jason loos

1

A structural analysis of Victoria’s successful PPP

policy framework

PPP Summit, Melbourne, May 2011

Jason Loos, Director, Partnerships Victoria

Department of Treasury and Finance

Agenda

1. National context

2. Partnerships Victoria’s approach to PPPs

3. Project examples

4. Future directions for Partnerships Victoria

2

National context

• Development of a national approach

• COAG objective of harmonisation and consistent approach

• 2008-09 National policy and guidelines for PPPs

• 2011 National policy and guidelines for Alliancing

• 2011-2012 National principles for D&C contracting

• Role of Infrastructure Australia

• National infrastructure planning and project funding

• Ongoing reform in conjunction with jurisdictions

• Victorian framework and specific requirements

• Consistent approach with national settings

• Specific detail and fill gaps such as contract management

National dialogue – governance structure

COAG

Infrastructure

Working Group

Infrastructure

Australia

Council

Heads

of

Treasury

PPP

Sub-Group

Infrastructure

AustraliaNational

PPP Working

Group

COAG

Ministerial

Council

of Treasurers

ATC

All jurisdictions All jurisdictions

Same people

3

National and State joint funding approach

• Joint funding approach to infrastructure

• Specific programs for roads, schools, public housing

• Disaster relief

• Building Australia Fund / Infrastructure Australia

• Prioritisation and planning

• Regional Rail Link

• Melbourne Metro

• PPP doesn’t preclude joint funding

• Victorian Comprehensive Cancer Centre

Agenda

1. National context


3. Project examples


4

Victorian context

• New government

• Baillieu government has introduced new agenda / policies

• Undertaken a number of reviews of infrastructure projects

• Introduced new High Value High Risk framework

• Independent Review of State Finances –April 2011

• Financial position unsustainable in medium term

• Not well placed to absorb another material financial shock

• Current level of net infrastructure investment is insufficient

• Second IRSF report to include review of service delivery and

infrastructure

Victorian context - New asset funding 2011-12 Budget

$ million

2011-12 TEI

Budget

Business and Innovation 0.1 0.1

Education and Early Childhood Development 99.8 243.0

Health 93.5 508.6

Human Services 1.7 2.0

Justice 134.7 162.1

Planning and Community Development 13.9 13.9

Premier and Cabinet 10.0 20.0

Primary Industries .. ..

Sustainability and Environment 9.7 9.7

Transport 150.0 609.5

Treasury and Finance .. ..

Parliament 4.0 4.0

Government-wide 79.0 97.5

Total 2011-12 Budget asset funding 596.4 1 670.5

Source: Department of Treasury & Finance

5

Victorian context - annual capital spend

0

1

2

3

4

5

6

7

2004-05 2006-07 2008-09 2010-11 2012-13 2014-15

$ billion

Net purchases of fixed assets Total Commonwealth funding towards fiscal stimulus and 'one-offs'

Source: Department of Treasury & Finance

Victorian context - role of DTF’s Commercial Division

Partnerships Victoria

PPP Guidance

PPP Policy

Contract Manager

Forums

PPP Projects

PPP Training

Gateway Unit Alliancing Unit

Commercial Advisory

ServicesCommercial

Division

Infrastructure Policy

Advice and Review

High Value High Risk

Department of Treasury and Finance

6

Victoria’s approach to PPPs - successes

• Market confidence has been established through:

• Consistent approach

• Rigorous processes and benchmarks

• Regular pipeline of projects

• Departmental confidence has been developed through:

