INSIGHT

The case for market-led proposals as part of Australia’s COVID-19 recovery

By Penny Alexander, Kate Kelleher, Tom Bleby
Infrastructure

In brief 7 min read

Infrastructure will play a vital role in Australia's economic recovery, presenting new opportunities for collaboration between industry and government to develop a pipeline of projects to stimulate the economy. We explore the role market-led proposals can play in the delivery of these projects, and pinpoint the elements we consider will be critical to the success of any proposal.

Overview

As attention starts to shift towards economic recovery, significant attention is being given to the role infrastructure can play in the nation's economic game plan. The building and construction industry represents a core part of Australia's crisis recovery in the short, medium and long term, both as a means of injecting public funds into the economy, and as an employer of nearly 10 per cent of the nation's workforce.

Although traditional government-led procurement will, no doubt, have an important role to play, increased collaboration between industry and government is required to develop a pipeline of projects to effectively stimulate the Australian economy. Market-led proposals present a key way the public and private sectors can collaborate to achieve the government's goals of fast-tracking infrastructure spend where it's needed and tackling rising unemployment. With collective commitment, market-led proposals could potentially deliver projects, and create jobs, more quickly than other forms of government-led procurement.

That said, proponents of market-led proposals will still need to ensure that their proposed projects meet the applicable government criteria – most importantly, ‘uniqueness’ – in order to be successful.


Quick recap – what are market-led proposals?

Market-led proposals (also known as unsolicited proposals or exclusive dealings) are project proposals initiated by the private sector directly to government, where the government has not sought out the proposal. Market-led proposals can seek government support for a range of different projects, including infrastructure, the provision of goods or services, or delivery of a major commercial transaction. Examples of recent prominent market-led proposals are:

  • Melbourne Airport Rail Link;
  • Port Phillip Ferries service between Portarlington and Docklands;
  • Logan Motorway upgrade in Brisbane; and
  • Sydney Metro Martin Place station and tower.

The process allows the private sector to propose new and innovative ideas to government outside of traditional procurement processes, typically allowing a private proponent to negotiate exclusively with government.

Each state and territory around Australia has now established a framework for the assessment of market-led proposals, to provide transparency around and certainty about how proposals will be assessed, see our previous article. Depending on the jurisdiction, some proposals may still become subject to market testing, though it is promising that recent policy developments are addressing this issue in order to incentivise industry. For example, recent changes in Western Australia provide that if the Government determines that a market-led proposal should be subject to a competitive bid process, proponents are given a 'first mover advantage', being the right to match a more competitive bid, or receive a bid premium of 10-20%.

How can my business put forward a successful market-led proposal?

While the process for assessing market-led proposals has faced criticism (see our previous article), the well-developed guidelines of the states and territories assist in facilitating a transparent process, and providing industry with certainty and visibility as to the criteria against which proposals will be assessed. While the guidelines differ between the states and territories (and continue to evolve), the key criteria for successful market-led proposals are similar across Australian jurisdictions.

In our experience, there are typically four elements that are critical to the success of any proposal:

  • 'Uniqueness' – more than just a unique idea

Generally speaking, the uniqueness of a proposal will be the key to its success. The proposal needs to have unique characteristics that result in outcomes not otherwise attainable through traditional government-led procurement (examples of 'uniqueness' in successful market-led proposals are ownership of land or substantial assets or other legal rights, such as intellectual property or access rights, by the proponent). The proposal also needs to offer a value for money solution that is unlikely to benefit from being tested in the market, or is otherwise not able to be delivered by competitors.

Uncertain times such as the current COVID-19 environment can be a great catalyst for innovative ideas. The market-led proposals process allows proponents to develop opportunities that the public sector has not identified. Governments can then leverage this private sector innovation to develop a varied pipeline of short-, medium- and long-term projects, including by looking outside traditional infrastructure projects (such as road and rail) to core-plus assets and opportunities for connected infrastructure.

  • Value

As noted above, the proposal still needs to demonstrate value for money, in addition to being unique. In the current COVID-19 environment, with all eyes on government, an even higher degree of scrutiny will be placed on decision makers regarding the allocation of public funds. A market-led proposal must, therefore, clearly demonstrate how the proposal offers better value for money than would be achieved under a competitive tender process.

Before COVID-19, the case was already mounting for the delivery of smaller, critical projects and a move away from the high number of politically charged 'mega' projects, with the view that smaller projects can often provide better value for money for government. That need remains, and is arguably even stronger than before. Delivering a larger number of small, but valuable, projects makes room for greater diversity among industry participants, creates more employment and training opportunities, and paves the way for a wider geographical spread of projects. It will also provide the most efficient and timely response to the current crisis.

Assessments of 'value' also shouldn't focus on economic benefits or financial savings alone. For example, an investment in social housing projects would provide much-needed economic stimulus while also addressing an ever-increasing social need. A market-led proposal containing clearly defined economic and social benefits is more likely to be considered a high-value proposition.

  • Timing

Proponents need to ensure their proposals are timed well, and are in line with current government policy and priorities. This is even more true in the current COVID-19 environment.

The construction industry has been identified as a driving force for the economy throughout (and beyond) this crisis. With the various government taskforces and other industry bodies working hard to identify priority projects, and musings from the government sector in relation to revisiting historical market-led proposals, it may be that the changed circumstances mean that previously sidelined proposals now provide new benefits, such as the creation of jobs and training opportunities.

Market-led proposals have the potential to enable faster delivery of infrastructure, compared with other forms of government-led procurement. They also relieve government of the task of both identifying the problem or opportunity, and then developing the solution or strategy. Given that market-led proposals reduce costs associated with lengthy procurement and competitive bidding processes (leaving more money available for project spend), now is a good time for government to harness these potential benefits.

The NSW Government has already flagged that consideration may be given to fast-tracking or revisiting projects that have progressed through stages of the NSW unsolicited proposals framework. We would expect that the other state and territory governments may also look to shorten the timeframes for considering proposals, while still abiding by due probity and process, in order for projects to get up and going more quickly for the benefit of the economy.

  • Preparation is key

The early stages of a market-led proposal process can often be expensive, and the proponent usually bears the cost. Effective preparation is essential to ensure a proponent's resources are expended in a targeted manner. Maintaining awareness of each jurisdiction's specific requirements will assist private participants with managing their proposal costs, as will forming an experienced and dedicated bid team from the get go.

Governments can also support this by continuing to publish and refine clear, streamlined policies, and providing the market with greater articulation around high and low priorities. The introduction of incentives or advantages, such as those recently introduced in Western Australia and described above, no doubt help to alleviate private sector cost concerns.

Going forward

In the current market, and with the unanimous motivation of the Federal and state and territory governments to accelerate infrastructure spend, having the private sector take over elements of the planning task is a major benefit to governments. Market-led proposals (especially those already in development) can effectively balance governments' competing needs for urgency and for well-planned, value for money projects, by presenting packaged, 'shovel ready' solutions.