Updated Standard Commercial Principles

Transcrição

Guidance Material - April 2008
The Secretary
Department of Treasury and Finance
1 Treasury Place, Melbourne
Victoria 3002 Australia
Telephone: +61 3 9651 5111
Facsimile: + 61 3 9651 2062
Website: www.partnerships.vic.gov.au
Published by the Department of
Treasury and Finance
© State of Victoria 2008
First published 2005
Updated edition April 2008
This book is copyright. No part may be
reproduced by any process except in
accordance with the provisions of the
Copyright Act. ISBN 1 921337-22-2
Published April 2008 by authority
For more information on this
publication and for other information on
Partnerships Victoria, visit the website
www.partnerships.vic.gov.au
The State of Victoria acknowledges the kind
permission given by:
Civic Nexus to use and reproduce the computer
generated image of Spencer Street Station.
Vivendi Water Australia to use and reproduce
the photograph of the Coliban Water Treatment
Plant, Bendigo Victoria.
Partnerships Victoria
Detailed Guidance
Material
April 2008
Treasurer’s Foreword
I am pleased to announce the release of the updated
Partnerships Victoria Standard Commercial Principles.
When the Standard Commercial Principles were first published in
2005, the then Treasurer undertook to review and revise the
principles periodically in light of the continually evolving Public
Private Partnership (PPP) market at a state, national and
international level. This effort was taken to ensure Partnerships
Victoria continues to represent best practice policy and deliver
the best possible outcomes.
With the release of the attached updated principles, the Brumby Government has delivered
on this commitment and reinforced its position as a leader in infrastructure delivery in
partnership with the private sector.
We believe the update will generate further efficiencies in the procurement of Partnerships
Victoria projects, leading to further reductions in private sector bid costs. This is a
significant development in the PPP landscape across Victoria and Australia at a time when
PPP’s can assist in meeting Australia’s growing demand for infrastructure to address
capacity constraints and secure future productivity growth and prosperity.
I look forward to using this update as a significant contribution to a national dialogue on
consistent, best practice PPP guidelines.
JOHN LENDERS MP
TREASURER
i
Table of Contents
Table of Contents
Introduction ............................................................................................................1
Summary table of key revisions ...........................................................................3
1.
Contractual Issues ........................................................................................7
1.1
1.2
1.3
1.4
1.5
1.6
2.
2.1
2.2
2.3
2.4
3.
3.1
3.2
3.3
3.4
4.
4.1
4.2
5.
5.1
5.2
6.
6.1
6.2
6.3
7.
7.1
7.2
7.3
7.4
8.
8.1
8.2
8.3
8.4
9.
9.1
9.2
9.3
9.4
9.5
9.6
9.7
Introduction ............................................................................................................... 7
Contracting party ...................................................................................................... 7
Authority to make contracts ...................................................................................... 7
Delegated powers and functions .............................................................................. 8
Enforceability of the contract .................................................................................... 8
State facilitation ........................................................................................................ 9
Conditions precedent .................................................................................11
Overview................................................................................................................. 11
Conditions precedent bond..................................................................................... 11
Requirements of conditions precedent................................................................... 12
Termination............................................................................................................. 13
Contract term...............................................................................................14
Expiry date.............................................................................................................. 14
Extension ................................................................................................................ 14
Liquidated damages ............................................................................................... 15
Earlier termination................................................................................................... 15
Site conditions and suitability ...................................................................16
Site suitability.......................................................................................................... 16
Site conditions ........................................................................................................ 16
Environmental issues .................................................................................19
Environmental approvals ........................................................................................ 19
Contamination......................................................................................................... 20
Native title and artefacts.............................................................................25
Native title ............................................................................................................... 25
Artefacts.................................................................................................................. 26
Memorandum of Understanding ............................................................................. 26
Planning and other approvals....................................................................27
Commonwealth approvals ...................................................................................... 27
State planning approvals ........................................................................................ 27
Other site approvals................................................................................................ 27
Compliance............................................................................................................. 28
Site access...................................................................................................29
Availability............................................................................................................... 29
Third party occupants ............................................................................................. 29
Access for government and third parties................................................................ 30
Utilities .................................................................................................................... 30
Tenure ..........................................................................................................31
Ownership............................................................................................................... 31
Reservation of project land..................................................................................... 31
Construction licence ............................................................................................... 32
Tenure during the operating period ........................................................................ 32
Government access rights...................................................................................... 33
Other licences or sub-leases .................................................................................. 33
Improvements ......................................................................................................... 34
ii
Table of Contents
10.
Design ..........................................................................................................35
10.1
10.2
10.3
10.4
11.
14.7
14.8
Monitoring obligations........................................................................................ 65
Additional performance monitoring rights.......................................................... 66
Auditing.............................................................................................................. 66
Operating committee ......................................................................................... 67
Intervening events during the operational phase ....................................69
17.1
17.2
17.3
17.4
17.5
17.6
17.7
18.
Maintenance and refurbishment during the operating phase............................ 62
Asset management plan.................................................................................... 62
Funding maintenance and refurbishment obligations ....................................... 63
Monitoring performance of maintenance and refurbishment obligations .......... 63
End-of-term arrangements ................................................................................ 64
Performance monitoring and review .........................................................65
16.1
16.2
16.3
16.4
17.
Provision of contracted services........................................................................ 54
Service standards and specifications ................................................................ 55
Service Failures................................................................................................. 56
Performance monitoring .................................................................................... 57
Abatement and default ...................................................................................... 58
Delivery of core services does not relieve the private party of its
contractual obligations....................................................................................... 59
Utility services.................................................................................................... 59
Government relief for private party failure to comply with service obligations .. 60
Maintenance and refurbishment ................................................................62
15.1
15.2
15.3
15.4
15.5
16.
Liquidated damages .......................................................................................... 51
Performance bonds ........................................................................................... 52
Parent guarantees ............................................................................................. 53
Service requirements and specifications .................................................54
14.1
14.2
14.3
14.4
14.5
14.6
15.
Form of relief...................................................................................................... 44
Time relief .......................................................................................................... 44
Compensation relief........................................................................................... 48
Protection against late or insufficient service delivery ...........................51
13.1
13.2
13.3
14.
Construction and commissioning obligations .................................................... 38
Construction updates and reports ..................................................................... 38
Project committee.............................................................................................. 38
Inspections......................................................................................................... 39
Commissioning, operational and commercial acceptance ................................ 39
Defects............................................................................................................... 42
Relief for construction delays....................................................................44
12.1
12.2
12.3
13.
Design obligations ............................................................................................. 35
Fitness for purpose warranty ............................................................................. 35
Mandatory design guidelines............................................................................. 35
Design development process ............................................................................ 36
Construction and commissioning....................................................................38
11.1
11.2
11.3
11.4
11.5
11.6
12.
Intervening Events............................................................................................. 69
Threshold requirements..................................................................................... 71
Relief for Intervening Events ............................................................................. 71
Compensation ................................................................................................... 72
Alternative arrangements .................................................................................. 73
Cessation of the Intervening Event ................................................................... 74
No effect on government's step-in rights ........................................................... 74
Payment provisions ....................................................................................74
18.1
18.2
18.3
18.4
18.5
18.6
18.7
Service payment................................................................................................ 74
Payments........................................................................................................... 75
Indexation .......................................................................................................... 76
Service payments for phased completion ......................................................... 76
Service fee adjustment principles...................................................................... 76
Variations to financial model.............................................................................. 78
Taxes ................................................................................................................. 79
iii
Table of Contents
19.
Review and market testing of Services.....................................................80
19.1
19.2
19.3
20.
Insurance generally ......................................................................................... 112
General insurance obligations ......................................................................... 114
Changes in insurance costs ............................................................................ 114
Uninsurability ................................................................................................... 117
Default ........................................................................................................119
27.1
27.2
27.3
27.4
28.
Obligation to repair or reinstate ....................................................................... 109
Direction by government not to reinstate or repair .......................................... 110
Direction by government to reinstate to different specifications...................... 111
Insurance ...................................................................................................112
26.1
26.2
26.3
26.4
27.
Qualifying events ............................................................................................. 105
Form of relief.................................................................................................... 106
Temporary measures and alternative arrangements ...................................... 107
Financial relief ................................................................................................. 107
Termination...................................................................................................... 108
Reinstatement and repair .........................................................................109
25.1
25.2
25.3
26.
Scope of Change in Law ................................................................................... 98
General Change in Law..................................................................................... 99
Project-specific Change in Law ....................................................................... 101
Form of relief.................................................................................................... 103
Threshold requirements................................................................................... 104
Inconsistency with performance standards ..................................................... 104
Force majeure............................................................................................105
24.1
24.2
24.3
24.4
24.5
25.
Government-initiated modification to the facility................................................ 91
Private party initiated modification works .......................................................... 95
Government-initiated modifications to service standards.................................. 96
Minor works ....................................................................................................... 97
Change in Law .............................................................................................98
23.1
23.2
23.3
23.4
23.5
23.6
24.
Warranty as to Control....................................................................................... 88
Change in Control of private party..................................................................... 88
Consent may be withheld .................................................................................. 89
Modifications ...............................................................................................91
22.1
22.2
22.3
22.4
23.
Subcontracts - generally.................................................................................... 84
Additional material subcontract requirements ................................................... 85
Amendments to material subcontracts .............................................................. 86
Side deed........................................................................................................... 86
Subcontractor requirements .............................................................................. 86
Private party's obligations in respect of subcontracts ....................................... 87
Subcontractors appointed by financiers ............................................................ 87
No relief to private party by subcontracting obligations..................................... 87
Probity................................................................................................................ 87
Change in Control .......................................................................................88
21.1
21.2
21.3
22.
Reviewable services.......................................................................................... 80
Review of soft services...................................................................................... 80
Market testing .................................................................................................... 81
Subcontractors............................................................................................84
20.1
20.2
20.3
20.4
20.5
20.6
20.7
20.8
20.9
21.
Events of Default ............................................................................................. 119
Cure periods and remedies for Events of Default ........................................... 121
Extension of cure period.................................................................................. 123
General remedies ............................................................................................ 123
Termination................................................................................................124
28.1
28.2
28.3
28.4
28.5
Default Termination Event ............................................................................... 124
Force Majeure Termination Events ................................................................. 126
Voluntary termination....................................................................................... 126
Procedure ........................................................................................................ 127
Consequences................................................................................................. 127
iv
Table of Contents
29.
Termination payments ..............................................................................128
29.1
29.2
29.3
29.4
29.5
30.
Restrictions on business.................................................................................. 157
Restrictions on amending certain documents ................................................. 157
Restrictions on assignment ............................................................................. 157
Restrictions on sale or lease ........................................................................... 158
Records ......................................................................................................159
36.1
36.2
36.3
36.4
36.5
36.6
36.7
36.8
36.9
37.
Private party indemnity .................................................................................... 153
Representations and warranties...................................................................... 154
Non-exclusivity of remedies............................................................................. 156
Restrictions on private party....................................................................157
35.1
35.2
35.3
35.4
36.
Government consent ....................................................................................... 149
Notice and re-financing details ........................................................................ 149
What is a re-financing?.................................................................................... 149
When may government withhold its consent................................................... 150
Sharing a re-financing gain.............................................................................. 151
Calculating the re-financing gain ..................................................................... 151
Payment of the re-financing gain..................................................................... 151
Government audit rights .................................................................................. 152
Acting in good faith .......................................................................................... 152
Funder's direct agreement............................................................................... 152
Termination payments ..................................................................................... 152
Indemnities, warranties and contractual claims ....................................153
34.1
34.2
34.3
35.
Panel................................................................................................................ 146
Independent determination.............................................................................. 146
Independent expert.......................................................................................... 147
Arbitration ........................................................................................................ 147
Fast-track process ........................................................................................... 148
Legal rights ...................................................................................................... 148
Obligation to continue to perform .................................................................... 148
Re-financing gain ......................................................................................149
33.1
33.2
33.3
33.4
33.5
33.6
33.7
33.8
33.9
33.10
33.11
34.
Return conditions at contract expiry ................................................................ 141
Other private party rights and obligations........................................................ 143
Dispute resolution.....................................................................................146
32.1
32.2
32.3
32.4
32.5
32.6
32.7
33.
Circumstances of step-in ................................................................................. 137
Rights and obligations on step-in .................................................................... 138
Costs of step-in................................................................................................ 138
No liability or limitation on government's rights ............................................... 139
Stepping-out .................................................................................................... 139
End-of-term arrangements .......................................................................141
31.1
31.2
32.
Default Termination Payment .......................................................................... 128
Force Majeure Termination Payment .............................................................. 132
Payment for voluntary termination by government.......................................... 134
Mitigation ......................................................................................................... 136
Transfer of debt obligations ............................................................................. 136
Step-in ........................................................................................................137
30.1
30.2
30.3
30.4
30.5
31.
Maintenance of audited records ...................................................................... 159
Availability of audited records.......................................................................... 159
Accounting records.......................................................................................... 159
Provision of other details ................................................................................. 160
Warranty .......................................................................................................... 160
Financial audit.................................................................................................. 160
Maintenance of non-financial records ............................................................. 161
Period for retaining records ............................................................................. 161
Confidentiality .................................................................................................. 161
Probity ........................................................................................................162
37.1
37.2
37.3
Notification of a probity event .......................................................................... 162
Meaning of probity event ................................................................................. 162
Consequences following notice of a probity event .......................................... 162
v
Table of Contents
37.4
37.5
37.6
38.
Costs of cure.................................................................................................... 163
Probity investigations....................................................................................... 163
No appointment without government consent ................................................. 164
Confidentiality and disclosure .................................................................165
38.1
38.2
38.3
39.
