Introduction

On 2 May 2013, the Victorian Treasurer Michael O’Brien announced significant reforms to the Victorian Government’s PPP guidelines, the Partnerships Victoria Requirements (May 2013) (2013 Requirements). The 2013 Requirements, together with the National PPP Policy and Guidelines, will apply to the next phase of Victoria PPP projects, including the upcoming Ravenhall Men’s Prison Project.

The 2013 Requirements follow the Government’s public discussion paper “Future direction for Victorian public private partnerships” dated November 2012 (Discussion Paper). Norton Rose was a key contributor in the response to the Discussion Paper by the Asia Pacific Loan Market Association.

Key issues and changes

Below are some of the key issues and changes outlined in the 2013 Requirements.

  • Projects >$50m – PPP procurement must be considered for projects valued over $50m. Projects may be bundled to reach that threshold.
  • Projects <$50m – Projects valued at less than $50m may be delivered using a streamlined PPP approach. The Department of Treasury and Finance (DTF) is currently considering pilot projects and developing commercial principles for this approach.
  • Core services – Future PPPs may include more services, including “core” services previously delivered by the public sector. The Government will assess this during the business case stage.
  • Public Sector Comparator (PSC) – The Government will no longer automatically revert to traditional design and construction delivery if the PSC cost expectations are not met through a competitive PPP procurement process.  Further, the Government will now consider disclosing the full risk adjusted PSC to short listed bidders.
  • Scope ladder – Procuring agencies will now develop a scope ladder alongside the PSC. It will identify any scope items bidders can remove or add should bids be over or under the PSC. Usually, the scope ladder will not be disclosed to bidders and will only be used to inform negotiations, but it may be disclosed in some instances.
  • Modified financing structures – The Government will consider modified financing structures for some projects, such as where there are financial market capacity constraints. For example, the Government may consider a partial capital contribution (by milestone payments during construction or a lump sum payment after construction). The 2013 Requirements set out the high-level criteria to assess modified structures against a standard PPP approach.
  • Tender process improvements – The Government will continue to improve tender processes, including by minimising information requirements for bidders, short listing only two bidders where appropriate and minimising the use of best and final offers processes where possible.
  • Reimbursement of bid costs – Victoria will trial payment of partial bid costs for PPP projects. The amount of reimbursement will depend on the project, but this will be communicated to bidders up front.
  • Marked up contracts – Bidders will be required to submit a fully marked up contract and schedules. There is no longer any requirement for bidders to submit departures schedules. Terms sheets will be sufficient for some subcontracts.
  • Victorian Code of Practice – PPP projects must include the tender submission requirements in accordance with the Implementation Guidelines to the Victorian Code of Practice for the Building and Construction Industry.

Further issues

The 2013 Requirements remains a high-level guidance document and does not address or detail the Government’s approach to all of the issues raised in the Discussion Paper and other issues currently being considered by the PPP industry. For example, some further issues include:

  • What is the Government’s approach to the other modified financing options raised in the Discussion Paper?
  • How will the Government determine whether to include “core” services in future PPPs and the scope of those core services?
  • How will tender processes will be streamlined and improved?
  • What (if any) stronger contractual protections for subcontractor payments will be introduced?
  • Will the Project Company be liable to pay liquidated damages to the State?
  • Will the Government require a pre-emptive right to purchase project debt in the secondary market or replace a bank in defined circumstances?

Next steps

We anticipate that in due course the Government will release further PPP policy and guidance materials to address these and other issues, including by updating the Annexures to the Partnerships Victoria Requirements. We also expect to see further announcements from DTF about the pilot projects and commercial principles for streamlined PPPs valued at less than $50m.