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