State disclosure ............................................................................................... 165
Confidentiality .................................................................................................. 165
Legislative disclosure obligations .................................................................... 166
Intellectual property ..................................................................................167
39.1
39.2
39.3
39.4
39.5
39.6
39.7
39.8
Warranties ....................................................................................................... 167
Grant of licences.............................................................................................. 167
Obligation......................................................................................................... 168
Moral rights ...................................................................................................... 168
Survival of rights .............................................................................................. 168
Indemnity ......................................................................................................... 168
IP rights passed from government .................................................................. 168
Rights to IP on expiry of term .......................................................................... 169
vi
Introduction
The Brumby Government is committed to improving the way it does Partnerships Victoria
projects. Ensuring that we identify and incorporate into our principles (as appropriate), the
lessons being learnt across the landscape of PPP projects is critical to the long term
success and viability of PPPs.
With this long-term objective in mind, the Brumby Government has continued to review the
Partnerships Victoria Standard Commercial Principles since their release in 2005, in light of
the evolving PPP market at a State, national and international level. That review has
culminated into these updated Standard Commercial Principles, which replace the 2005
published version.
The updated principles have been developed against a background of continual dialogue
across government departments and agencies and the private sector. All comments and
suggested positions arising from these dialogues were given due consideration in
preparing the updated principles, even where they have not been adopted in the attached
document.
The updated principles are not a shift in Partnerships Victoria policy. We believe that they
continue to strike a fair balance between the public and private interest.
We have either updated or provided clarification and further guidance on those principles,
where project experience or other evidence has shown that doing so would deliver better
value for money.
Key revisions and application
The key areas that have been amended or in respect of which further guidance has been
issued, are:
•
•
•
•
•
•
•
•
•
Relief for Construction Delays (section 12) and Intervening Events during the
operating phase (section 17);
Service failures/abatement and default (paragraphs 14.4 and 14.5);
Government relief for private party failure to comply with service obligations
(paragraph 14.8);
Utility services (paragraph 14.7);
Modifications (section 22);
General Change in Law (paragraph 23.2);
Force majeure (section 24);
Default (section 27); and
Termination payments (section 29).
Further details of the key variations are summarised in the following summary table. The
summary table has been provided to assist practitioners to work through the detail of the
revised principles. It does not identify all the changes made to the 2005 document and
should not be relied on for compliance purposes. The Partnerships Victoria website
contains both a final copy of the updated principles and a revised copy showing the
changes to the 2005 published version.
The updated principles will apply to all future Partnerships Victoria projects. They will not
apply retrospectively to Partnerships Victoria projects that have closed.
April 2008
1
The updated principles provide a consistent and efficient risk allocation framework, while
recognising the need for flexibility for individual project needs. However, any derogation
from the updated principles for sector or project-specific issues must be documented and
agreed with the Department of Treasury and Finance when approval is sought to issue the
project brief.
Consistent with the assumptions underlying the 2005 published principles, the updated
principles apply to core services/accommodation type Partnerships Victoria projects, where
the site has been chosen by government, payment is based on availability and the facility
reverts to the State at no cost at contract end.
However, many of the principles will also be applicable to other Partnerships Victoria
projects, including economic infrastructure projects.
Next steps
Victoria is committed to the ongoing process of refining and developing the principles, to
ensure Partnerships Victoria projects sustainably deliver best possible outcomes. We aim
to develop them further into standard contractual clauses, to help reduce the cost and time
of contractual negotiations. We will consult with PPP market participants, both in Victoria
and nationally, on our draft standard clauses before they are finalised. I look forward to
continuing our dialogue across government departments and agencies and the private
sector, as part of this process.
David Asteraki
Director, Partnerships Victoria
April 2008
2
Summary table of key revisions
Section /
Paragraph
Reference
Principle
Description of Revision
Paragraph 4.2.2
Relief for latent
geotechnical
conditions
Further guidance is provided
requirements for provision of relief.
Paragraphs 4.2.3
and 5.2.3
Site condition and
contamination due
diligence
Further guidance is provided around the basis
for the carrying out of any government due
diligence and the terms on which the benefit of
any government due diligence reports will be
provided to the private party.
Paragraph 5.2.2
High Risk and
Low Risk Sites
Clarification is provided on what constitutes a
High Risk Site (formerly referred to as a
‘Brownfield Site’) and a Low Risk Site (formerly
referred to as a ‘Greenfield Site’).
The
distinction reflects the fact that specific sites will
have different likelihoods of contamination and
other latent conditions occurring and therefore
different risk allocations.
Paragraph 5.2.5
Unidentified preexisting
contamination
Further guidance is provided on the
circumstances and conditions on which
government will share the risk of pre existing
contamination.
Paragraph 6.2.3
Artefacts risk
Whether and the period for which the private
party will be required to carry any artefacts risk
will be determined on a project-specific basis
depending on the likelihood of artefacts being
discovered.
Paragraph 10.2
Fitness for
purpose warranty
The fitness for purpose test will be referenced
to the requirements of the project brief and the
project agreement, as at the Date for
Commercial Acceptance not the date of the
project agreement.
Paragraph 11.5.6
Consequences of
a failure to
achieve Technical
Completion and
Commercial
Acceptance
An Event of Default has been introduced where
a look forward test finds a reasonable prospect
of the private party not achieving Technical
Completion and Commercial Acceptance by the
relevant due dates. The Events of Default
around a failure to reach Technical Completion
may in certain circumstances be waived.
Paragraph 11.6.1
Rectification of
identified defects
Clarification of government’s requirements for
the rectification of deferred defects.
April 2008
on
the
3
Section /
Paragraph
Reference
Principle
Paragraph 12.2.1
Threshold
requirements for
the giving of time
relief
Time relief may be given if the relevant relief
event affects a critical activity on the critical
path and directly causes a delay to
achievement of completion of the facility. Relief
will not be limited to circumstances where the
final date for completion has been affected by
the delay. However, strict reporting obligations
will need to be complied with and relief will be
provided on the basis of the updated ‘as bid’
master works program.
Paragraph 12.2.2
and 12.3
Extension of time
events and
compensation
events
Further guidance has been provided on what
will constitute a time relief event and a
compensation event. Some new extensions of
time events and compensation events have
been introduced.
Paragraph 12.2.4
Concurrent delays
The circumstances in which the private party
will be given relief for concurrent delays have
been extended.
Paragraph 12.3.3
Compensation
amount
Further guidance has been provided on the
basis for determining the compensation
amount.
Paragraphs 14.3
and 14.5
Service failures
and the
abatement regime
Further clarification and guidance has been
provided on the categorisation and financial
impact of service failures.
Paragraph 14.7
Utilities
The risk allocation previously applying just to
electricity has been extended to all utilities.
Also, further clarification has been provided on
the circumstances and basis on which
government will seek to share utility volume
risk.
Paragraph 14.8
Abatement as the
sole remedy
Government has amended its position so that
abatement will be the sole remedy except in
certain specified circumstances.
Paragraphs 17.1
and 17.4
Intervening
Events and
compensable
Intervening
Events
will constitute an Intervening Event and a
Compensable Intervening Event. Some new
Intervening
Events
and
Compensable
Intervening Events have been introduced.
Further guidance has also been provided on the
form of and conditions on which relief for these
events will be provided.
Paragraph 18.7
April 2008
Allocation of tax
and rates liability
Government has recognised the need in certain
circumstances to reimburse the private party for
these costs.
4
Section /
Paragraph
Reference
Section 19
Principle
Review and
market testing of
services
Government has modified the process
(consistent with market practice) so that soft
services will not be benchmarked but the
private party will be given the opportunity to
submit an offer to deliver the services on a
competitive basis (before moving to a market
testing process).
Further guidance has been provided on the
required procedures for market testing.
Section 21
Change in Control
Minor drafting changes for consistency in
terminology.
Further guidance has been provided around the
basis on which government can withhold its
consent to a change in control and the effect of
a breach of change in control obligations (in
respect of the private party and key
subcontractors).
Section 22
Modifications
Revisions to the process for implementing
government initiated modifications (e.g., the
parties will need to agree the cost of preparing
a proposal before any work is undertaken).
Further guidance has been provided around
basis on which government will compensate the
private party for the cost of modification works
including requiring the private party to bid
maximum margins and other on-costs.
Clarification has been provided around what
works do not constitute modifications and the
concept of a minor works regime has been
introduced.
Section 23
Change in Law
Although there have been no changes to this
principle, government has provided clear
guidance around the principles to be adopted
for setting suitable percentage sharing
thresholds for general change in law risk.
There will be no relief for soft operating costs
arising from general changes in law.
Section 24
Force majeure
will constitute a Force Majeure Event and the
basis on which relief will be provided
(particularly where the risk is insurable or
should have been insured against). Some new
Force Majeure Events have been introduced.
The basis on which the private party can
terminate for a Force Majeure Event has been
clarified.
April 2008
5
Section /
Paragraph
Reference
Paragraphs 26.3
and 26.4.2
Principle
Sharing changes
in insurance costs
and treatment of
uninsurable risk
Further guidance has been provided on how
government will share increases in insurance
costs (including any process requirements).
Government has moved away from the existing
retrospective approach to compensating
insurance cost increases, to an annual forwardlooking basis.
The test for determining whether insurance is
unavailable has been revised.
Sections 27 and
28
Section 29
Default and
termination
Termination
payments
Further guidance has been provided on:
•
what will constitute an Event of Default
and Default Termination Events. Some
new Events of Default and Termination
Events have been introduced; and
•
the process for dealing with Events of
Default not capable of cure.
Guidance has been provided around:
•
termination payments for bond financed
deals; and
•
the process for determining a fairmarket-value where government
chooses to tender the project in a liquid
market in the event of a default
termination.
Further clarification has been provided on the
basis for determining termination payments (in
particular, on appropriate deductions) and
methods for payment.
Paragraph 30.3
April 2008
Costs for step-in
The amount by which the service fee will be
reduced during a government step-in has been
revised. There has also been a minor change
to government’s potential liability in the event of
step-in.
6
1. Contractual Issues
Principle
Special characteristics and powers of government give rise to particular issues which the
project agreement will address in seeking to equalise the relationship between the parties
and place the relationship on a commercial footing.
1.1
Introduction
The key issues for the private party when contracting with government are as follows:
•
Is the contracting party the State of Victoria or an entity created by legislation?
•
Does the person who will sign the project agreement for the government party have
the requisite authority to bind the State?
•
Is the project agreement enforceable against the Crown?
•
What can reasonably be expected of government in the exercise of statutory powers
and discretions which impact on the project?
1.2
Contracting party
Depending upon the nature and scale of the project, the contracting party may be:
(a)
the State of Victoria; or
(b)
a statutory body or statutory corporation.
1.3
Authority to make contracts
1.3.1
Contracts within portfolio
Ministers have authority to make a contract on behalf of the State in connection with any
matter which comes within their portfolio and departmental responsibility. In many
instances department heads also have this authority.
1.3.2
Legislative authority
Parliament may pass legislation to support a government contract. Legislation is only
needed where the subject matter of the contract requires a regulatory framework or other
amendments to existing law are required.
This is not generally necessary for
accommodation-based projects and is usually restricted to linear projects (e.g. toll roads,
where the private party requires authority to fix charges and tolls). Such legislation may
specify the types of contract that can be made and who has authority to make and sign the
contract.
April 2008
7
1.3.3
Warranty of authority
Where there is any reasonable basis for doubt, the government party entering the project
agreement will warrant that it has the power to enter into the project agreement and that its
obligations under the project agreement are valid and binding obligations enforceable
against it.
1.4
Delegated powers and functions
1.4.1
Instruments of delegation
In the absence of express statutory delegation, government's delegation of its powers,
functions or responsibilities in respect of the project agreement will take place through
instruments of delegation separate from the project agreement.1 The project agreement
will acknowledge that government is entitled to revoke or change any such delegation at
any time.
1.4.2
Rights of private party
The private party is entitled to know the identity of the current delegate or receive a copy of
any current instrument of delegation.
1.5
Enforceability of the contract
1.5.1
Scope of power to contract
If the State of Victoria enters into the project agreement under its executive power then the
State will be bound because the State's executive power to contract is unlimited2. If there
is legislation for the project agreement there must be compliance with the requirements of
that legislation. If the project agreement does not observe these requirements then it will
be void.
1.5.2
Waiver of State immunities
Traditionally, government parties to a contract had the benefit of certain immunities from
legal proceedings for breach of contract. However, this has been largely eroded. To
resolve any question as to the existence or application of these immunities, government
will agree to waive any right to its traditional immunities (in addition to the statutory effect of
section 23 of the Crown Proceedings Act 1958 (Vic)).
1
Chapter 9 and Appendix G of the Partnerships Victoria Contract Management Guide discuss issues that should
be considered by government in establishing delegations.
2
Unless the contract deals with an area for which the Commonwealth has exclusive responsibility under the
Constitution.
April 2008
8
1.6
State facilitation
1.6.1
Limitations on government
Government cannot contract out of an existing obligation under legislation or fetter its
future exercise of a statutory power or discretion. If the project agreement contained a
provision requiring government to do so, the provision would be ineffective. The project
agreement will recognise these limitations on any express or implied facilitation obligations
assumed by government.
1.6.2
Government not in breach
Anything done by government pursuant to its executive or legislative powers and functions,
even if directly contrary to the outcomes envisaged by the project agreement, will be
deemed not to constitute a breach of the project agreement.
1.6.3
Acknowledgment
The private party will also be required to acknowledge that government, in performing any
of its duties and obligations, is not obliged to exercise any power, function or duty within
the responsibility of any other government agency, or to influence, override or direct any
government agency in the proper exercise of its legal duties and functions. For these
purposes a government agency includes a government, semi-governmental, municipal,
statutory or other public entity or authority.
In addition, the parties will acknowledge that the project agreement may depart from the
guidance materials that underpin the State's Partnerships Victoria policy and that no
importation of those materials into the project agreement is implied or intended.
1.6.4
Right to compensation
However, while not technically fettering its discretion, government may assume specific
obligations under the project agreement with respect to the exercise of its powers and
functions. This will be on the basis that it will be liable to pay compensation or allow the
private party an extension of time (or both) if, in the free exercise of its discretion, it3 acts
contrary to outcomes specified in the project agreement.
