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PPP contract risk allocation Presenter: Sean Henderson, Partner 1 June 2015

Cooper Grace Ward Lawyers

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This session

• PPP’s - further intro

• What are the contracts

• Relevance of PPP contract to outcomes

• How the risks are allocated

• How the educator’s brief makes its way into the

contract

• Delivering education infrastructure - PPP benefits

• Challenges thrown up by the PPP structure

• Some suggested tips for the government team

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What are PPP’s - the basic principles

• Long-term contract - public / private

• Government pays for infrastructure and

related services

• Whole-of-life responsibility for condition and

performance

• Private design, construct, finance, delivery

of services for a period

• Contribution by government through land,

capital works, risk sharing…..

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What are PPP’s – further observations

• Governments generally retain responsibility

for Core Services

• Private sector - related non core services

• Asset handed back

• Emphasis on detailed contract

requirements and contract management

• Not privatisation

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What are PPP’s - the spectrum

*Infrastructure Australia Website

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Relevance of PPP contracts

• Discipline for developing and

articulating requirements

• Secure the $

• Underpin the bid process

• Audit trail for government process

• Help define the market

• Contract management

• Clarity of legal rights - enforcement

• Governance value

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What are the contracts?

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Risk allocation – how?

Traditional PPP

Government purchases

an infrastructure asset +

services

One long-term contract

integrating design, build,

finance, services…

Input-based

specifications

Output-based

specifications

Government retains

whole-of-life asset risk

Private sector retains

whole-of-life asset risk

Payment profile starts

high to pay for capital

costs…lower recurrent

costs

Payments starts when

asset

commissioned….even

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Risk allocation – how?....continued

Traditional PPP

Construction time and

cost overruns - generally

more risk

Greater risk transfer

Government operates

facility

Private sector operates

ancillary services

Multiple contracts at any

time and over time

One contract to manage

No performance

standards

Performance standards,

abatements + handover

requirements

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Some D&C specific points

• Construction + services output specification

• Fitness for purpose

• Department requirements

• Design development – user groups

• Modifications

• Equipment

• Future “proofing”

• Independent certifier, State Rep and PCG

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Educator’s brief ….the contract

• Needs analysis

• User groups

• Who is the client -

greenfield projects

• Tender process

• Input from bidders

*Gray Puksand Architects presentation re QLD Schools

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The process before the project lives

*QLD Govt

Website

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Development of project documents

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Benefits of PPP’s

• Value for money - if you get it right

• Rigorous scoping and risk assessment

• Time and cost outcomes

• The positive results of bank pressure

• Innovation

• Whole of life

• Proper allocation of risks / risk transfer

• Affordability?

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Challenges - the PPP structure

• Project inception time

• Project cost / transparency

• Is the risk really transferred -

private sector prices it but does

State get the full benefit?

• Flexibility?

• Disconnect from the user

• There have been failures -

residual risk to the State

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Tips for the government team

• Should this be a PPP - embrace the concept - or

don’t do it!

• Articulating requirements - key

• Identify the client / user

• Continuity of key drivers

• Know the market

• Work hard on risk allocation…stick with key drivers

• Contract management

• Lessons learned / learnt?

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Thank you

Sean Henderson

T: (07) 3231 2992

E: sean.henderson@cgw.com.au