• Great results in design and innovation

• Single interface with provider

• Strong focus on contract management

Continuous improvement to the model

Victoria’s approach to PPPs - lessons

• Early experience led to policy developments to improve

process

• Importance of early market engagement

• Standard commercial principles to guide contract

- consistent principles combined with latest contract positions

• Interactive tender process

- greater clarity of RFP and design/functional requirements

• Release of raw PSC cost

• PSC quality assurance review

- improved last minute review and sign-off procedures

• KPI improvements adopted

-e.g. EastLink reviews adopted for Peninsula Link project

7

Victoria’s approach to PPPs - lessons

• PPP model flexibility

• Peninsula Link availability model

• GFC related clauses for some projects

• Flexibility demonstrated but no major/material changes

• Separation of investment decision and procurement

decision

Agenda

1. National context


3. Project examples


8

Desalination plant – April 2011

Artist impressionDesalination plant – impression

9

Victoria’s approach to PPPs – Desalination project

• Despite some media comment – there is no state cost blow out

• PPP fee for service model

• Nominal costs released in February 2011 are the same as previously disclosed by the Auditor General in 2010

• These costs equate to the previously disclosed NPV figure (in November 2009)

• Leighton’s write down due to productivity and weather

• PPP’s allocate these risks to the consortium

Victoria’s approach to PPPs – Desalination project

• Remains on schedule for completion and delivery June

2012 as per contract.

• AquaSure will not be paid until water can be delivered

• State has flexibility to order water from 0 to 150GL per

annum in set block increments

• Payment mechanism

- water security (availability) payment

- water usage payment

10

Victoria’s approach to PPPs – Royal Children’s Hospital

Pre-construction

During construction

11

Current

Victoria’s approach to PPPs – Royal Children’s Hospital

Value for money

PSC $1.016b -v- PPP $946m NPV = 7% saving

• Design innovation – world class design, park integration

and outstanding in-patient unit design (eg flexible

configuration)

• Enhanced ESD outcomes – 5 star rating

• Additional area, including shell space for additional 30

bed ward

• Significantly expanded retail facilities and staff

amenities (inc state upside)

12

Royal Children’s Hospital – current status

• Project is on time and on budget. (Total variations

approx. 0.6% of D&C cost)

• Construction largely complete (some internal fit out)

• Currently focussed on finalisation of FF&E procurement

and detailed transition planning

• Contractual completion dates:•21 September 2011 – Technical Completion

•22 December 2011 – Final Completion (commencement of 25

year Operating Phase)

• Proposed date for patient move – 22 November 2011

Royal Children’s Hospital – lessons for future projects

• Biggest challenge, and most critical success factor, is the

development of a quality brief (functional, architectural,

FF&E)

• Stakeholder management

• Design development – 1,000+ user group meetings. The

ability to manage users, optimise the design, and not

trigger material cost variations

• ICT – extremely complex, difficult to brief, difficult to

understand, constantly changing

13

Agenda

1. National context


3. Project examples


Victoria’s approach to PPPs – future direction

• Improvements to the model to address bid costs

• EOI standardisation

• Review of information required in competitive bids versus

preferred bidder stage

• Review level of design requirements

• Contract departures versus mark-up

• Review of commercial principles to reflect recent

outcomes

• Desire to see future processes as two stage not three

stage – reduce occurrence of BAFO

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Proposed modifications to PV model

• Expand to full service PPPs• Increased ancillary services and/or full service PPP models

• Streamlined• Tailor model to suit smaller / less complex infrastructure assets

• Network PPPs • Private sector contracted to deliver, upgrade & maintain a network asset

• Increase disclosure requirements • Additional project summary information and ongoing service payment details throughout operations


• Emphasis on contract management

• Necessary to capture value over contract term

• PV pro-actively assist Contract Managers

• Project specific governance arrangements

• Facilitation of Contract Management training and forums

• Renewing Contract Management guidance materials with recent updates

• Refinancing

• Performance regimes (KPIs)

• End of service arrangements

• Contract management during construction

• Modifications

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• Pipeline of projects

• Aim to have a consistent number of projects in pipeline to

attract investment and minimise transaction costs

• Future opportunities

• Range of projects under development

- Bendigo hospital - Exhibition Centre Expansion

- New prisons - Telecommunications

- Schools - Large transport projects

- Social housing

• Working hard toward a successful outcome on VCCC

Questions?

Jason Loos, Director, Partnerships Victoria

9651 2699 [email protected]

www.partnerships.vic.gov.au

www.infrastructureaustralia.gov.au

jason loos

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