Compensation for the consequences of a government act or omission contrary to its
obligations under the project agreement will be payable under a specific regime in the
project agreement4 and will be payable regardless of whether such act or omission
occurred pursuant to a positive duty.
1.6.5
•
3
'Best endeavours'
Government will not agree to open-ended 'best endeavours' or 'reasonable
endeavours' clauses. It will define these obligations by reference to specific matters
and no wider than strictly necessary.
But only in its capacity as the contracting party, rather than its role of being responsible for the general
administration of government affairs.
4
See section 12 (Relief for construction delays) and section 17 (Intervening Events during the operational phase).
April 2008
9
•
If the term is used in the project agreement, it will be accompanied by an
acknowledgment that to the extent that government has any such obligations it will
take steps to bring about the relevant outcome so far as it is reasonably able to do so,
having regard to its resources and other responsibilities.
•
The project agreement will state expressly that by undertaking to exercise reasonable
or best endeavours government does not agree to:
(a)
interfere with or influence the exercise by any person of a statutory power or
discretion;
(b)
exercise a power or discretion or otherwise act in a manner that it regards as not
in the public interest; or
(c)
develop policy or legislate by reference only or predominantly to the interests of
the project.
1.6.6
Extent of duty of good faith
Government, as a contracting party, will be subject to any implied good faith obligations
that arise as a matter of law in commercial contracts. However, the project agreement will
specifically disclaim that there is implied, whether from the concept of 'partnership' or the
Partnerships Victoria guidance materials or otherwise, any general duty of good faith on
the part of government towards the project or the project parties beyond the meeting of
those obligations expressly assumed by government under the project agreement.
April 2008
10
2. Conditions precedent
Principle
The project agreement (other than specified parts of the agreement including the
conditions precedent) does not commence until each of the conditions precedent has been
satisfied or waived.
2.1
Overview
In the normal course of events, certain conditions will be required to be satisfied prior to the
project agreement becoming effective (conditions precedent). The date of satisfaction of
these conditions precedent is known as financial close.
On financial close:
(a)
obligations of each party to the project agreement become binding (other than
those that become binding on contract signing); and
(b)
the interest rate setting protocol is implemented, the base case financial model is
reset to reflect the rate set and the service fee is fixed.
2.2
Conditions precedent bond
2.2.1
Requirement
The private party may be required to provide a conditions precedent bond to a specified
value5 by the date of execution of the project agreement. Whether or not a conditions
precedent bond is required will depend on factors such as:
(a)
project size;
(b)
market environment;
(c)
timing issues (e.g. whether there is likely to be a significant interval between
contractual and financial close);
(d)
the nature and complexity of the conditions precedent and whether a process bond
was lodged during the bid phase;
(e)
other incentives to reach financial close, such as the structure of the term or
payment mechanism; and
(f)
the consequences of failure to reach financial close.
5
This will depend on the value of the individual project and the risk of the private party failing to achieve the
conditions precedent.
April 2008
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Although government is mindful of not unnecessarily requiring conditions precent bonds,
this may be a requirement for certain projects (in light of the above factors).
2.2.2
Demand
Government may make demand under the conditions precedent bond if any of the
conditions precedent are not satisfied or waived by the specified date6 (unless government
causes the condition not to be fulfilled).
2.3
Requirements of conditions precedent
2.3.1
Content
•
•
The following conditions precedent, as a minimum, will generally be required of the
private party:7
(a)
delivery of executed8 copies of relevant project documents not already provided
to government;9
(b)
delivery of certified copies of all finance documents duly executed, and evidence
that all conditions precedent to funding have been satisfied (or waived) in
accordance with the finance documents;
(c)
effecting of required insurance policies and providing certificates of currency;
(d)
provision of any required corporate or consortium details; and
(e)
submitting a design which incorporates government's requirements.
Government may also require that a binding private tax ruling in relation to the
operation of Div 250 of the Income Tax Assessment Act 1936 (Cth) and the Income
Tax Assessment Act 1997 (Cth), be provided as a condition precedent. More
specifically, government will seek greater comfort around the areas of project financing
and ownership structures.
2.3.2
Obligations
The private party must, at its cost, use reasonable endeavours to ensure that each of the
conditions precedent that it is responsible for satisfying is met by the specified date.
2.3.3
Waiver
Only the beneficiary of a condition precedent may waive the condition precedent.
6
See paragraph 2.4(d).
7
The conditions precedent will depend on the nature of the project, structure of the consortium and any other
specific government requirements.
8
Excluding execution by government.
9
Generally the key subcontracts will have been entered and submitted at the date the project agreement is
signed - see section 20 (Subcontractors).
April 2008
12
2.4
Termination
If each of the conditions precedent is not satisfied or waived by the specified date:
(a)
government may terminate each of the contracts between the private party and
government;
(b)
neither party will be entitled to claim against the other in respect of these contracts
except those parts expressly said to take effect despite conditions precedent;
(c)
all future rights and obligations of the parties under the project agreement and
otherwise in connection with the project are terminated; and
(d)
government may call upon the conditions precedent bond.10
Government will have the right to extend any target date for the satisfaction of conditions
precedent.
10
See paragraph 2.1.
April 2008
13
3. Contract term
Principle
The term of the contract will depend on the best value for money solution for government
and will reflect:
(a)
the period to financial close;
(b)
the anticipated construction period; and
(c)
the desired operating period.
The contract term will be subject to earlier termination in certain circumstances.
3.1
Expiry date
The expiry date of the project agreement will be the last day of the operating term.
Generally, the operating term will be defined as a fixed period (e.g. 20 or 25 years)
commencing from the Date for Commercial Acceptance.
The expiry date (and therefore, the maximum length of the operating term) will be fixed by
reference to factors such as:
(a)
the anticipated duration of government's need for the services;
(b)
the expected economic life of the asset and anticipated timing of major upgrade or
refurbishment;
(c)
the expected technological life of the asset;
(d)
the minimum term considered necessary to deliver a reasonable return to the
private party on its investment and amortise the capital value of the asset such that
the asset can be transferred to government without further payment;11 and
(e)
the need not to unduly limit government's flexibility in the longer term.
Subject to paragraph 3.2, failure by the private party to achieve Commercial Acceptance by
the Date for Commercial Acceptance will effectively shorten the operating period (with
resulting loss of projected income).
3.2
Extension
Where failure to achieve Commercial Acceptance by the Date for Commercial Acceptance
occurs as a result of a Relief Event or Compensation Event,12 the Date for Commercial
11
Or, if the private party is to retain the asset, amortise the capital value of the asset, to the extent necessary to
enable the private party either to make economic alternative use of the asset or abandon it as redundant.
April 2008
14
Acceptance will be extended. Whether or not this results in an extension of the expiry date
(and therefore the operating term) will depend on the project-specifics and whether there is
any special need for the project to terminate at a particular time.13
3.3
Liquidated damages
•
Erosion of the operating period as a result of late achievement of Commercial
Acceptance is the preferred incentive for timely delivery. Although government will
generally not seek to charge liquidated damages for late delivery in addition to erosion
of the contract term, this may be necessary in circumstances where government’s
potential delay costs are greater than the aggregate service payments it will not incur
as a result of the erosion of the operating period.
•
Where the operating period is fixed from the Date of Commercial Acceptance but the
project agreement provides that both the Date for Commercial Acceptance and the
expiry date are extendable as a result of a Relief Event or Compensation Event (i.e.
there is in practice no erosion of the contract term), liquidated damages may again be
payable for the period of delay to defray government's delay costs.14
3.4
Earlier termination
The agreement may terminate earlier than the expiry date as a result of various events,15
including as a result of breach, force majeure and voluntary termination by government.
12
See section 12 (Relief for construction delays).
13
The same considerations will apply to extensions of term consequent on Intervening Events during the
operational phase - see section 17 (Intervening Events during the operational phase).
14
Subject to value-for-money considerations - see paragraph 13.1.1 in section 13 (Protection against late or
insufficient service delivery).
15
See section 28 (Termination).
April 2008
15
4. Site conditions and suitability
Principle
The private party accepts overall responsibility for site conditions, including the adequacy
of the site for delivering the project, regardless of whether the project site is selected by
government.
An exception may be made for latent geotechnical conditions and
unidentified soil or groundwater contamination on a government selected High Risk Site
where due diligence by the private party is physically or commercially impractical.
4.1
Site suitability
4.1.1
Onus on private party
As part of the bid process, the private party must satisfy itself as to the commercial viability
of delivering the proposed services from the site in accordance with the project
specifications.
4.1.2
No representation or warranty
While government may select the project site, it makes no express or implied warranty or
representation with respect to the site, the site conditions or the adequacy of the site for
the project.
4.1.3
Independent assessment
The private party will be given opportunity to undertake its own due diligence as to site
suitability and will acknowledge reliance on that independent assessment when entering
the project agreement.
4.2
Site conditions
4.2.1
Private party responsibility
•
'Site conditions' is very broadly defined to mean all circumstances and conditions on,
in, around and affecting, the land, whether latent or otherwise.
•
Subject to very limited exceptions identified below, the private party will be responsible
for, and will not be entitled to make any claim against government in connection with,
the site or site conditions.
•
The cost of any necessary rectification or upgrade identified prior to execution of the
project agreement will be reflected in the bid price. The risk of:
April 2008
16
(a)
costs exceeding what has been priced;16 or
(b)
unidentified site conditions,
rests with the private party.
4.2.2
Exception
Exceptions may be made for:
(a)
artefacts;17 and
(b)
latent geotechnical conditions and
contamination18 at High Risk Sites.19
unidentified
soil
and
groundwater
Relief for latent geotechnical conditions will be limited to site areas:
(a)
which are inaccessible during the tender period for independent due diligence by
either the private party's consultants and/or an independent consultant appointed
by government; or
(b)
in respect of which, it is otherwise not reasonable or practical to expect the private
party to perform its own full investigative surveys.
The risk for such conditions will be shared:
(a)
by reference to an agreed schedule of rates for specified eventualities20 (with the
private party bearing the risk of costing the unit price)21; or
(b)
by government and the private party each taking a percentage share of liability22
for items and eventualities not included in the schedule or where a schedule of
rates is not used,
over and above the site conditions assumed by the tender documentation.
Relief under this paragraph will only be allowed where the private party has promptly
notified government of the existence of the latent geotechnical conditions within a
16
The cost of bringing service infrastructure (such as water, electricity or telecommunications infrastructure) to a
project greenfield site in order to deliver the contracted services, is an example of such a cost. Government
effectively pays for it up-front (through the bid price) but the risk of the costs exceeding the price allowance on the
bid is borne by the private party.
17
This is discussed in section 6 (Native title and artefacts).
18
See section 5 (Environmental issues) and in particular, paragraph 5.2.5 for sharing unidentified pre-existing
contamination.
19
See paragraph 5.2.2 in section 5 (Environmental issues) for definition of High Risk Sites and Low Risk Sites.
20
The schedule of rates will be bid by the private party and will generally cover variable costs within the private
party’s control eg, labour, cranage and truck movements.
21
To the extent it would not be value for money for certain components of that cost (e.g. landfill charges) to be
priced up front, a competitive process will be agreed as part of the project agreement for pricing those
components at the time of the request for relief.
22
The percentages will be determined by reference to factors such as the comprehensiveness of government's
due diligence and the nature of the site.
April 2008
17
reasonable period (to be agreed on a project-specific basis) after becoming aware of such
conditions.
The private party must consult with government and undertake all reasonable and proper
steps necessary to best manage and limit the effects arising from the latent geotechnical
conditions in a timely and effective way.23
4.2.3
Due diligence
•
Government will usually appoint independent consultants to undertake due diligence
on the proposed site and relevant site conditions and prepare a site assessment
report.
•
Government will make every attempt to ensure that the report is appropriately detailed
and informative in documenting the nature and levels of site risk. However,
government will not itself warrant the accuracy or completeness of the assessment and
will disclaim making any representation based on the report.
•
Government will endeavour to either novate or otherwise procure the benefit of the
report in favour of the private party.24 However, provision or novation of the report by
government to the private party will be conditional upon the private party
acknowledging that the report has been provided by government for information
purposes only. The private party must expressly release government from any liability
arising from the private party's receipt and future use of the report.
•
The private party may engage its own experts to peer review the report and advise it
on the need for any additional assessment to be undertaken by the private party at its
own cost. Government will cooperate with the private party and endeavour to give
such access to the site as is reasonable and necessary for the carrying out of any
additional assessment.
•
Where the private party is given the opportunity to undertake its own investigations and
assessments as to site suitability it will, except for the exclusion in paragraph 4.2.2, be
required to acknowledge that it has had such an opportunity and has acted in reliance
on its own assessments and not on any report provided by government.25
•
The private party must promptly advise government upon becoming aware of a site
condition that differs materially from a site report and of measures proposed to be
taken by the private party to deal with that site condition.
23
Prompt notification and express obligation to take steps to mitigate the effects are intended to encourage
efficient management of latent geotechnical conditions.
24
To this end, government will seek to ensure that any consultancy agreement with the independent consultant
allows for the benefit of the report to be novated or otherwise provided to the winning bidder.
25
Any rights in a government due diligence report that have been secured for the winning bidder will be
exercisable by the private party against the independent consultant outside the project agreement and will not
alter the acknowledgments as between government and the private party.
April 2008
18
5. Environmental issues
Principle
The private party will be responsible for environmental compliance. However, in most
circumstances government will obtain environmental approvals fundamental to the use of
the site for the project and, depending on the nature of the site, may share liability for
unidentified pre-existing site contamination. Bidders are expected to factor into the bid
price any necessary clean up costs for identified contamination.
5.1
Environmental approvals
5.1.1
Environmental impact assessments26
Depending on their nature and location, projects may trigger either or both Commonwealth
and State requirements for environmental impact assessment. The significance of these
processes is that they may be extensive, time-consuming and costly and, more
importantly, they are fundamental to the ability of the site to be used for the project.
