The delivery of energy projects can be a complex undertaking. Yet, increasingly, we are seeing innovative councils embark on the development of co-generation and tri-generation plants, energy-efficient street lighting programs and small renewable energy projects. These projects require councils to balance budgetary constraints, stakeholder concerns and community expectations. With much to do and limited resources, councils are keenly aware that such projects need to be planned and implemented to deliver value for money outcomes to their communities.
There are many issues which councils need to work through when planning an energy project. What is the scope of the project? Will the asset be 'embedded', or connected to the grid? What are the regulatory requirements?
Like any major project, funding and financing options need to be fully considered and the procurement strategy is of critical importance. The selection of the procurement model will impact on the risk allocation, determine asset ownership and may even dictate who is responsible for operating the asset. Some energy projects (particularly co-generation projects) may offer opportunities to partner with the private sector and, in some cases, may present a better value-for-money outcome and better service levels than the council going it alone while other projects may not. Navigating these complex issues can be daunting.
It is in this context that Maddocks has partnered with EY to develop comprehensive guidance material to assist local government to procure major infrastructure projects and services using a range of procurement models ( Major Projects Guidance ). The Major Projects Guidance has a broader application than energy projects and can be used by councils in planning and implementation of a wide range of large, complex infrastructure projects.
What is the Major Projects Guidance?
The Major Projects Guidance sets out a best practice procurement framework for the delivery of large, complex or innovative local government infrastructure projects. It has been prepared specifically for local government across Australia, and is designed to take into account the unique financial, legislative and political constraints on local government in each jurisdiction.
The Major Projects Guidance includes practical information on the key steps at each stage in the life cycle of a major project from initial project assessment through to project review. There is a particular emphasis on the planning and project establishment stages. This includes guidance in relation to:
- defining the project - identifying the service or business need underpinning the project
- resourcing - what resources may be required and what systems should be established to facilitate the smooth delivery of the project
- use of external advisors - best use of advisors to ensure project objectives are achieved while maintaining value for money in relation to project transaction costs
- legal requirements, business case development, financial modelling and commercial framework
- stakeholder relations funding and procurement options – traditional and alternative procurement models and funding options, including private financing.
An overview of the structure of the Major Projects Guidance is set out in Figure 1, attached.
What types of projects does it apply to?
It is difficult to set a monetary threshold for what constitutes a 'major project' for local government, given the range in size and capability of councils in Australia. As a general guide, a project with a capital value of $10 million or more may be regarded as a major project. Cost and size are not the only issues to consider when deciding whether to undertake a project using the Major Projects Guidance. It will also be useful for councils undertaking high risk projects or using innovative project delivery models. Many energy projects would fall into this category.
The Major Projects Guidance can be used for a single large energy project such as a co-generation plant, or a 'bundled' project comprising a series of smaller capital works projects and associated services which are grouped together to form a more significant project. For example, councils could bundle their street lighting replacement programs, through which they are transitioning to energy efficient lighting, to form a more significant project.
The Major Projects Guidance can also be used for projects procured through regional collaboration. Street lighting programs also present an excellent opportunity for councils to collaborate in a joint procurement project.
The framework is intended to be flexible to meet the needs of each council and to take into account the complexity, scale and cost of a project. Some steps in the Guidance are critical to every project, and some of the activities will only be relevant for very large, complex and high value projects.
The Major Projects Guidance is applicable to councils in all states and the Northern Territory.
Why has the Major Projects Guidance been developed?
A wide range of guidance material has been published on asset management, financial planning and general procurement. Some of this material is specific to local government and some is framed more broadly. However, no comprehensive guidance exists specifically for local government procurement of major infrastructure projects.
As part of its local government infrastructure financing review, the Commonwealth Department of Regional Australia, Local Government, Arts and Sport released an EY report entitled Strong foundations for sustainable local infrastructure: connecting communities, projects, finance and funds (June 2012). The report recommends:
Major project procurement guidance should be developed and issued to local government to promote awareness of the spectrum of alternative procurement models for infrastructure delivery.
The Major Projects Guidance meets the need identified in that report. The need for guidance of this kind was also broadly supported by local government as well as federal and state government departments, and industry associations during the consultation process.
The Major Projects Guidance was developed following consultation with local government and local government associations, state and federal government departments and other organisations to ensure that it complements existing guidance material and local government programs. Relevant publications and programs are referenced throughout to assist project teams to determine where that material fits within the Major Projects Guidance framework.
Objectives of the Major Projects Guidance
The primary objective of the Major Projects Guidance is to assist local government to be more effective and efficient in delivering major infrastructure projects. In particular, the Major Projects Guidance aims to provide local government with:
- a framework for the development of a robust business case and clear commercial principles for potential projects
- a process for identifying and analysing a range of procurement models which may be appropriate for major infrastructure projects
- guidance on alternative funding and financing structures to optimise the use of constrained council revenues and budgets
- guidance on the best use of external commercial, financial, technical and legal advisors
- guidance on appropriate tender processes, contract documentation and the documentation of technical specifications required to deliver major projects
- a cohesive and transparent framework for procurement of major infrastructure projects by local government, to give the private sector more confidence in the process and potentially attract private sector investment.
The Major Projects Guidance is intended to step local government procurement professionals through each stage of procurement in an accessible and practical manner. It includes sections on early project planning, selection of the most appropriate funding and procurement models, making the best use of advisors and engaging with private sector investors in its infrastructure and service delivery program, as some councils have struggled with this in recent years. The Major Projects Guidance provides a structured approach to investment in project development, setting out a series of sequential recommended stages and gateways. This ensures councils’ limited resources are allocated incrementally and assists councils achieve better value for money outcomes.
The team responsible for producing the Major Projects Guidance is drawn from Maddocks and EY, who together brought an experienced team of lawyers and commercial advisors with expertise across local government and infrastructure procurement. Infrastructure Partnerships Australia has been a key supporter of the development of the Major Projects Guidance, assisting with the consultation process and reviewing early drafts. The material has been endorsed by the Local Government Managers Australia and is published on the LGMA website.
Where can I find the Major Projects Guidance?
The Guidance was formally launched in Melbourne by the Hon. Tim Bull MP Minister for Local Government in Victoria on 3 June 2014. It will be launched in Sydney by Jim Betts, CEO of Infrastructure NSW on 27 August 2014 . Infrastructure NSW has reviewed the Guidance with a view to providing it to councils submitting projects for Restart NSW funding, indicating that it will help councils to prioritise and deliver better value infrastructure projects. The Major Projects Guidance is available to download (free of cost) via the LGMA website.
The Guidance launch will be followed by practical workshops delivered by commercial advisors EY and Maddocks for council procurement practitioners on how to use the material, and will be useful for any council embarking on a major infrastructure project.
The four-hour training session will be delivered by the publication's authors and will cover the following topics:
- Overview of the Major Projects Guidance for Local Government.
- Strategic assessments and the Investment Logic Map (ILM) process - how to save time and money with a structured approach.
- The detailed business case - what's in it for you?
- Regional collaboration - what do you need to consider?
- Procurement options - is there a better way?
- Rethinking the delivery of local roads.
All attendees will receive a complimentary hardcopy of the Guidance.