10 Point Plan inspired PPPs

Below are some suggestions on how the NSW Government could adjust its PPP policy and pro-forma PPP contract to give affect to the aspirations of its 10 Point Plan for the construction industry. 

They are based on the model answer that I developed, with the assistance of my student’s responses, to the following exam question from this year’s Public Private Partnerships course which forms part of the University of Melbourne’s LLM programme.

You are an official within NSW Treasury, responsible for the development and implementation of the NSW Government’s PPP policy.  The NSW Treasurer has just returned from an IPA conference where he was criticised by conference delegates for the failure of NSW Government agencies to adhere to the Government’s “NSW Government Action Plan – a 10 point commitment to the construction sector”. He says he wants the next NSW Government PPP transaction to set a new benchmark in terms of implementing the aspirations of the 10 Point Plan. He wants you to submit a briefing paper by COB Monday setting out your recommendations on how the State’s PPP policy, practices and/or template PPP Project Deed should be adjusted in light of this new plan.

The NSW template Project Deed is not publicly available.  But it formed the basis of the Project Deed for the New Grafton Correctional Centre project, which is available here.  And here are the schedules to that Project Deed.    

Recommendations

Recommended changes to the NSW Government Public Private Partnership Guidelines 2017 (the PPP Guidelines) and the template PPP Project Deed, to give effect to the 10 Point Plan, are as follows:

1.     Procure and manage projects in a more collaborative way

  • Trial use of more collaborative contracting approaches on future PPP projects, including the Alliance PPP model – see link at end of article.  The proposed PPP for the Sydney Metro Western Sydney Airport project would be an excellent candidate for such a trial.
  • Encourage co-location of public and private sector project team personnel, subject to appropriate separation and security arrangements to protect each party’s confidential information and communications.
  • Include a Dispute Avoidance Board in all PPP and other major infrastructure projects, with monthly DAB meetings during the construction phase and, in the case of PPPs, quarterly DAB meeting for at least the first 12 months of the operations phase.
  • Amend PPP Guidelines to make market sounding and interactive tender processes mandatory (absent good reason to do otherwise).
  • Invitations for EOIs to invite submissions on the proposed contract delivery model, including suggested adjustments to it.
  • Disclose tender evaluation criteria and weightings in the RFP documentation.
  • Mandate use of BIM on PPP and other major infrastructure projects.
  • Meaningful debriefs, including how tender fell short of:
    • winning tenderer on each criterion; and 
    • if different, the tender that scored best against the relevant criterion,

without revealing commercial in confidence aspects of other tenderers that would affect their competitive position in future tenders.

2.     Adopt partnership-based approaches to risk allocation

  • NSW Government Construction contracting suite should be overhauled.  Ideally, a recognised international form, such as NEC4 or FIDIC, should be used as the base for the new suite.  Alternatively, overhaul could be based on GC-21.
  • Overhauled suite to include functionality no less than that found in NEC4 (eg long form head contract and subcontract; short form head contract and subcontract; professional services contracts – long form and short form; contract for the provision of maintenance and other services; DBOM contract and alliance contract, plus a PPP contract), with core provisions that are laid out in the same order and that use identical drafting where that is possible.  
  • Overhauled suite to include not only the full range of alternative payment regimes found in NEC4, but also includes alternatives for other key issues such as time, quality and liability. Doing so would enable government project teams to use the same base document for all of the delivery models that Australian governments presently use, including:
    • Construct only
    • D&C
    • Incentivised Target Cost
    • Delivery Partner
    • Managing Contractor
    • Construction Management
    • EPCM
    • Alliance
    • DBOM; and
    • PPP.

  • Invite submissions on overhauled suite.  Respond to submissions by publishing further redraft of suite. Thereafter, standing invitation for comments.
  • The NSW Template PPP Project Deed to be re-drafted and published as part of overhaul of the suite.  Specific changes to include:
    • Add Compensation Events for:
      • Latent Conditions 
      • Inaccurate Reliance Documents 
      • Unplanned Utility Adjustments (Utility requires more than what was planned)
    • Enact legislation to require utilities to act reasonably in relation to utility adjustments (no ‘gold plating’, respond within reasonable timeframes etc), to mitigate State exposure to abovementioned Compensation Event;
    • Add optional rise and fall clause to payment regime and invite bidder to specify the items it should apply to and the index that they would propose for adjustment purposes;
    • Add more collaborative features (as optional extra clauses, or as alternative clauses), including:
      • an express obligation on both parties to cooperate and act in good faith
      • an early warning mechanism, including notification requirements, risk register and regular meetings to discuss and agree approach (consistent with contractual rights and obligations)
      • provisions that incentivise the preparation and acceptance of regular updates of the programme;
      • an option for ECI
      • an option to support use of BIM
      • an option for multiparty collaboration between the client and multiple contractors, subcontractors and suppliers appointed under separate contracts; and
      • an option for Incentive Payments for achievement of KPIs
    • Add Dispute Avoidance Board (DAB) documentation to suite, namely:
      • optional DAB clause in each contract (sometimes called the DAB Specification);
      • template DAB Agreement; and 
      • template DAB Procedures;
    • Remove one-sided, biased drafting, such as clauses 2.9(b) (no good faith), 2.10(a) (State need not consider interests other than its own) and 2.25 (PPP Co to waive benefit of beneficial new laws).