5.1.2
Commonwealth assessments
•
If the nature or location of the site raises the prospect that the project may impact on
matters of national environmental significance under the Environment Protection and
Biodiversity Conservation Act 1999 (Cth), government will refer the conceptual design
for the project to the Minister for Environment and Heritage for determining whether it
is a controlled action and, if so, submit the project for assessment under that Act.
•
Any further assessment that may be required as a result of departure from the
conceptual design must be obtained by the private party.
5.1.3
•
State assessments
If the nature or location of the site makes such action relevant, government will
approach the Minister for Planning prior to the request for tenders to ascertain whether
a State environmental impact assessment (in the form of an Environment Effects
Statement (EES), under the Environment Effects Act 1978 (Vic)) is required. If so, and
if time permits, government will undertake the assessment based on a conceptual
design to ensure that environmental considerations will not preclude the use of the site
for the project.
26
Environmental impact assessment is a statutory process akin to an approval, but is in a separate category
because of the potential length and breadth of the assessment process and resources it may consume.
April 2008
19
•
If for any reason27 an EES or supplementary EES is required after financial close, the
private party will be required to accept the reasonable risk of the EES process,
including delay to, or modification of, the project.28
•
Government may agree to cap the private party's exposure to such risk beyond a
specified time threshold for delay and financial threshold for modifications, but will do
so only at a high level where delay and/or cost is inordinate and unforeseeable.
5.1.4
Other environmental approvals
The private party bears the risk of obtaining all other environmental approvals required by
the bid design, e.g. approvals under the Environment Protection Act 1970 (Vic).
5.2
Contamination
5.2.1
Required condition of site
While the private party assumes liability for pre-existing contamination as part of its risk
assumption in relation to site conditions generally, it may not be necessary for a project site
to be pristine. So long as soil and groundwater standards appropriate to the nature of the
land use are met, low level contamination may be present without triggering a need for
remediation. In practice, therefore, the cost to the private party of actively managing
contamination may be significantly less than the theoretical scope of its liability under the
risk allocation.29 The project agreement will define contamination to exclude pre-existing
low level contamination that is compatible with site usage and is not required to be
remediated for the purposes of that project. It will also acknowledge that the private party
may return the site at the end of the contract term in original condition in respect of such
pre-existing low level contamination unless the measure of Contamination has changed
over the contract term, in which case the Change in Law provisions will apply.30
5.2.2
High Risk and Low Risk Sites31
•
Different risk allocations are appropriate for High Risk Sites and Low Risk Sites, given
their differing degrees of risk. These are detailed below.
•
Low Risk Sites may be identified by reference to any of the following characteristics:
(a)
sites which would ordinarily be referred to as greenfield sites;
27
For example, delay in commencing the above process, significant reconfiguration of the project or a major
variation to the conceptual design in the bid accepted by government.
28
The risk of such delay or modification is chiefly confined in the Partnerships Victoria context to large items of
linear infrastructure.
29
Allocating contamination risk to the private party in a competitive context helps to ensure that clean-up occurs
to commercially reasonable standards rather than placing a broad and unnecessary onus on government to
deliver a pristine site.
30
See section 23 (Change in Law).
31
The distinction between High Risk Sites and Low Risk Sites is intended to reflect that specific sites will have
different likelihoods of contamination and other latent conditions occurring and different risk allocation may
therefore be appropriate depending on the nature of the specific site.
April 2008
20
•
(b)
previous land use limited to rural, residential, light commercial or light industrial
(e.g. office or warehouse);
(c)
minimal structures on site;
(d)
long-standing pre-existing reservation for the project; or
(e)
accessible for private party due diligence investigation.
High Risk Sites may be identified by reference to any of the following characteristics:
(a)
sites which would ordinarily be referred to as brownfield sites;
(b)
previous industrial, heavy commercial or hospital land use likely to give rise to
contamination and with existing structures or other site users compromising
accessibility for due diligence; and
(c)
sites where extensive contamination or latent geotechnical conditions are likely
and a full investigative survey is commercially impractical.
5.2.3
Due diligence
•
Consistent with the general approach to site deficiencies, government will usually
commission an independent site assessment by qualified environmental consultants
and provide the assessment to bidders. Government will make every attempt to
ensure that the report is appropriately detailed and informative in documenting the
nature and levels of site risk. However, government will not itself warrant the accuracy
or completeness of the assessment and will disclaim making any representation based
on the report. Government will endeavour to either novate or otherwise procure the
benefit of the report in favour of the private party.32
•
However, it will not be liable for any loss or liability arising from bidders relying on or
using information contained in the independent site assessments. Provision and/or
novation of these assessments to bidders shall be conditional on bidders
acknowledging to government they have been provided for information purposes only
and expressly releasing government from any liability or loss arising from the bidders
receipt and use of the assessment.
•
The private party may wish to conduct its own review of any environmental report
provided by government to assess the cost of any additional risks and/or work
required to be undertaken.33 Government will cooperate with the private party and
endeavour to give such access to the site as is reasonable and necessary to carry out
any additional assessment.
•
Where independent site assessment is possible by the private party, it will be required
to acknowledge that it has had an opportunity to conduct its own investigations and
assessments and that it has acted in reliance on its own assessment (and not on any
government-commissioned assessment).
32
To this end, government will seek to ensure that any consultancy agreement with the independent consultant
allows for the benefit of the report to be novated or to otherwise be provided to the winning bidder.
33
See paragraph 4.2.3 in section 4 (Site conditions and suitability).
April 2008
21
•
Where independent assessment of a High Risk Site is not possible or is commercially
impractical a mechanism for sharing risk may be substituted for exhaustive due
diligence.34
5.2.4
Identified pre-existing contamination
The anticipated costs of cleaning up identified contamination on a government-selected
site (to the extent appropriate to the land use) will effectively be passed through to
government through the bid price.
5.2.5
Unidentified pre-existing contamination
•
The risk of unidentified pre-existing35 contamination being discovered and requiring
remediation during the contract term rests with the private party.
•
However, to keep bid costs down and save the costs of exhaustive due diligence,
government may share the risk of unidentified pre-existing contamination in relation to
High Risk Sites. Government will only share the risk if the contamination is located in
an area of the site:
(a) which is inaccessible during the tender period to the private party's consultants
and/or any independent consultants engaged by government; or
(b) in respect of which, it is otherwise not reasonable or practical to expect the
private party to perform its own full investigative surveys.
•
To be eligible to receive any compensation for pre-existing contamination, the private
party must have promptly notified government of the existence of the contamination
within an agreed period of becoming aware of it (to be determined on a project-specific
basis).
•
To the extent government shares unidentified pre-existing contamination risk, it will do
so by:
•
(a)
reference to an agreed schedule of rates for specified eventualities36 (with the
private party bearing the risk of costing the unit price);37 or
(b)
sharing (on a percentage basis to be agreed) the actual costs of remediation for
items and eventualities not covered by the schedule or where a schedule of
rates is not used.
In circumstances where government shares pre-existing contamination risk on a
percentage basis, it will consider the following when determining an appropriate
percentage share:38
34
See paragraph 5.2.5.
35
The fact that contamination was 'pre-existing' can be determined to a high level of probability by reference to
the location and characteristics of the contamination and its probable historical source.
36
The schedule of rates will be bid by the private party and will generally cover variable costs within the private
party’s control (e.g labour, cranage and truck movements).
37
To the extent it would not be value for money for certain components of that cost (e.g.. landfill charges) to be
priced up front, a competitive process will be agreed as part of the project agreement for pricing those
components at the time of the request for relief.
April 2008
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(a)
comprehensiveness of site assessment by qualified environmental consultants
commissioned by the State; and
(b)
ability of the private party to undertake due diligence of the site assessment
report commissioned by the State and/or ability to undertake its own testing
(where feasible).
•
A cost-sharing arrangement is preferable to government capping the private party's
liability in that it incentivises efficient environmental management of the site and
cost-effective clean up at all stages of the project, while significantly limiting the private
party's exposure.
•
Upon becoming aware of the existence of any unidentified pre-existing contamination,
the private party must consult with government to best manage and limit any effects
and undertake all reasonable and proper remediation steps necessary to manage and
clean-up the contamination and any effects arising from it in a timely and effective way.
•
Where government requires the private party to clean up any site to a standard which
is higher than the level mandated under the project agreement,39 government shall
bear 100 per cent of the cost difference between cleaning up the site to meet the
mandatory requirements arising under the project agreement and cleaning up the site
to meet the higher standard being required by government.40
5.2.6
Contamination during the contract term
•
Any contamination (low level or otherwise) resulting from on-site pollution during
construction and operation will be the liability of the private party (unless directly
caused by government in a core services model and not subject to private party
management under the project agreement).
•
In conjunction with a general obligation to comply with environmental laws41 the private
party must not:
(a)
use the site or allow it to be used so that any industrial waste or hazardous
substance is abandoned;
(b)
allow any industrial waste to be dumped on the site or handled in a manner which
is likely to cause an environmental hazard; or
(c)
release or emit anything (including noise) from the land into any part of the
environment other than in accordance with a relevant approval.
5.2.7
•
Claims and indemnities
The private party cannot claim compensation in respect of the presence of
contamination and must release government from any claim by it associated with any
contaminant existing at, or emanating from, the site during the contract term, except to
38
By way of example, government has, on recent projects, shared on an 80 (government) : 20 (private party)
basis.
39
See also paragraph 5.2.1.
40
This will generally be treated as a government initiated modification.
41
April 2008
23
the extent government has agreed to share contamination risk42 or the contamination
is caused by a co-located core service not subject to private party management under
•
Subject to any cap on the private party's liability for claims and losses,43 the private
party must indemnify government against all third-party liability arising in relation to any
contamination existing on, over, under or emanating from, the site, except to the extent
that government has agreed to share remediation costs44 or the contamination is
caused by a co-located core service not subject to private party management under
the project agreement. If government elects to cap the private party's liability, this cap
will not limit the private party's liability to third parties.45
5.2.8
Clean up notices
•
The private party must comply with any Clean Up Notice46 issued in relation to the site
or any pollution or environmental hazard caused by the private party.
•
Except to the extent that contamination is caused by a co-located core service and the
private party has no management responsibility for it under the project agreement, the
private party must not exercise any statutory power of recovery to recover its costs of
compliance with a Clean Up Notice against government or its associates.
•
Ultimate liability for clean up costs will be allocated under the project agreement in
accordance with the principles set out above. Reimbursement of the private party's
costs will be limited to government's share (if any) of the remediation cost and will not
include delay or disruption costs.
5.2.9
General environmental compliance
The private party will be required to covenant that it will comply with all environmental laws.
Environmental Laws are comprehensively defined to include statutes, regulations and
other subordinate instruments relating to the environment (such as State environment
protection policies and industrial waste management policies) and refer to mandatory legal
requirements. Compliance with specific non-mandatory standards, guidelines and policies
may be separately required as a term of the project agreement.
42
On the basis discussed in paragraph 5.2.5.
43
See paragraph 34.1 in section 34 (Indemnities, warranties and contractual claims).
44
On the basis discussed in paragraph 5.2.5.
45
Refer to paragraph 34.1.1 in section 34 (Indemnities, warranties and contractual claims).
46
A Clean Up Notice is any notice issued by the Environment Protection Authority under the Environment
Protection Act 1970 (Vic) requiring investigation, remediation or monitoring of a site at which pollution or any other
environmental hazard has occurred or is likely to occur.
April 2008
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6. Native title and artefacts
Principle
Government will assume responsibility for native title and provide some relief in relation to
the discovery of artefacts. The private party will not be able to claim delay or disruption
costs except where it is directed to cease the contracted service.
6.1
Native title
6.1.1
Risk allocation
•
Government will be responsible for dealing with any application or claim made under
any law relating to native title and for payment of compensation to native title holders
(and in respect of which, it will indemnify the private party).47
•
If there is a native title application, the private party must continue to perform its
obligations under the project agreement (except to the extent prevented by the native
title application)48 and, at government's cost, provide all reasonable assistance in
connection with dealing with such application.49
•
The private party will not have any claim against government for loss or damage
suffered as a result of any native title application. However, the private party will be
entitled to an extension of time and compensation relief where delays arise or
additional costs are incurred (by the private party), as a result of any government or
court direction to suspend or cease all or any part of the works or services because of
a native title claim or application.
6.1.2
Due diligence
•
The report of site conditions issued with the request for tender will include information
concerning the existence or potential existence of native title and any application on
the register of the Native Title Tribunal.
•
Government will not, however, make any representation or warranty in respect of the
existence or otherwise of native title.50
47
It is generally both more effective and less costly for government to assume the greater part of native title risk.
This is because native title potentially subsists only over Crown Land and Aboriginal Affairs Victoria is ordinarily
more able than the private party to nominate and communicate with indigenous representatives for the purpose of
meeting notification and consultation requirements under the Native Title Act 1993 (Cth) and its State counterpart.
48
This includes being directed by government to suspend execution of the works and services and being required
to cease performance by any applicable law or order of a court or tribunal.
49
50
See paragraph 4.2.3 in section 4 (Site conditions and suitability).
April 2008
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6.2
Artefacts
6.2.1
Damage minimisation
If an artefact is discovered at the site, the private party must, at its own cost and expense,
take every reasonable precaution to prevent the artefact from being damaged or removed
until appropriate arrangements (including the obtaining of approvals) have been made for
dealing with, or removing, the item..
6.2.2
Continuation
The private party must continue to perform its obligations under the project agreement
(except to the extent prevented by a requirement to properly manage the discovered item
and subject to any relief referred to in paragraph 6.2.3).51
6.2.3
Compensation
Government will not be liable to the private party for any loss or damage which the private
party suffers or incurs as a result of the discovery of artefacts at the site. However, the
private party will be entitled to an extension of time and compensation relief52 where a
delay for any given event occurs or additional costs are incurred (by the private party) as a
direct result of a government or court direction to suspend or cease all or any part of the
works or services because of the discovery of an artefact (provided the cessation order
does not result from a private party breach of its obligations in dealing with discovered
artefacts).53
6.2.4
Property in artefacts
All artefacts discovered on or under the surface of the site will, as between government
and the private party, be the absolute property of government.
