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Focus: New PPP guidelines for NSW

28 July 2017

In brief: The NSW Government has released updated guidelines that govern the Public Private Partnership procurement process in NSW and will provide welcome assistance to both NSW Government agencies and bidding consortiums. Partner Nicholas Adkins (view CV) and Associate Sunny Jong report.

 
 

How does it affect you?

  • The updated NSW PPP Guidelines, released earlier this week by the Infrastructure & Structured Finance Unit within NSW Treasury, clarify which infrastructure projects they apply to and refine procurement and approval processes for NSW PPP projects. They are designed to provide information and assistance to both NSW Government agencies and bidding consortiums.
  • The updated guidelines, which refine those released by NSW Treasury in 2012, are enhanced by a 'PPP Toolbox', a suite of more than 60 templates, including template Project Deed (the main concession agreement for PPPs), Financier Tripartite Deed, PAFA approval forms and various other documents to be used by NSW Government agencies.
  • The changes to the guidelines and new PPP Toolbox are intended to:
    • reduce bid costs through changes to the procurement process;
    • streamline transaction and approval processes;
    • promote greater consistency across NSW PPP projects; and
    • promote information sharing across NSW Government agencies and continuous improvement for 'lessons learned' as the PPP model and procurement processes evolve.

When are the NSW PPP Guidelines applied to a project?

  • The updated guidelines continue the requirement that any public infrastructure project (or bundle of projects, eg schools package) with a total estimated capital value of more than $100 million must be assessed for possible procurement as a PPP having regard to value for money.
  • The guidelines adopt a broad interpretation of what constitutes a PPP. Under the guidelines, a PPP is defined as any long-term arrangement between the public and private sectors for the delivery of service-enabling public infrastructure. The guidelines expressly include Social Infrastructure PPPs (eg availability PPPs in health, education, transport and roads), Economic Infrastructure PPPs (eg user pay PPPs in roads and water), joint financing arrangements and concessions.
  • This is an important clarification, as public infrastructure projects can vary significantly from the 'vanilla' PPP model and, in some cases, in the past it has not been clear to what extent the standard PPP principles should apply – for example, user-pays toll roads and the new services-focused procurement model used on phase 1 of the NSW Social and Affordable Housing Fund.
  • The procurement of services and/or associated infrastructure through PPPs in NSW must now comply with (among other things, depending on the project):
    • the NSW Public Private Partnerships Guidelines; and
    • the National Public Private Partnerships Policy and Guidelines.

Overview of the NSW PPP guidelines and what's new

Emphasis on NSW Treasury's involvement

The updated NSW PPP guidelines make it clear that NSW Treasury will be involved in all aspects of planning, procuring and managing PPP contracts. It is expected that a member of the Infrastructure & Structured Finance Unit within NSW Treasury will be involved in all transactions to assist the relevant NSW Government agency, which should also assist knowledge-sharing and consistency across projects.

Refined procurement processes to reduce bid costs

NSW Treasury indicated at the launch that concern at high bid costs was a consistent theme that came out of the industry feedback process they undertook before updating the guidelines. The guidelines make it clear that the Government will not normally reimburse bid costs, but may do so in exceptional circumstances (and, where it does so, will retain the proprietary rights to IP and other materials supplied for the bid).

The Government has sought to make refinements to the procurement processes set out in the NSW PPP guidelines in an effort to minimise bid costs, including a requirement for PPP projects in NSW to use the PPP Toolbox, which contains a suite of more than 60 template contractual documents developed by NSW Treasury (including templates for the Project Deed, the Financiers' Tripartite Deed and other key documents), which will reduce unnecessary time and cost spent on document negotiation.

NSW Treasury also indicated that they are considering other initiatives to reduce bid costs in future projects, including better consultation during the EOI and pre-RFP phases, preparing due diligence that can be relied on by bidding consortiums (to avoid duplication of work) and potentially reducing the number of shortlisted proponents in the RFP phase (to two rather than the usual three).

Evaluating PPP bids and value for money

Under the updated NSW PPP guidelines, PPP bids are evaluated by:

  • assessing bids against non-price criteria (which include the quality of the proposal in respect of objectives, outcomes, risk allocation, innovation, time benefits and other non-quantifiable benefits);
  • comparing price proposals (by analysing, among other things, financial models, the reasonableness of estimates and an appropriate return for the private sector's investment); and
  • making a value judgment on which bidder provides the best value, taking into account both the non-price assessment and the price comparisons of each bidder.

A proposal is value for money if it achieves the required project outcomes and objectives in an efficient, high-quality, innovative and cost-effective way, with regard to the allocation and management of risks.

Public Sector Comparators and Shadow Bid Models

The updated guidelines require that two quantitative tools are to be developed during the business case and procurement strategy phases to evaluate and interrogate the reasonableness of bidders' financial models – a Public Sector Comparator and a Shadow Bid Model.

A Public Sector Comparator provides an estimate of the cost that the NSW Government would pay were it to deliver the project itself, while a Shadow Bid Model gives an estimate of a private party's bid price (in net present value terms).

The guidelines contain principles to inform the preparation and use of these evaluation tools and make it clear that NSW Treasury will be responsible for advising NSW Government agencies on them.

Approvals

The updated guidelines include a detailed explanation and flowchart of the NSW Government approvals expected to be required during each phase of the procurement process, and the PPP Toolbox includes various template documents to assist Government agencies with the preparation of approval applications.

The guidelines require that the Treasurer must approve all PPP arrangements under the Public Authorities (Financial Arrangements) Act 1987 (NSW). Approval under the PAFA Act will also be required where the Crown issues a guarantee of the financial performance obligations of a NSW Government Agency.

Unsolicited proposals

The Secretary of the NSW Department of Premier and Cabinet remains the first point of contact for unsolicited proposals. Unsolicited proposals must, in addition to complying with the NSW PPP Guidelines, comply with the principles and processes contained in the unsolicited proposals guidelines, unless the proposal relates to the variation of an existing concession and complies with the existing PPP contract.

Electronic submission of bids

Under the updated guidelines, Government agencies are required to receive EOI and RFP submissions electronically to save the time and cost of preparing multiple hard copy submissions, not to mention trees.

 

 

For further information, please contact:

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