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Delivery Vehicles for Local Government Town Centre Projects Guy O’Connor | Partner 18 October 2012


Introduction  Building procurement and land transfer strategy – Critical to success of project – Worth considering non-traditional options for major projects


Agenda  Traditional procurement – building contracts  Traditional models for land transfer  Alternative procurement models – construction  Alternative land transfer models  Major Projects Guidance 2012


Agenda  Traditional procurement – building contracts  Traditional models for land transfer  Alternative procurement models – construction  Alternative land transfer models  Major Projects Guidance 2012


Construct Only Contracts  Structure


Construct Only Contracts (cont.)  Key Features – The Council directly engages the designer and the works contractor under separate contracts – As between the Council and the works contractor, the Council is responsible for the design – The works contractor is paid a lump sum, subject to adjustments permitted under the contract


Construct Only Contracts (cont.)  Suitable Projects – The design and the works to be delivered are specific, simple and relatively small scale – The Council is able to manage the design risk – The Council requires close control over the design


Construct Only Contracts (cont.)  Suitable Projects (cont.) – The scope is well defined and relatively impervious to change – Contractor innovation is neither sought nor required – There is sufficient time to prepare full design documentation before tendering for the construction of the works


Design and Construct Contracts  Structure


Design and Construct Contracts (cont.)  Key Features – The Council prepares a detailed design brief – The Council engages one party for both the design and construction of the project under a single contract – The contractor is primarily responsible for the design and construction risks


Design and Construct Contracts (cont.)  Suitable Projects – The procurement is small to medium scale – The Council requires some control over the design – The scope is well defined and relatively impervious to change


Design and Construct Contracts (cont.)  Suitable Projects (cont.) – Contractor innovation is not a high priority for the project – The Council has insufficient expertise or time to manage the full design process


Agenda  Traditional procurement – building contracts  Traditional models for land transfer  Alternative procurement models – construction  Alternative land transfer models  Major Projects Guidance 2012


Traditional Models for Land Transfer  Contracts of Sale – Project land – Other surplus land

 Land Exchange Agreements – Create developable parcels – Exchange land/cash


Traditional Models for Land Transfer (cont.)  Key Features – Straight forward contracts – Settlement occurs prior to commencement of project – No post-settlement obligations


Agenda  Traditional procurement – building contracts  Traditional models for land transfer  Alternative procurement models – construction  Alternative land transfer models  Major Projects Guidance 2012


Managing Contractor  Structure


Managing Contractor (cont.)  Key Features – The Council engages the managing contractor who contracts directly with the trade contractors – High level of managing contractor responsibility with performance based incentives for achieving cost savings – Managing contractor shares some of the project risks with the Council


Managing Contractor (cont.)  Suitable Projects – Complex and have an uncertain scope or timeframe – Involve uncertain risks and technology – Need to be fast tracked – Early contractor involvement is beneficial to the project


Alliancing  Structure


Alliancing (cont.)  Key Features – The Council and commercial participants collaborate to deliver the project, sharing risks and benefits – No fault, no blame approach – Gain share/pain share payment structure linked to the target out-turn cost (TOC) – Allows progressive design and construction of some elements before others


Alliancing (cont.)  Suitable Projects – The project is complex and involves unpredictable risks, which if transferred to the private sector using traditional delivery methods would be cost prohibitive – The scope cannot be clearly defined at the outset which makes traditional pricing difficult


Alliancing (cont.)  Suitable Projects (cont.) – There is a compressed delivery programme which requires a flexible approach to incorporate economic, political or stakeholder considerations – The project involves emerging technology or innovative solutions that need to be further explored – The Council is well resourced and has sufficient expertise to participate in the alliance with the commercial participants.


Public Private Partnerships (PPPs)  DBFO/DBFM – Structure


PPPs (cont.) – Key Features  The Council defines its requirements in a performance specification  The Council enters into a long term agreement with the project company to design, construct, finance and operate/maintain the asset  The project is financed by the project company through a combination of sponsor equity and debt finance


PPPs (cont.) – Key Features (cont.)  The Council retains ownership of the asset and grants rights to the project company under a long term lease, licence or concession  The project company is paid an availability charge or service fee during the operation/ maintenance period


PPPs (cont.) – Suitable Projects  The project involves the development of complex or high risk social infrastructure  The project involves a large scale asset development and associated service provision, or a series of bundled smaller capital works projects and associated services, over a long term


PPPs (cont.) – Suitable Projects (cont.)  The asset developed has a life span of at least 10 - 15 years  There is strong private sector capability and capacity to undertake the project  Private sector efficiencies or expertise are an advantage  The project provides opportunity for innovation


PPPs (cont.) – Suitable Projects (cont.)  The risk adjusted whole of life cost delivered by the private sector provides value for money compared with the cost to the Council of public delivery  Some project risks can be allocated to the private sector  The scope of the service output is relatively certain and can be measured and priced


PPPs (cont.)  BOT/BOO/BOOT – Structure


PPPs (cont.) – Key Features  The Council defines its requirements in a performance specification  The Council enters into a long term agreement with the project company to design, construct, maintain, operate and finance the asset  The project is financed by a combination of sponsor equity and debt finance


PPPs (cont.) – Key Features (cont.)  The project company usually owns the asset during the concession period  The SPV transfers the asset back to the Council at the end of the concession period (except for a BOO project)  The project company is entitled to the revenue generated by the asset during the concession period


Agenda  Traditional procurement – building contracts  Traditional models for land transfer  Alternative procurement models – construction  Alternative land transfer models  Major Projects Guidance 2012


Planning Agreements  Used in most States of Australia – VIC – s173 Planning Environment Act 1987 – NSW – s88d and s88E Conveyancing Act 1989 – TAS – s71 Land Use Planning and Approvals Act 1993 – SA – s57 Development Act 1993 – WA – s15 Land Administration Act 1997 (Minister/Crown Land)


Planning Agreements (cont.)  Sale is conditional on parties signing planning agreement at settlement  Imposes conditions on future use and development of the land  Registered on title and enforceable against subsequent purchasers


Development Agreements  Over-arching project agreement  Regulates construction of project as well as transfer of land  Title usually transfers at completion of project to end-purchasers, not developer


Development Agreements (cont.)  Structure


Development Agreement (cont.)  Key Features – The Council engages a developer for the delivery of a project on Council property – Procurement framework relates to broader elements of the project beyond the design and construction components, including development rights in relation to the site – Highly flexible delivery model


Development Agreements (cont.)  Agreement may address:– Land transfer, licences and leases – Development obligations and timetable – Planning requirements – Finance arrangements – Marketing, sales, project administration


Development Agreements (cont.)  Suitable Projects – Involve the grant of development rights as well as sale of land – Developer to manage planning, design, construction and ultimate property sales – Council’s overall objectives are well defined – Council to receive post-construction lease or re-transfer


Agenda  Traditional procurement – building contracts  Traditional models for land transfer  Alternative procurement models – construction  Alternative land transfer models  Major Projects Guidance 2012


Major Projects Guidance 2012  Joint publication by Maddocks, Ernst & Young and Infrastructure Partnerships Australia  Guidelines for delivery of major projects by local government  Practical advice for Council officers on each stage of project lifecycle  To be published by LGMA towards end of 2012


Delivery Vehicles for Local Government Town Centre Projects Guy O’Connor | Partner Direct 61 3 9288 0522 guy.o’connor@maddocks.com.au


O'Connor, Guy (7C)