6.3
Memorandum of Understanding
For projects where there is a high likelihood of significant Aboriginal artefacts being found,
there may be a requirement that the private party enter into a Memorandum of
Understanding with respect to protection of Aboriginal artefacts, including engaging or
permitting Aboriginal monitors to attend the site during any excavation and providing for
immediate stop work and site re-assessment if an artefact is discovered.
51
This includes being directed by government to suspected execution of the works and services and being
required to cease performance by any applicable law or order of a court or tribunal.
52
53
The private party may be required to carry the artefacts risk for a specified period in projects where there is a
high likelihood of artefacts being discovered. Whether the private party will be required to carry this risk and the
length of any specified period will be considered on a project-specific basis depending on government's
assessment of the nature of the site, the likelihood of the event occurring and the value-for-money obtainable if
the private party prices the risk of such event occurring into its price.
April 2008
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7. Planning and other approvals
Principle
Government will take responsibility for securing the foundation planning approval
necessary to enable use of the site for the project. The private party is responsible for
obtaining and complying with all other approvals (at its own cost).
7.1
Commonwealth approvals
Subject to any approval or other determination under the Environment Protection and
Biodiversity Conservation Act 1999 (Cth) obtained for a conceptual design,54 the private
party is responsible for obtaining all relevant Commonwealth approvals and bears the risk
of delay occasioned by legal challenges to the approvals.
7.2
State planning approvals
7.2.1
Use and development approvals
Planning approval has two aspects, approval of the proposed land use (use) and approval
of the proposed scale, design and configuration of buildings and works (development).
7.2.2
Permission for use
Government will ensure that use of the land for the project is permitted under the planning
scheme. Where the use is not already in existence or not permitted by the planning
scheme, government will assume the risk of amending the planning scheme, prior to bid
stage, to enable the land use to take place at the site.
7.2.3
Development approval
Consistent with the private party's assumption of design risk, obtaining 'development'
approval for the buildings and works (where a planning permit is required for such
development) is the responsibility of the private party.
7.3
•
Other site approvals
Other site-based approvals such as permits and consents to disturb under the Heritage
Act 1995 (Vic) or Archaeological and Aboriginal Relics Preservation Act 1972 (Vic) and
works approvals and licences under the Environment Protection Act 1970 (Vic) are
also the responsibility of the private party.55
54
As discussed at paragraph 5.1.2 in section 5 (Environmental issues).
55
Refer to paragraph 5.1
April 2008
Environmental approvals issues) for relevant environmental approvals.
27
•
Similarly, obtaining any necessary industry accreditation is the responsibility of the
private party.
7.4
Compliance
The private party must, at its own cost, comply with the requirements of all approvals.
April 2008
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8. Site access
Principle
While government will deliver the site for the project, third party use of the site may
continue. The private party is primarily responsible for ensuring that it has the necessary
access to the site to enable it to deliver the project, although government may, if it
considers it necessary, negotiate a base-case access regime for inclusion in the project
brief. Government will also retain rights of access sufficient to exercise its rights under the
project agreement.
8.1
Availability
Government will, if necessary, exercise its powers (including compulsory acquisition) to
deliver the site for the purposes of the project and will bear the costs and risks of the
acquisition process.
8.2
Third party occupants
8.2.1
Impact on private party
Although government will deliver the site for the project, there may be other parties that are
co-located on, or otherwise have access rights to, the site and whose interests impinge on
the private party's ability to access the site to deliver the contracted services.
8.2.2
Access regime
•
Consistent with the allocation of design, construction, commissioning and operations
risk to the private party, government will generally require the private party to negotiate
and implement (and therefore, take the risk on) an access regime necessary to enable
it to deliver the contracted services in accordance with the project agreement.
•
However, before going to the market government will, on a project-by-project basis,
give due consideration to the importance and complexity of the access regime, the
identity of the third parties (e.g. whether access is dependent on government-related
entities) and any timing constraints and other barriers to the private party's ability to
negotiate a commercially acceptable access regime with the relevant third parties
(particularly during the bidding phase). This may lead government to negotiate a basecase access regime for inclusion in the project brief.
•
The base-case access regime will be treated analogously to a site conditions report56,
with the onus on the private party to satisfy itself that the proposed access
arrangements are adequate for delivery of the project or to propose and negotiate
(directly with the third parties) additional access rights sufficient for its requirements.
Government will not warrant the adequacy or completeness of the regime.
56
See paragraph 4.2.3 of section 4 (Site conditions and suitability).
April 2008
29
8.3
Access for government and third parties
8.3.1
Government access
The private party must provide government with access to the site during construction at all
reasonable times to the extent necessary to enable government to exercise any of its rights
or perform any of its obligations under the project agreement.
8.3.2
Obligations
With respect to other parties on or adjacent to the site, the private party must:
(a)
provide all things and take all measures necessary to protect and ensure the safety
of people and property;
(b)
avoid or minimise unnecessary interference with the passage of people and
vehicles and the operations or activities carried out of, on or from areas adjacent to
the site;
(c)
prevent nuisance and unreasonable noise, dust, vibration and disturbance
(including preventing such matters that would affect the project facility or areas and
activities adjacent to the facility, beyond what is inherent in the provision of the
services); and
(d)
unless required for purposes of public health or safety, not interfere (insofar as
compliance with the project agreement permits) with the free movement of traffic
into and out of, adjacent to, around, on or about the site or block or impair access
to any premises.
8.4
Utilities
8.4.1
Interface
Utilities are a special instance of third party site occupants giving rise to site availability
issues. Management of the interface between the project and utilities is generally a matter
for the private party.
8.4.2
Government facilitation
As the presence of third party trunk infrastructure (e.g. telecommunications, gas, electricity,
water and public transport infrastructure traversing the site) is a significant element of site
risk for linear projects, government may agree to facilitate the private party's interaction
with utilities by legislative or other means.
This approach does not apply to
accommodation-based projects, unless the interface with utilities is integral to the services
provided under the project agreement.
April 2008
30
9. Tenure
Principle
Government will generally own the project site and grant the private party licences for
construction. Depending on the scope of the services to be provided by the private party, it
may be granted a lease, sub-lease or non-exclusive licence for the operating period, which
will be subject to a government right of access. Government has no preference between
granting a lease, sub-lease or non-exclusive licence provided that the structure most
appropriate for the individual project is adopted and it is one which delivers best value for
money. The term of the lease, sub-lease or licence will generally align with the term of the
project agreement.57
9.1
Ownership
For most projects, land will be in government ownership. This facilitates the vesting of the
project assets in government at the end of the contract term and underpins government's
step-in rights under the project agreement.58
9.2
Reservation of project land
9.2.1
Revocation of existing reservations
Government owned land will frequently be subject to a reservation for a public purpose
under the Crown Land (Reserves) Act 1978 (Vic). To enable the diversity of project uses
and/or give the private party appropriate tenure, government may need to revoke the
reservation.59
9.2.2
Reservation of land for the project
Occasionally, in linear infrastructure projects, project land is re-reserved for the purposes
of the project during the pre-construction and construction periods. In such a case, the
reservation is generally revoked prior to the grant of the project lease.
57
This principle relates to the tenure of the core project. To the extent there is a related commercial
development, appropriate tenure arrangements will be considered on a project-specific basis.
58
See section 30 (Step-in).
59
Revocation takes place in accordance with procedures under the Crown Land (Reserves) Act 1978 (Vic), which
differ for temporary and permanent reservations. (Note that reservations under the Crown Land (Reserves) Act
1978 (Vic) differ from planning scheme reservations necessary to the process of compulsory acquisition.)
April 2008
31
9.3
Construction licence
9.3.1
Grant of licence
Government will procure the grant to the private party of a licence or licences to use, and
permit any construction subcontractor to use, the site during the construction period on the
following terms.
9.3.2
•
•
Terms of licence
The licence will:
(a)
be for the sole purpose of undertaking the project works (construction and any
associated demolition and earthworks);
(b)
terminate upon the grant of a long-term lease or other access rights for the
operation of the facility or upon earlier termination of the project agreement.
Where more than one licence is granted, each licence is interdependent so that a
breach of one licence is deemed to be a breach of each other licence.
9.3.3
Access to licensed area
The private party is responsible for gaining access to and from the licensed area and is not
entitled to any claim against government in connection with access or failure to gain or
delay in gaining access to the licensed area.60
9.4
Tenure during the operating period
9.4.1
Nature of tenure
•
•
60
Government has no preference as to which form of tenure is utilised (as between a
lease, sub-lease or non-exclusive licence) provided that the structure most appropriate
for the individual project is adopted and it is one which delivers best value for money.
The nature of tenure to be offered to the private party will be determined by
government after consideration of various factors, including:
(a)
the access government requires for core services;
(b)
the extent of the contracted services; and
(c)
any relevant taxation considerations.
After the Commercial Acceptance Certificate has been issued and if a lease is to be
granted to the private party,61 government must promptly procure the execution of the
lease by the appropriate government party. The lease will be subject to reservations
enabling government to access the facility to deliver the core services and for any
See paragraph 8.2 of section 8 (Site access).
61
Facility leases to the private party are a feature of infrastructure projects where government has little or no
service delivery role outside step-in. However, they have also been granted in a number of accommodation-style
projects.
April 2008
32
other purpose authorised by the project agreement. Unless otherwise specified, the
lease will be limited to use of the land solely for the purpose of delivering contracted
services in accordance with the project agreement.62
•
Alternatively, a head lease may be granted to a government or statutory entity
responsible for delivery of the core services, which will in turn grant a sub-lease or
other access entitlement to the private party for the purpose of delivering the
contracted services.
9.4.2
Deemed lease
The parties will agree to be bound by the lease or sub-lease from the agreed date of
commencement of operations, regardless of whether execution of the lease or sub-lease
by the government party is formally complete.
9.4.3
Effect of early termination of the project agreement
If either party terminates the project agreement prior to the issuing of the Commercial
Acceptance Certificate, the private party ceases to have any entitlement to call for the
lease or other instrument conferring access for operations and has no further interest in or
entitlement (whether legal or equitable) to the land.
9.5
Government access rights
9.5.1
Government need for access
If a facility lease is granted to the private party, government's right of access to the site
(including the right of the public to receive services from the site) will be secured either
through reservations to the lease or by means of a sub-lease or non-exclusive licence-back
to government for access to the leased area and use of the plant, equipment, furnishing
and fittings for the purpose of exercising and performing any of its rights (including step-in
rights) and obligations under the project agreement. Any sub-lease or licence for these
purposes will be irrevocable and will not be able to be terminated or suspended for any
breach by government.
9.5.2
Delivery of core services
Government's concern to secure adequate tenure for the delivery of the core services may
in some circumstances favour the grant of a head lease to the government entity
responsible for delivery of the core services, with a sub-lease to the private party to enable
the exercise and performance of its rights and obligations under the project agreement
during the operating period.
9.6
Other licences or sub-leases
The private party may be granted power during the operating period to grant sub-leases
and licences over areas leased or sub-leased to it, subject to:
62
In certain circumstances the private party may, for tax and other reasons, seek a licence instead of a lease.
However, the greater security of tenure associated with a lease favours a lease in most circumstances.
April 2008
33
(a)
the grant being for a use or purpose for which a sub-lease, licence or other
instrument may be granted under the project agreement;
(b)
the term of the grant (including options) not exceeding the balance of the project
term then remaining;
(c)
the grant being subject to a condition to the effect that the rights automatically
terminate on termination, surrender or expiry of the private party's lease or sublease, without any right, action or claim by the grantee against government; and
(d)
the grant not reducing the ability of government to exercise its rights or of either
party to comply with its obligations under the project agreement.
9.7
Improvements
9.7.1
Improvements to vest in government on expiry
Any improvement which has not already vested in government will be transferred to
government at the end of the contract term.
9.7.2
Payment for value of the improvements
Generally, the value of the facility will have been paid for through the service fees and the
private party can make no claim for payment for the assets upon their transfer to
government. However, depending on the nature of the asset, its projected residual value
and which party has assumed the end-of-term asset risk, a pre-determined amount may be
payable to the private party by government for the facility.
April 2008
34
10. Design
Principle
The private party is responsible at its own cost, for designing the facility so as to achieve
the output specifications for the contracted services.
10.1
Design obligations
63
The private party must design the facility so that the facility (when complete) will be fit for
its intended purposes and uses as specified in, or reasonably inferred from, the functional
brief as at the date of the project agreement and so that the private party can deliver the
contracted services to specification (including, meeting the output specifications for
government core services).
10.2
Fitness for purpose warranty
The private party will provide a warranty that the facility, as designed and constructed, is
(and will be during the contract term) fit for the intended purposes and uses specified in, or
reasonably inferred from, the functional brief and the project agreement as at the Date for
Commercial Acceptance.64
10.3
Mandatory design guidelines
The private party must comply with any mandatory design guidelines as set out in the
functional brief. The fitness for purpose warranty will be given in respect of the design and
works as developed to meet the mandatory guidelines.
63
The private party is not relieved of any of its design obligations by subcontracting any of the design works to a
design consultant. Issues associated with subcontracting are dealt with in section 20 (Subcontractors).
64
The functional brief (including any private party departures agreed to by government) will form part of the
project agreement. Government recognises the need (given the requirement for a fitness for purpose warranty)
for the functional brief to adequately describe the output specifications and disclose relevant operating protocols.
However, government does not represent or warrant that adherence to the functional brief will ensure fitness for
purpose.
April 2008
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10.4
Design development process
10.4.1
Basic design development
The private party must develop the basic design proposed in its bid (and set out in the
project agreement) in accordance with an agreed consultative process and submit all final
design documentation (and any amendments) to government for comment.65
10.4.2
•
•
Government comment
Government (through the Project Director)66 will have the right, within specified
periods, to comment on the detailed design documentation (and the accompanying
drawings and specifications) submitted by the private party to the extent that:
(a)
they are not consistent with the design requirements set out in the project
agreement or the private party's bid proposal or the last approved drawings and
specifications; and
(b)
in government's reasonable opinion, they will adversely affect the private party's
ability to deliver the contracted services to specification or government's ability to
deliver the core services.
