst there may be substantial impact, if the state seeks to impose state-favourable standard documentation for all PPP projects in Victoria.

The Victorian Outer Suburban Arterial Road PPP, a project initially entailing the delivery of capital works and the maintenance of arterial roads in Melbourne’s western suburbs, will be the first Victorian PPP project to be tendered using the standard form project documentation. This will definitely not be an easy PPP project to use as the state's standard form pilot project, as it will be the first in Australia covering the delivery of capital works and the maintenance of arterial roads. Interested participants are registering their interest now and expression of interest documentation is due to be released later this month.

Melbourne-based Simela Karasavidis is an infrastructure expert with Pinsent Masons, the law firm behind