Week5 vince d'amico on pppsconstruction

RMIT 20th September 2013 Vince D’Amico

• Complex risk profile and opportunity for risk transfer • Whole of life costing – full integration under one party • Innovation – innovative solution to meet services specs • Measurable outputs – out put spec and performance based • Asset utilisation – efficient design to meet performance • Better integration of design, construction and operational

requirements – efficiencies over the term of concession • Competitive process – meet government cost objectives

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Geoff Wood – a partner with Baker & McKenzie in Sydney – says there simply aren’t enough PPP projects ready to implement for the amount of capital sloshing around in the market. Assuming government can deliver a clear pipeline of projects, Wood is convinced the private sector will find the money to make them happen.

In fairness to the PPP model, many – especially those in the socio-­‐ economic space – have shown convincingly that some risk can be -­‐ effectively transferred to the private sector. However, recent disasters of the financial kind have done the PPP model no favours.

There’s also a perception in the private sector that when it comes to risk transfer, the private sector usually comes off second-­‐best.

56 per cent of respondents to the Baker & McKenzie report felt the risk allocation in PPP projects was overly onerous for private sector participants while simultaneously not representing value-­‐for-­‐money for government.

• Having received numerous international accolades as “deal of the

year” in 2011, the NRAH project is viewed as a new benchmark for PPP projects. Awarded to one of only two bidders, the SA Health Partnership (SAHP) consortium comprising Leighton Contractors, Macquarie Capital, Hansen Yuncken and Spotless, was funded by 17 banks and five global equity investors.

• The capital market was clearly excited about the level of design innovation brought to the table during the NRAH bidding process, which a public works model couldn’t parallel. However, IPA chief executive Brendon Lyon says it also marked a quantum leap of faith in the South Australian Government’s commitment to the PPP model following the collapse of its prisons project.

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SAHP’s ability to successfully close the A$2.8 billion NRAH transaction – Australia’s largest health project using a PPP model – within a highly constrained capital market has captured the market’s -­‐imagination. Richard Cooper, head of origination infrastructure at -­‐National Australia Bank (one of two lead banks on the SAHP -­‐consortium) says raising this amount of capital again today would be considerably harder.

“While the NRAH PPP looks very similar to other social infrastructure projects, Thao Oakey, general manager infrastructure investments at Leighton Contractors, says it has an edge over other social infrastructure projects on risk transfer outcomes. “There’s a perception that a PPP is a funding mechanism, but in reality it’s a risk transfer delivery model and this is one area where the NRAH deal excelled,” Oakey says.

• Hawkins and St Hilliers have both 5% Bank Guarantee plus $20M cross liability

bond between the two with state.

• The project has been stressed since July 2011 when two directors of the builders fell on their swords and later on the state government requested around November 2011 H2JV sign a "Deed of Commitment" (because of delivery and non compliance issues)

• The Commonwealth, Bendigo and Adelaide Banks have reached an

agreement with Brookfield Multiplex for the immediate recommencement of work at the site, with a view to major works progressing in the new year.

• .Mr McIntosh said he has been advised 49 claims worth $8.6 million had so far been paid out to subcontractors whose claims had been validated by KordaMentha, an independent third party, and that more payments are imminent. Most of these payments have been made to small sub-­‐ contractors in Ararat and across western and central Victoria.

• The inability to manage and the fundamental building errors

which are numerous together with a abnormal turn over of staff at H2JV (in excess of 70 over the bid and construction period) • design errors and the rush of blood to the head (uncosted) at tender time to win the project are the main reason why the project is where it is up to, there are countless other examples of a 2nd tier builder completely out of their depth to deliver a complex project.

• One must ask of Government how they assessed the risk and awarded a project of this high profile and complexity to a builder that frankly were essentially building residential dwellings and low cost student accommodation buildings.