Construction on the basis of the design documentation cannot occur until the specified
period for comment by government has expired.
10.4.3
Parties to agree amendments
Government and the private party must confer (at their own cost) to address government's
comments and agree necessary amendments.
10.4.4
Resolution of disputes
If the parties cannot agree on the necessary amendments to the detailed design
documentation or the private party disagrees with government's comments, the matter may
be referred to an independent expert for resolution.
10.4.5
Government-initiated modifications
If the design complies with the output specifications and the private party's design as at
contractual close, but government for its own reasons seeks a variation, this will constitute
a government-initiated modification.67
65
For complex social infrastructure projects, Government will generally specify each stage of the design
development process and the activities and level of documentation required at each stage (allowing for
appropriate review periods).
66
See discussion in paragraph 11.5.7 in section 11 (Construction and commissioning) as to whether an
independent completion certifier will be appointed to monitor and assess design preparation.
In an
accommodation project, where the private party is providing functional space from which government will deliver
its core services, government needs to be confident of the suitability of the design. Accordingly, the Project
Director will monitor the design development on government's behalf. In linear infrastructure projects, where
demand risk is transferred to the private party and there is a less significant interface risk, there is more flexibility
to allow for the appointment of an independent completion certifier.
April 2008
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10.4.6
Effect of government participation
Government has no obligation to comment or identify errors, omissions or inaccuracies in
the design documentation. Neither its participation nor that of the independent expert in
the design development phase relieves the private party of its design obligations (including
warranties) or constitutes a representation by government as to the compliance of the
design with project specifications.
67
See section 22 (Modifications).
April 2008
37
11. Construction and commissioning
Principle
The private party is responsible at its own cost, for constructing and commissioning the
facility within the required time period, to deliver the output specifications for the contracted
services.
11.1
Construction and commissioning
obligations
The obligations set out in paragraph 10.1 in section 10 (Design) as to fitness for purpose
also apply to construction and commissioning.68
11.2
Construction updates and reports
11.2.1
Provision of construction progress reports
During the construction phase, the private party must provide government with written
reports outlining the progress of the works by reference to the construction program.69 The
form of the construction program will be agreed with government, based on an indicative
program prepared by the private party prior to contract execution.
11.2.2
Effect of government involvement
The provision of progress reports or updated construction programs and their acceptance
(or otherwise) by government does not relieve the private party of its construction and
commissioning obligations.
11.3
Project committee
A project consultative and advisory committee comprising government and private party
representatives will be established for the design and construction phase.
68
The private party is not relieved of its obligations and liabilities under the project agreement by the private party
subcontracting the performance of any works. Issues associated with subcontracting are dealt with in section 20
(Subcontractors).
69
Refer to Template H of the Partnerships Victoria Contract Management Guide for a detailed treatment of the
'Construction Stage reporting guidelines'. In addition to meeting the reporting requirements set out in Template H,
the private party must also provide regular quality assurance audit reports.
April 2008
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11.4
Inspections
11.4.1
Government's right to inspect and test
•
Government (and any person it authorises) has the right to enter, inspect and test any
part of the works during the construction and commissioning phase. Except in the case
of an emergency, government must give reasonable prior notice. The private party
must provide all reasonable assistance required by government.
•
When exercising its right to enter and inspect, government must not cause any
unnecessary inconvenience to the private party, any subcontractor or other authorised
user of the site and will comply with the reasonable health and safety and other
security requirements of the private party or any of its subcontractors that are notified
to government by the private party.
•
The cost of any government inspection and testing will be borne by government unless
the inspection or test shows that the design and/or construction is not consistent with
the specifications, functional brief or other requirements set out in the project
agreement.
11.4.2
Compensation for interference with works
Government will compensate the private party for any loss or damage arising from a failure
by government or any of its authorised persons to comply with government's obligations
while on site, as set out under paragraph 11.4.1.
11.5
Commissioning, operational and
commercial acceptance
11.5.1
Critical milestones
Service commences upon satisfaction of clear and objective commissioning tests identified
in the functional brief. The critical milestones in a project are 'Technical Completion' (also
known as Operational Completion) and 'Commercial Acceptance' (also known as Final
Completion).
11.5.2
•
70
Technical Completion
For Technical Completion to be achieved:
(a)
works must be completed except for minor defects70 and be fit for their intended
purpose;
(b)
all commissioning tests must have been carried out and a commissioning
certificate issued by the completion certifier;71
See discussion in paragraph 11.6.
71
See discussion in paragraph 11.5.7. This role may be carried out by the Project Director. The completion and
commissioning tests and generally the criteria for determining whether Technical Completion and Commercial
Acceptance have been achieved will be agreed as part of the project agreement.
April 2008
39
•
(c)
all consents, approvals, authorisations and certificates required for the works to
be occupied and used for their intended purposes (including a certificate of
occupancy) must have been obtained and complied with; and
(d)
all construction machinery, equipment and materials must have been removed
from the site.
Within a specified period after the completion certifier considers that Technical
Completion has been reached, the completion certifier72 must issue a 'Certificate of
Technical Completion' and advise of any defects and other obligations that remain
outstanding.73
11.5.3
Commercial Acceptance
•
The final commissioning period commences once Technical Completion has been
achieved.
•
For Commercial Acceptance to be achieved:
•
(a)
a Certificate of Technical Completion must have been issued;
(b)
the private party must have provided government with all material documents and
information (including all operating manuals);
(c)
the private party must have provided copies of relevant insurance policies;
(d)
if applicable, any liquidated damages payable must have been paid;
(e)
all notified defects must have been rectified except for minor defects identified in
paragraph 11.6.1, in respect of which the parties must have agreed a regime and
timeframe for rectifying such defects; and
(f)
all other tests and requirements required to satisfy the completion certifier that
operations (in accordance with output specifications) can commence must have
been satisfied.74
If the completion certifier is satisfied Commercial Acceptance has been reached, the
completion certifier must within a specified period issue a 'Commercial Acceptance
Certificate'.
72
See discussion in paragraph 11.5.7. The discussion in paragraph 11.5.7 also applies to the completion
certifier's role during Commercial Acceptance commissioning.
73
If the completion certifier does not consider that Technical Completion has been achieved, he/she must
promptly notify the private party.
74
Projects involving phased completion may require additional tests to be satisfied for Technical Completion and
Commercial Acceptance to be reached, such as equipment or people from an existing site having been relocated.
In addition, the completion procedure for projects involving government furnished equipment will need to allow for
the installation and testing of such equipment. Risk allocation issues in respect of such equipment will be
considered on a project-by-project basis.
April 2008
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11.5.4
Commencement of payment
Payment of the service fee will commence (assuming full service delivery) from the later of
the Date the Commercial Acceptance Certificate is issued and the target Date for
Commercial Acceptance.75
11.5.5
Phased commencement
Commercial Acceptance and commencement of payment for services may begin at
different times for different aspects of staged projects. Examples include bundled projects
where different facilities will commence operations at different times, projects where there
is to be a progressive relocation of equipment from an existing facility to the new facility
and linear infrastructure projects where there is to be phased completion of different linear
sectioning. Structuring service payments for phased service commencement is discussed
in section 18 (Payment provisions).
11.5.6
•
•
•
Failure to achieve Technical Completion or
Commercial Acceptance
Government may engage an independent expert (on or after a specified period after
the site is made available to the private party)76 to assess:
(a)
whether the private party is likely to achieve Technical Completion or
Commercial Acceptance by the date for Technical Completion and the Date for
Commercial Acceptance (respectively); and
(b)
whether the private party is likely to achieve Commercial Acceptance before the
Sunset Date.
An Event of Default (allowing the private party a cure period) will occur if:
(a)
the independent expert considers that there is no reasonable prospect that the
private party will achieve Technical Completion or Commercial Acceptance by
the Date for Technical Completion and the Date for Commercial Acceptance
(respectively;,77 or
(b)
the private party fails to reach Technical Completion or Commercial Acceptance
by the Date for Technical Completion and the Date for Commercial Acceptance
(respectively).
Although government will generally treat a failure to reach Technical Completion by the
Date for Technical Completion as a separate event of default, it may consider waiving
this requirement78 in circumstances where achievement of Commercial Acceptance is
conditional on the private party having provided government with sufficient time to
75
Government may, in limited circumstances, consider early payment (i.e. where Commercial Acceptance occurs
prior to the target Date for Commercial Acceptance).
76
This period will be determined on a project-specific basis having regard to the expected construction period. It
will expire after the date on which the private party may be defaulted if it has not commenced works (see
paragraph 27.1(c) in section 27 (Default)) but will generally be before the date for Technical Completion.
77
See paragraph 27.1 in section 27 (Default).
78
Thereby limiting the events of default to a failure to meet Commercial Acceptance by the Date for Commercial
Acceptance.
April 2008
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transition into and test the functionality of the facility. This period will be specified by
government on a project-specific basis.
•
A Default Termination Event (giving government an immediate right to terminate the
project agreement) will occur if:
(a)
the services do not become available by the Sunset Date (i.e, the 'drop dead'
date);79;or
(b)
the independent expert considers that there is no reasonable prospect that the
private party will achieve Commercial Acceptance before the Sunset Date.80
11.5.7
•
Completion certifier
The nature of the project will affect the costs and benefits of utilising an independent
completion certifier rather than relying on design and construction monitoring and
assessment by the Project Director. Factors to be considered include the following:
(a)
the completion certifier's independence and technical expertise which could
minimise the risk of a party disputing a decision;
(b)
requirements of the private party's financiers (noting that government will not
agree to financiers alone appointing the completion certifier);
(c)
the cost and time consequences of involving an additional party in the process;
(d)
from government's perspective, minimising the risk of take back of design and
construction risk; and
(e)
government insistence on assessment by the Project Director where there
would be significant residual risk to government if the private party fails to
adequately design and construct the facility.
•
A completion certifier is appointed jointly by government and the private party.
•
Determinations and decisions by the completion certifier are generally final and binding
on both parties.81
11.6
Defects
11.6.1
Identified defects
Commercial Acceptance is not achieved (and payment of the service fee does not
commence) until all identified defects have been rectified. The only exceptions are minor
defects which:
79
See paragraph 28.1.1 in section 28 (Termination). Further, if the contracted services are not available by the
Date for Commercial Acceptance, government may be entitled to liquidated damages. See section 13 (Protection
against late or insufficient service delivery).
80
The independent expert will be prevented from making such a determination if the private party is complying
with an agreed cure plan arising from such a default. See paragraph 27.2.1 of section 27 (Default).
81
Government will consider, on a project-specific basis, categories of decisions which are subject to appeal (e.g.
on questions of law or above a cap).
April 2008
42
(a)
individually or in aggregate do not prevent the facility from being used for its
intended purpose; and
(b)
although they cannot be immediately rectified, can be rectified within a reasonable
period (to be agreed on a project-specific basis) following commencement of
operations without unreasonable noise, disturbance or interference with or adverse
effect on the intended use of the facility and any adjoining premises.
Any deferred minor defects need not be immediately rectified, but must be rectified as
directed by government in accordance with a rectification plan (which will include
appropriate timeframes for completion of the rectification works to be determined on a
project-specific basis) to be agreed by the parties as a condition of Commercial
Acceptance. Failure to perform the rectification works in accordance with the agreed
rectification plan will have financial consequence. For example, reduced service payments
until the rectification works are completed.
11.6.2
Defects liability period
During the specified defects liability period, the private party must rectify all defects which:
•
exist at Commercial Acceptance (defects other than minor defects referred to in
paragraph 11.5.3(e) will have been rectified as a condition precedent to
Commercial Acceptance); or
•
are discovered during the specified defects liability period (usually 12 months from
Commercial Acceptance).
Where the private party fails to so rectify, government may either direct rectification by the
private party (in which case a further defects liability period will apply to such defect) or
may itself rectify (or have a third party rectify) such defects at the private party's cost.82
82
Such amount shall be a debt due and payable by the private party to government. Government may set-off
such amount against amounts owing to it or make a demand for such amount under any construction bond and
defects bond provided in respect of the project. Nothing in paragraph 11.6.2 will affect the private party's
obligations to deliver the contracted services to specification (including, all technical specifications, maintenance
and aesthetic requirements) or government's right to abate payments. It is intended that rectification of any defect
identified during the contract term following the expiry of the defects liability period (and any failure to rectify such
defects) will be dealt with primarily through the specifications and abatement regime and, to the extent
appropriate, other government rights of recourse under the project agreement (e.g. indemnities, performance
bonds).
April 2008
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12. Relief for construction delays
Principle
No relief will be given to the private party for delays, the occurrence or effects of which are
within the private party's control. A delay which is not in the private party's control, but is
best managed by the private party, will also be allocated to the private party, subject to
limited relief. Government will generally only compensate the private party for losses
incurred by the private party as a result of events which are within government's control
and should therefore be at government's risk.
12.1
Form of relief
Relief can take the form of 'time' only or 'time and money' depending on the cause of the
delay.
12.2
Time relief
12.2.1
Threshold requirements
•
Relief may be given if the event affects a critical activity on the critical path and directly
causes a delay to achievement of completion of the facility. This will be assessed by
considering the updated master works program and relevant sub-programs referred to
below.83
•
The private party must give written notice of the delay, the effect of such delay and full
details of the relief claimed, to government within a reasonably specified time after it
has become aware of the delay.
•
The master works program and all relevant sub-programs must be updated on a
monthly basis84 to ensure that at all times it accurately and transparently reflects the
progress of the works program. The Project Director or Independent Reviewer shall be
entitled to review and comment on any such updated programs and the private party
will respond promptly to any requests for further information regarding the accuracy of
the master works program and relevant sub-programs.85
83
The critical path for the purposes of allowing extensions of time will be determined by considering the ‘as bid’
master works program and sub-programs, as updated and adjusted to allow for extensions of time which have
been allowed under the project agreement.
