Allens

Infrastructure & Transport

Client Update: WA Government's commercial position on PPPs

28 September 2011

In brief: The Western Australian Government has released additional policy guidance on its preferred risk allocation when entering into public private partnerships. The new policy guidance supplements the National Public Private Partnership Guidelines, providing a useful insight for market participants. Partner Michael Hollingdale (view CV) and Senior Associates David Donnelly and Fiona Potter report.

Additional policy guidance

The Western Australian Government's Public Private Partnerships: Commercial Principles – Additional Policy Guidance (the WA policy guide) provides additional guidance on the State's preferred risk allocation on 17 common issues associated with public private partnerships and is intended to supplement the National Public Private Partnership Guidelines. 

The WA policy guide provides additional guidance to market participants on some key risk positions for the State, while recognising that the risk allocation for any project must reflect the unique features of that project. 

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Practical application

The State's preferred risk positions are outlined as general principles. While those principles are generally consistent with market practice in Western Australia and other states, their practical effect will depend on how they are applied. By way of example, it will be the application of the WA policy guide that will determine:

  • Project specific exceptions – the extent to which the circumstances of particular projects will be recognised as justifying departures from the outlined principles. 
  • No sunset dates – the extent to which the absence of a sunset date will drive earlier default and termination rights and, in turn, impact on the length and pricing of the construction program.
  • Modifications – whether a materiality threshold will apply to the requirement to conduct an open tender process.
  • Reviewable services – whether all reviewable services will be reviewed as a 'basket' or whether the State will be entitled to review some, but not all, reviewable services.

This flexibility should allow the WA policy guide to operate as a 'living document', with the principles being fleshed out by market practice over time. 

Delivering a 'value for money' solution for the State will remain paramount.  In looking to do so, some of the State's risk positions (such as its position on security bonds) are likely to reduce costs for private sector participants, some (such as the absence of a 'fair wear and tear' exception) may increase the private sector's costs, and some (such the flexibility around bonding or retention on handover) will provide the private sector with the flexibility to drive value-for-money outcomes.

The overall cost impact of the State's preferred risk positions will also become clearer over time, but providing greater certainty to private sector participants on the State's preferred risk allocation seems likely to have a positive effect on bid costs.

As we wait to see the practical effects of the new PPP guidelines, the WA policy guide provides useful guidance to market participants on the State's key risk positions for projects of this kind.

For further information, please contact:

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