  • Recognise limited financial capacity of SPV to absorb risk of managing its contractors independently of government.  Accept the need for the SPV to act like a ‘post-box’ given limited recourse project finance.  Provide for consolidation of linked disputes, rather than suspension of downstream dispute proceedings pending resolution of upstream dispute.
  • Government to procure Ground Condition Reports that can be relied upon by bidders (“Reliance Document”), to the extent practicable.

3.     Standardise contracts and procurement methods 

  • Overhaul template PPP Project Deed (currently not published) as part of overhaul of NSW Construction contract suite.
  • Tender documents that depart from the published suite are to be accompanied by a mark-up that shows the departures.

4.     Develop and promote a transparent pipeline of projects

  • NSW major project pipeline to be published in electronic format, that can be updated in real time – similar to Australia & New Zealand Infrastructure Pipeline (ANZIP) maintained by IPA.
  • Pipeline to be updated in real time.
  • Summary of updates to be published monthly.
  • Monthly reports of progress against announced procurement timeframes, for pipeline projects – which will also encourage governments to update the proposed timeframes as delays are experienced.

5.     Reduce the cost of bidding

  • Disclosure of tender evaluation criteria and weightings in the RFP documentation – as above.
  • Preference for shortlists of two bidders, not three.
  • Expand prequalification system to all sectors, and various levels of project complexity within each sector.
  • Prequalified contractors to provide annual updates of prequalification application and associated documentation.
  • Prequalified contractors need not provide information previously provided as part of prequalification process/updates as part of subsequent bidding processes.
  • Consolidated mark-ups of Tender Documents to be provided with each Addendum.
  • Abolish mandatory departure tables for amendments to Project Documents.  Instead, amendments to proposed by way of mark-ups to the relevant Project Document, together with comments (embedded in the marked up document) explaining the reason for the change any why it should be accepted.
  • Government Project Teams to receive training in conducting effective interactive tendering processes, and not allowing probity concerns to unnecessarily thwart the process.

6.     Establish a consistent NSW Government policy on bid cost contributions

  • Done: see NSW Bid Cost Contributions Policy, May 2018 – “will consider” contribution of up to 50% of bid costs, for projects with capital cost exceeding $100m.
  • PPP Guidelines need to be updated to reflect new policy.
  • ACA report suggests there is further room for improvement, notwithstanding the release of the new policy. Industry considers the reimbursements were not in line with the policy and that contributions are not at the appropriate level.  The Minister may wish to consider more generous contributions on the next PPP project. 

7.     Monitor and reward high performance

  • Extend application of NSW performance management for construction system, including quarterly performance reports, to PPP projects.
    • PPP Co to complete report for D&C Contractor and O&M Contractor;
    • State to complete reports for PPP Co, D&C Contractor and O&M Contractor;
    • Current template report may require tailoring for application to PPPs (PPP Co, O&M phase).
  • Performance management for construction system to be integrated into overhaul of NSW Government construction contracting suite (as per GC-21).
  • Include past contractor performance as a bid evaluation criterion.
  • Encourage adoption of painshare and gainshare regimes, to reward high performance (against KPIs where high performance generates additional value for government) and share the pain of poor performance – to better align the commercial interests of the private sector participants with government’s project objectives.

8.     Improve the security and timeliness of contract payments

  • Align payment periods in clause 36 of template Project Deed with the maximum 15 business day payment period for principal under the NSW security of payment legislation, including for payments that are not covered by the legislation.
  • Require PPP Co and its subcontractors to comply with mandatory reporting requirements of the ABCC in relation to security of payment legislation, whether or not a ‘code covered entity’.  Integrate these reporting requirements into the NSW Government construction contracting suite.
  • Roll out introduction of mandatory Project Bank Accounts, similar to Queensland roll-out.
  • Amend legislation, or enact new regulation, to provide that the pay when paid prohibition will not apply to first tier subcontracts on privately financed PPP projects.

9.     Improve skills and training

  • Action Plan stipulates the following skills targets:
    • 20% of total labour force to undertake training to update their qualifications to meet the needs of the infrastructure project; and 
    • 20% of all trade positions to be apprentices.
  • The PPP Guidelines are not prescriptive on targets for skills and training.  The only reference to social outcomes is in clause 6.7.5 which requires consideration to be given to non-price related criterion, including non-quantifiable benefits gained from social outcomes, when evaluating PPP bids.  The targets in the template Project Deed (cl.10.12 – 10.14, and Schedule 11, cl.2.15) need to be updated to reflect Action Plan.
  • Include gainshare/painshare regime in Project Deed to align the commercial interests of PPP Co and its contractors to the Government’s objectives in respect of skills and training. 

10.  Increase industry diversity

  • Template Project Deed contains:
    • Aboriginal participation target during operations phase (Schedule 1): 
    • Aboriginal participation in construction: minimum target spend >1.5% of estimated total D&C costs (Schedule 11, cl.2.11); and 
    • Opportunities provided to Australian businesses to supply goods and services to the project (Schedule 11, cl.2.16).  It doesn’t mention women or youth.  Gaps and misalignments to be addressed.
  • Include gainshare/painshare regime in Project Deed to align the commercial interests of PPP Co and its contractors to the Government’s objectives in respect of diversity. 
  • Consider adopting similar measures to promote opportunities for tier 2 and below contractors to participate as subcontractors.

Conclusion

There is plenty more that the NSW Government can do to implement its 10 Point Plan for the construction industry, particularly for Public Private Partnerships. Wouldn’t it be great to see the NSW Government fulfil its commitments by implementing the above recommendations.

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Owen Hayford

Infrastructure lawyer

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