84
Or such other period as is considered appropriate on a project-specific basis.
85
However, as noted above, only the 'as bid' master works program and sub-programs (as adjusted from time to
time to reflect time relief given to the private party) will be used to determine the critical path or allow extensions
of time. The mechanism for calculating whether time relief is available must operate in a transparent manner and
government must be able to clearly identify how any original contingency from the ‘as bid’ version is being used in
any updated versions of the original master works program and sub-programs.
April 2008
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12.2.2
•
Extension of time events
Subject to the threshold requirements in paragraph 12.2.1 being met, delays caused
by any of the following will constitute an extension of time event (EOT Event)86 for
which time relief will be given:
(a)
breach of any project document by the government party;87
(b)
any act or omission of the State or relevant government-related party88 (but only
in their capacity as a contracting party), other than any such act or omission
which is authorised, permitted or otherwise in accordance with a project
document89;
(c)
fire, flood or explosion (which is not also a Force Majeure Event);
(d)
failure by a statutory authority to carry out works or provide services unless the
statutory authority, in failing to carry out the works or services, is acting in
accordance with or pursuant to its statutory powers, duties and discretions or
obligations;
(e)
site specific blockade or an embargo;
(f)
industrial action, but only to the extent that it directly affects the project (whether
it also affects the relevant project related industries, or a significant segment of
them,90 and the private party can demonstrate that the action results directly from
an act or omission of the contracting government party or any of its employees at
the facility/site;91
(g)
any event or occurrence (outside the control of either party) which causes lack of
possession at or access to the project site other than any event or occurrence
arising from third party rights to use or access the site;
86
These EOT Events may be defined by various names in different projects (e.g. 'Extension Events' or
'Government Extension Events') as applicable.
87
This only applies to project documents to which the State is a party. Accordingly, government's obligations
must be limited and clearly specified.
88
What constitutes a government-related party will depend on the nature of the project. Although it is intended to
capture government employees, consultants and other parties at the site which are appointed by government or
whom government effectively controls (for example, as a result of delivering core services). In particular,
consideration will be given to the nature of each of the contracted services and core services and the level of
interface between them.
89
The State’s role as contracting party is separate from its role as being responsible for the general administration
of government affairs. Accordingly, the relief events in paragraphs (a) and (b) only capture acts or omissions
(including breaches) of the State in its capacity as a contracting party, not acts and omissions carried out in its
role as general administrator of government affairs. Please also refer to paragraph 1.6.4 (Right to compensation).
90
The project related industries will depend on the nature of the project. However, they will generally include the
construction or building maintenance industries.
91
Industrial action caused or motivated by opposition to PPPs will be deemed not to be the direct result of a
government act or omission.
April 2008
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(h)
a government or court direction to suspend or cease all or any part of the works
because of a native title claim or application or as a result of the discovery of an
artefact (provided the cessation order does not result from a private party breach
of its obligations in dealing with discovered artefacts);
(i)
delay in any works to be carried out by government which are required to allow
for the relocation or decanting of equipment, staff or users of the facility (e.g.
students, patients etc);92
(j)
government-initiated modifications;93
(k)
compensable changes in law as set out in section 23 (Change in Law);94 and
(l)
force majeure.95
•
Time relief will not be given when any of the above events are caused or to the extent
they are contributed to (directly or indirectly) by the private party or any subcontractor
(and in each case, whether as a result of their action or inaction including, as a result
of a breach of their obligations under the project documents).
•
The exact nature of the time relief events will depend on the project specifics. The
above is not intended to be an exhaustive list of time relief events for all projects.
Based on the risks of a specific project, government may introduce additional relief
events or remove some of the above relief events. However, government will not
provide relief for either the occurrence or effects of delays which are within the private
party's control. This includes where the private party should have put in place
appropriate contingency plans so as to reduce or avoid any effects on its ability to
perform its obligations under the project agreement.
•
Some EOT Events will also qualify as Compensation Events under paragraph 12.3.2.
12.2.3
•
Period of extension and other relief
Government96 will (acting reasonably) determine:
(a) the period by which the Date for Technical Completion and/or the Date for
Commercial Acceptance are to be extended as a result of the delay;97 and
92
The exact nature of this relief event will depend on the nature of the project and government's particular
phasing or transitional requirements.
93
See paragraph 22.1 in section 22 (Modifications) for process for giving relief to be provided to the private party
in these circumstances. See also footnote 81.
94
See paragraph 23.3 in section 23 (Change in Law) for relief to be provided to the private party in these
circumstances. See also footnote 81.
95
See paragraph 24.2 in section 24 (Force Majeure) for relief to be provided to the private party and process for
providing such relief in these circumstances. See also footnote 81.
96
The Independent Reviewer is the independent party appointed by the private party and the State under the
project documents to deal with areas such as completion testing and extension of time issues. Generally
government will refer to the Independent Reviewer when making determinations on extensions of time and relief
from other obligations. On a project-specific basis, government may consider appointing the Independent
Reviewer to directly carry out this role.
97
This will be subject to the private party's right to refer any such government determination to either the
Independent Reviewer or other independent expert for dispute resolution.
April 2008
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(b) the nature of relief from any other obligations as is reasonable given the nature of
the EOT Event.98
•
Where an extension of the Date for Commercial Acceptance occurs as a result of an
EOT Event described in paragraphs 12.2.2(a), 12.2.2(b) 12.2.2(f), or 12.2.2(h), the
Sunset Date will be extended by the same period, although the Date for Commercial
Acceptance will not at any time be extended beyond the Sunset Date (as extended) for
any EOT Event.99
12.2.4
Concurrent delays
If delays result from multiple causes including a material event which is not an EOT Event,
the private party will not be given time relief for the concurrent period of delay unless the
EOT Event is also a Compensation Event.100
12.2.5
Acceleration
If the progress of the works is delayed by an EOT Event, government will have the option
(at its cost) of requiring the private party to accelerate the works, instead of extending time.
In this instance, government will pay for the private party's incremental costs (but with no
allowance for a profit margin by the private party).
12.2.6
Mitigation
The private party will only be given an extension of time if, and to the extent that, it can
demonstrate (to the reasonable satisfaction of government) that all proper and reasonable
steps to prevent or minimise the risk of the occurrence, duration and consequences of the
delay were taken having regard to the nature of the site and the works.
The private party will notify government as soon as it becomes aware of any further
information relating to the EOT Event.
98
However, the private party will not be granted relief from those obligations which government would ordinarily
expect the private party to comply with during an EOT Event (i.e., any obligation to reinstate or to provide certain
critical facility management services which government would ordinarily expect to be provided during such
events).
99
The Sunset Date will only be extended in the limited circumstances identified. Where failure to meet the Sunset
Date is caused by a force majeure event, the private party's obligation to meet the Sunset Date will be suspended
in accordance with the regime in section 24 (Force Majeure) and government will not be able to claim an Event of
Default or Default Termination Event on the basis of such failure. To the extent the force majeure event continues
for a specified period, either party will be able to terminate on the basis of a Force Majeure Termination Event in
accordance with the regime set out in section 24 (Force Majeure). Government also recognises (in respect of
those events where the Sunset Date will not be extended) the importance of ensuring an adequate time period
between the Date for Commercial Acceptance and the Sunset Date. Where the failure to meet the Sunset Date is
caused by a government initiated modification or compensable change in law, the private party's obligation to
meet the Sunset Date will be suspended in accordance with the regime in section 22 (Modifications) and 23
(Change in Law), respectively.
100
This drafting assumes that the scope of 'Compensation Events' is limited to events caused by government.
Relief will only be given for concurrent delays where the Compensation Event has been caused by government.
April 2008
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12.2.7
Termination event
A termination event will be deemed to have occurred if, at any time, an independent expert
determines that there is no reasonable prospect that the private party will achieve
Commercial Acceptance by the Sunset Date.101
12.3
Compensation relief
12.3.1
•
The delay or disruption must qualify as a 'Compensation Event'.102
•
The private party must notify government and submit a claim to government for its
delay costs strictly in accordance with specified procedures.
12.3.2
Compensation Events
The following sub-set of EOT Events (being government-initiated events), may constitute
Compensation Events:103
(a)
breach of any project document by the government party;104
(b)
any act or omission of the State or relevant government-related party105 (but only in
their capacity as a contracting party), other than any such act or omission which is
authorised, permitted or otherwise in accordance with a project document106;
(c)
government-initiated modifications;107
(d)
compensable changes in law as set out in section 23 (Change in Law);108
101
See paragraph 11.5.6 of section 11 (Construction and commissioning).
102
103
As with time relief events, the exact nature of these events may need to be amended to reflect the project
specifics. However, the definition must underpin and not undermine the agreed risk allocation for the project.
104
This only applies to project documents to which the State is a party. Accordingly, government's obligations
must be limited and clearly specified.
105
106
See footnote 81 for a definition of government-related party.
The State’s role as contracting party is separate from its role as being responsible for the general
administration of government affairs. Accordingly, the relief events in paragraphs (a) and (b) only capture acts or
omissions (including breaches) of the State in its capacity as a contracting party, not acts and omissions carried
out in its role as general administrator of government affairs. Please also refer to paragraph 1.6.4 (Right to
compensation).
107
See section 22 (Modifications) for relief to be provided to the private party in these circumstances.
108
See paragraph 23.3 in section 23 (Change in Law) for relief to be provided to the private party in these
circumstances.
April 2008
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(e)
delay in any works to be carried out by government which are required to allow for
the relocation or decanting of equipment, staff or users of the facility (e.g. students,
patients etc);109
(e)
artefact (provided the cessation order does not result from a private party breach of
its obligations in dealing with discovered artefacts); and
(f)
industrial action, but only to the extent it directly affects the project (whether it also
affects the relevant project related industries (or a significant segment of them)110)
and the private party can demonstrate that the action results directly from an act or
omission of the contracting government party or any of its employees at the
facility/site.111
Compensation will not be allowed when the relevant event was caused or to the extent it is
contributed to (directly or indirectly) by the private party or any subcontractor (and in each
case, whether as a result of their action or inaction including, as a result of a breach by the
private party of its obligations under the project documents).
The exact nature of the Compensation Events will depend on the project specifics. The
above is not intended to be an exhaustive list of Compensation Events for all projects.
However, any extension will be limited to events caused by government.
Compensation Events will also qualify as EOT Events under paragraph 12.2.2.
12.3.3
Compensation amount
•
The private party will be entitled to its reasonable costs and expenses (including
incremental funding costs) arising from the delay caused by a Compensation Event
(Delay Costs), based on its written claim for costs as reasonably assessed by
government112 less any insurance proceeds paid or payable to the private party for the
loss or damage113.
•
Government has the option of compensating the private party for Delay Costs by way
of:
(a)
an adjustment to the service fee;
(b)
a lump sum payment; or
109
The exact nature of this relief event will depend on the nature of the project and government's particular
phasing or transitional requirements.
110
111
112
Any government determination in respect of Delay Costs will be subject to the private party's right to refer such
determination to an independent expert for dispute resolution. Furthermore, in certain projects, the daily dollar
value of delay costs (at various project stages) will be a bid item.
113
Project Co will be required to make a claim under its insurance policy for any damage or liability arising as a
result of the compensable event occurring. Project Co will not be permitted to remedy the damage prior to lodging
a claim with the insurer unless expressly permitted by the State.
April 2008
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(c)
subject to the private party's agreement, extending the operating term.
•
Where option (a) is adopted and the amount the private party must fund up-front is
above a specified threshold, the private party must use its best endeavours to obtain
competitive funding for such costs. If, having used its best endeavours, the private
party is unable to obtain funding acceptable to government, government will pay for
those costs by way of a lump sum payment.
•
The service fee will be adjusted or a lump sum payment will be determined in
accordance with the service fee adjustment principles for the project.114
•
The financial model will be adjusted in accordance with the service fee adjustment
principles to reflect the Delay Costs.
12.3.4
Mitigation
Delay Costs are only payable to the extent that the private party has taken all reasonable
measures to avoid or minimise the occurrence of the Delay Costs having regard to the
nature of the site and the works.
The private party must provide evidence that it has used reasonable endeavours
(including, where practicable, use of competitive quotes) to ensure its subcontractors
minimise increases in costs and maximise any reduction in costs.
114
See paragraph 18.4 in section 18 (Payment provisions).
April 2008
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13. Protection against late or
insufficient service delivery
Principle
Where non-payment or abatement of the service fee is insufficient to compensate
government for costs and losses incurred as a result of late or insufficient service delivery,
government may require additional protections from the private party such as liquidated
damages, performance bonds or parent guarantees.
13.1
Liquidated damages
13.1.1
Value for money
Government recognises that an entitlement to liquidated damages115 may result in higher
bid costs. Accordingly, whether liquidated damages are payable and, if so, the amount
payable will depend on whether they offer government value for money.116
For most projects, the incentive for timely achievement of Commercial Acceptance will be
the impact on the operating term.117 However, where the private party is granted an
extension of the operating term as a result of a Relief Event or a Compensation Event,
government may require liquidated damages for a delay in achieving Commercial
Acceptance. Such damages are to defray government's costs arising from the delay (e.g.
the cost of bridging venues or services).
13.1.2
Genuine pre-estimate
The rate of liquidated damages payable in any project must be a genuine pre-estimate of
the costs and losses government is likely to incur from the delay in service delivery.
Otherwise the amount may be judged to constitute a penalty and will not be enforceable.
Liquidated damages may be reduced where the private party provides adequate temporary
accommodation.
13.1.3
Sole and exclusive remedy
Where payable, liquidated damages will be government's sole and exclusive remedy for
delay. However, they do not affect or limit government's legal rights in relation to aspects
or consequences of an event other than delay costs.
115
As distinct from the liquidated damages payable by the construction subcontractor to the private party for any
period of delay.
116
In making such a determination consideration will be given to other remedies available to government under
the project agreement to recover costs arising from a private party default (e.g. indemnities).
117
See section 3 (Contract term).
