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Client Update: Infrastructure – 7 October 2008

Infrastructure Australia releases National PPP Guidelines and Prioritisation Methodology

In brief: Infrastructure Australia has released its National Public Private Partnership Guidelines, and the methodology it will use to rank projects on the national Infrastructure Priority List. Partner John Cooper (view CV) and Lawyer Nicholas Ng report.

The National PPP Guidelines

The National PPP Guidelines (the Guidelines) aim to establish 'a framework that enables both the public and private sectors to work together to improve public service delivery through private sector provision of infrastructure and related non-core services'. They seek to represent a compilation of best practice throughout Australia. In that regard, they are based extensively on similar existing frameworks throughout the country, and in particular the Victorian, New South Wales and Queensland guidelines.

In brief, the Guidelines prescribe that, once a business case shows PPP delivery will generate value for money, a two-stage Registration of Interest (ROI) and Request for Proposals (RFP) bid process applies. The Guidelines, and accompanying Practitioner's Guide, allow flexibility in how the bid process operates, but in some contexts do set strong and definite guidelines. Some of these include that:

  • it should only be in exceptional circumstances that a government proponent agree to reimburse all or part of a tenderer's bid cost;
  • the raw Public Sector Comparator should normally be disclosed in RFP documentation;
  • generally three bidders should be shortlisted for consideration in the RFP phase;
  • responses to a RFP should provide both a rationale and cost for each departure from the proponent's standard contract documentation;
  • governments should employ an interactive tender process during the RFP phase of the project, involving a series of face-to-face meetings;
  • there must always be some equity component to a bidder's finance structure; and
  • negotiation should occur before selection of a preferred tenderer only where the evaluation panel believes greater interaction is required with bidders to develop proposals to a standard which justifies appointment as preferred proponent. To maintain competitive tension and minimise costs, pre-selection negotiations should occur within a tight timeframe.

The mandating of interactive tendering during the RFP process in particular is a welcome step. As industry is well aware, being in a well-informed position is conducive to a greater likelihood of delivering to government a project that suits government's specific requirements. On the government side, the process will help to produce higher quality bids and promote greater value for money.

The trend towards minimising negotiations with multiple tenderers, with its positive effect on bid cost, will also be welcomed by industry.

Accompanying the guidelines will be detailed guidance material, consisting of:

  • a Practitioner's Guide;
  • a Statement of Risk Allocation and Standard Commercial Principles;
  • a Public Sector Comparator Guide; and
  • a Discount Rate Methodology Guide.

Of this material, only the Practitioner's Guide and Public Sector Comparator Guide are currently available at the Infrastructure Australia website .

Of particular interest to industry will be the Statement of Risk Allocation and Standard Commercial Principles, which will set national standards for the allocation of risk between the public and private sectors, and outline overarching commercial principles underlying contract documentation. Prime Minister Kevin Rudd announced today that Infrastructure Australia has committed to developing the full detail of the model for agreement at the November 2008 Council of Australian Governments meeting.

Prioritisation Methodology

Infrastructure Australia's Prioritisation Methodology outlines the process that Infrastructure Australia will adopt when deciding how to prioritise projects on the national Infrastructure Priority List.

Not surprisingly, the ranking will ultimately be based on a cost-benefit analysis, taking into account a quantitative analysis of financial, economic and environmental impacts, and a partially-quantitative analysis of non-monetary benefits such as a project's visual amenity, social amenity, social cohesion, and heritage and cultural impacts.

Of particular note is the requirement that 'wider economic benefits', including agglomeration and secondary impacts on the labour market (such as market impact resulting from welfare benefits generated from improvements to the supply of labour as a result of a transport infrastructure project) are to be included in the quantitative analysis.

While the methodology is not overly restrictive, it provides a useful framework in which vastly differing projects can be meaningfully compared and their relative importance assessed.

Next steps

Both publications are welcome first steps by Infrastructure Australia. Industry will no doubt look forward to reviewing the detailed PPP guidance material when it becomes available, and reviewing further announcements regrading the national Infrastructure Priority List.

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