April 2008
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13.1.4
Security for liquidated damages
Government generally requires the private party to provide security for liquidated damages
through bonds or guarantees issued either by the private party or its subcontractors.
13.2
Performance bonds
13.2.1
Performance bond during the construction phase
and defects liability period
118
•
For value for money reasons, government will generally not seek a direct performance
bond from the private party for the construction phase.119 Instead it will require the
private party to procure a performance bond (issued in the private party's favour) from
the construction subcontractor, guaranteeing the subcontractor's construction
obligations. This would generally, in any event, be a requirement of the private party's
financiers who will have security over the private party's right to claim.120
•
Government must be satisfied that its interests are adequately addressed and
protected by any bond procured from the construction subcontractor. As part of the
project brief, government will identify its minimum bonding requirements including, in
respect of:
(a)
the quantum, rating and duration of the bond; and
(b)
the bases upon which the bond can be drawn (including requirements that
government be notified when a call is made on the bond).
Government's minimum requirements will seek to ensure that the interests of the
private party, financiers and government are appropriately aligned.
•
The amount of any performance bond procured by the private party and the length of
period for which any such bond is required will need to be considered carefully for
possible value for money implications. The quantum of the bond will reflect the project
features but will generally be a percentage of the design and construction contract
price. The amount of the bond may be reduced following Commercial Acceptance (by
an amount which appropriately reflects the fact that the project has moved beyond the
period with the greatest level of construction risk). However, the bond will remain on
foot during the defects liability period (at a reduced amount).
118
Government's strong preference is for bank bonds. However, in limited circumstances, it may consider
accepting insurance bonds subject to the creditworthiness of the insurance company and government being
satisfied with the enforceability of its rights under the bond and with the process for recovering funds in the event
that it makes a demand.
119
However, where government is concerned with the creditworthiness of the subcontractor (and its parent, where
a parent guarantee is given) it may require performance bonds directly from the private party in addition to those
provided by the subcontractor.
120
Where government relies on the subcontractor's performance bond, the financiers' direct agreement will
enable government to claim under the bond to rectify any default by the construction subcontractor to the extent
that the private party or the security trustee (on behalf of the financiers) fails to rectify the default. Government's
ability to claim will be subject to the financiers' right to access the bond.
April 2008
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•
Any performance bond must be unconditional and irrevocable and provided (or
backed) by a financial institution regulated by the Australian Prudential Regulation
Authority and with a credit rating to be specified.
•
The required form of the bond will be set out in the project agreement and must not be
amended without government's approval (such approval not to be unreasonably
withheld).
13.2.2
Performance bond during the operating phase
•
Although government may consider obtaining operating bonds directly from the private
party in certain circumstances, this is not normally appropriate in a Partnerships
Victoria project agreement and will as a general rule not be requested by government.
•
The comfort government requires that the private party will deliver its operational
obligations will generally be provided by the abatement regime, government's
termination and step-in rights on default, the fact that any compensation on termination
amount will be reduced by the cost to government of remedying defects/appointing a
new contractor and collateral warranties. However, where government has concerns
as to the creditworthiness of the operational subcontractors or their ability to perform
their obligations, government may require the private party to procure a performance
bond or parent company guarantee in respect of the operating subcontractor's
obligations (see discussion on the provision of construction performance bonds).
•
Alternatively, although government may not require performance bonds or parent
company guarantees at project commencement, it may require that such bonds or
guarantees be provided at any time during the operating term when a repeated or
severe service delivery failure occurs.
13.3
Parent guarantees
•
For value for money reasons, government generally does not seek performance
guarantees from the parent companies of the private party or of the key
subcontractors. However, this will depend on whether the commitment of a parent
company is an important element in the selection of the private party or a key
subcontractor.
•
Generally, government prefers that performance bonds (whether bank guarantees or
insurance bonds) be given by subcontractors (in favour of the private party) as they
can be called upon on clearly defined terms and their pricing is more transparent.
April 2008
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14. Service requirements and
specifications
Principle
Payment is based on private party delivery of the contracted service to service standards
and specifications (i.e. key performance indicators) rather than the level of actual
government use of the service. Payment will be abated to the extent the contracted
service is not delivered to specification.
14.1
Provision of contracted services
14.1.1
The contracted services
The contracted services will differ depending on the nature of the project. However, in an
accommodation-based, core services model they will include the accommodation services
(including maintenance), together with any or all of utilities management, cleaning and
catering services, security, car parking, grounds maintenance and pest control.
14.1.2
•
Delivering services to specification
Throughout the operational term the private party must (at its own cost) provide the
contracted services:
(a)
in accordance with the service standards and specifications (as varied in
accordance with the modification provisions);
(b)
in a manner consistent with the functional brief, the asset management plan and
any other operating and quality assurance manuals the private party is required
to prepare for the project;121
(c)
in accordance with industry best practice, all relevant policies and procedures122
and applicable laws, approvals and specified quality and safety standards;
(d)
so that the facility remains at all times during the contract term fit for its intended
purposes and uses as specified in, or reasonably inferred from, the functional
brief as at the date of the project agreement; and
121
See discussion on maintenance obligations during the operating phase in section 15 (Maintenance and
refurbishment).
122
Policies applicable to the particular project will be identified in the project agreement. However, the private
party will be responsible for ensuring it complies with all policies to which the project is subject. This is subject to
the Change in Law and Modification regimes (see sections 22 (Modifications) and 23 (Change in Law)).
April 2008
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(e)
•
in coordination with the delivery of the core services and the contemplated
possession and use of the facility by government (and so as to minimise
disruption to government in the provision of the core services).
The private party must warrant that it will at all times provide the resources, expertise
and experience to maintain the facility and provide the contracted services in
accordance with the above requirements.
14.2
Service standards and specifications
•
The service standards and specifications (specifications) will depend on the nature of
the project and will be tailored and structured to reflect the particular needs of
government. They will be output based, objective, measurable and reasonable, and
not immaterial in the context of the contracted services as a whole.
•
The specifications will refer not only to the existence and accessibility of the asset
(such as whether a prison cell or a classroom has been built and is available for use),
but will include the delivery of 'soft services' which are integral to the contracted
services. For example, a classroom or a prison cell must have a minimum level of
lighting and temperature control and be clean. Adequate levels of catering, security
and technology services may be required for the service to be 'available'.
•
The specifications will generally consist of:
(a)
generic specifications that will apply to the delivery of all services (general
specifications); and
(b)
more specific specifications that apply to the delivery of particular services
(specific service specifications).
14.2.2
General specifications
General Specifications may be set for the following key performance areas:
(a)
management - that adequate management, reporting, communication and
safeguarding systems are in place, that there is appropriate working committee
attendance and that there is adequate reporting of performance against Key
Performance Indicators (KPIs);
(b)
staff and development - that there are no staff shortages and there is adequate
staff training and development;
(c)
policy and strategy - that there is compliance with all laws, industry best practice
(as appropriate), prescribed health policies, prescribed work policies, procedures
and practices and all other applicable quality standards (including, appropriate
environment and emergency management systems);
(d)
liaising and resources - that there is adequate liaising between parties and
information management and that the private party is providing adequate
resources (equipment and consumables); and
(e)
performance monitoring - that the private party responds to and rectifies Service
Failures within specified periods.
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14.2.3
Specific service specifications
Specific Service Specifications are additional requirements that need to be met when
delivering particular services. The specifications relating to accommodation services may
require that:
(a)
accommodation is provided during prescribed periods;
(b)
adequate planned preventative maintenance service is provided;
(c)
all repair requests are addressed within set times;
(d)
fire safety systems and equipment are appropriately maintained;
(e)
lifts operate as intended; and
(f)
appropriate equipment testing is undertaken.
14.3
Service Failures
14.3.1
Performance parameters for assessing delivery of
services to specification
Each specification will have a corresponding performance parameter for determining
whether the specification is achieved. There will be set periods over which each
performance parameter will be assessed.
14.3.2
Service Failure
Where a service is not provided in accordance with a specification, a Service Failure will
have occurred except where such failure is the result of:
(a)
carrying out planned maintenance or refurbishment;123 or
(b)
an approved modification.
14.3.3
Failure Events and Quality Failures
Each Service Failure will be categorised depending on whether the failure:
(a)
renders one or more functional areas or units of the facility unavailable for use for
its intended function (Availability Failure);
(b)
affects one or more functional areas or units of the facility but does not result in
such functional area or unit being unavailable for use in accordance with its
intended function (Incident Failure);124 or
123
Generally, the private party is expected to carry out necessary maintenance and refurbishment without
disruption to the service delivery. Relief from abatement may be given in certain circumstances, but only to the
extent the planned maintenance or refurbishment is carried out in accordance with the agreed maintenance plan
(based on the maintenance plan in the private party's bid proposal).
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(c)
is not referrable to a specific area in or unit of the facility (Quality Failure).
Availability Failures and Incident Failures are also referred to as Failure Events.
14.3.4
Failure points for Quality Failure
Each Quality Failure will automatically incur Failure Points. The number of failure points
will depend on the severity of the failure.
14.3.5
Failure Event Levels - response and rectification
times
An Availability Failure or an Incident Failure will be categorised according to the severity of
its impact on core service provision. Depending on its severity, it will be allocated a
Failure Event Level which will have a corresponding response and rectification time.
14.3.6
Categorisation of Service Failures and effect of
temporary measures and continued use
•
The helpdesk (which is to be notified of each Service Failure) will determine the initial
categorisation of an Availability Failure or an Incident Failure, although government
may alter that categorisation. Where parties do not agree on the categorisation, it will
be determined by the independent expert. Where government's categorisation is
subsequently determined to be incorrect, the private party will be compensated for any
reduction in the service fee (together with interest).
•
The service fee will not be abated (or abated to a lesser extent) to the extent that the
private party has adopted appropriate temporary measures to ameliorate or mitigate
the consequences of an Availability Failure or Incident Failure that has not been
rectified within the specified period.
•
The level of abatement will also be adjusted to reflect the extent to which government
continues to use the facility although it is technically not 'available'.
14.4
Performance monitoring
The private party's delivery of the contracted services (in accordance with the
specifications) will be monitored and any failures (resulting in abatement of the service fee)
will be reported in accordance with the procedures set out in section 16 (Performance
monitoring and review).125
124
An Incident Failure is intended to capture failures which if they occur would not necessarily prevent
government from continuing to use a service (e.g. a prison cell or class room) despite the defect/failure. In other
words, it doesn't make it unavailable. For example, a light globe may have blown but other lighting is available.
125
Where the private party is self-monitoring, failure to correctly report or monitor such failure will result in a
Quality Failure.
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14.5
Abatement and default
14.5.1
Abatement
•
The service fee will be abated where an Availability Failure, Incident Failure or Quality
Failure126 occurs. The service fee will not be abated (except by way of adjustment for
costs not incurred by the private party during any relevant period of suspension) when
the Service Failure has been caused by an Intervening Event127 (other than a Force
Majeure Event128), to the extent that the private party has been given relief from the
relevant obligation that caused the Service Failure.129
•
The amount abated for a Failure Event will depend on:
(a)
the area of accommodation affected;
(b)
the Failure Event Level classification; and
(c)
the time taken to rectify the failure following expiry of the rectification period.
•
The more critical the affected area to the provision of the contracted services, the
higher the weighting given to that area and the greater the deduction from the service
fee for a failure. For example, the higher the Failure Event Level classification the
shorter the corresponding response and rectification times one would expect to see
and therefore, the more frequent the deductions. This is intended to encourage the
private party to rectify the failure as soon as possible.
•
The level of abatement for a Quality Failure (and therefore the number of performance
points allocated for that failure) will depend on the severity of the failure, how often it is
repeated130 and how long it is sustained (as appropriate). The more severe the failure
(and the higher the number of points allocated to that failure) the higher the weighting
given and the greater the deduction.131
14.5.2
•
Overlap of Service Failures
If an event simultaneously constitutes an Availability Failure and an Incident Failure,
the service fee will be abated for an Availability Failure.
126
In respect of Quality Failures, there will generally be a minimum level of Quality Failure points, the
accumulation of which will not incur any abatement. For example, accumulating up to 10 Quality Failure points in
a month may not result in an abatement.
127
Subject to the threshold requirements being met (see paragraph 17.2 in section 17 (Intervening Events during
the operation)) and except by way of adjustment for costs not incurred by the private party or to the extent the
Intervening Event was required to be insured against under the project agreement (see paragraph 17.3.1 in
section 17 (Intervening Events during the operation)).
128
Government will, in certain circumstances, keep senior debt whole during the period of suspension arising from
a force majeure in accordance with the principles in section 24 (Force majeure).
129
See section 17 (Intervening Events during the operational phase).
130
See paragraph 14.5.3 in section 14 (Service requirements and specifications).
131
In respect of certain regimes, government may consider, if appropriate, the ability to set-off failures against
superior performance in other areas or in previous time periods. This will depend on the importance and severity
of the failure and the benefit to government of any superior performance.
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•
If an event simultaneously constitutes either an Availability Failure or an Incident
Failure and a Quality Failure, the service fee will be abated for either of the Availability
Failure or the Incident Failure (as applicable but without double counting) and also the
Quality Failure.
•
Where there are two or more events that would deem an area unavailable, the level of
abatement will be based on the event with the highest failure event classification.
•
Where a Service Failure may result in more than one Quality Failure, it will be deemed
to be the Quality Failure with the highest number of points.
14.5.3
Repeated failures
Repeated occurrences of the same failure within specified consecutive periods, whether an
Availability Failure, Incident Failure or Quality Failure, may lead to an escalation of the
relevant failure points or weighting (as appropriate) given to that particular failure.132
14.5.4
Default and termination
Refer to paragraph 27.1 of section 27 (Default) and paragraph 28.1.1 of section 28
(Termination) for a discussion on what level of Service Failure and abatement will result in
a default leading to termination. Service Failures caused by an Intervening Event
(including, a Force Majeure Event) for which the private party has been given relief, will be
excluded for the purposes of determining whether an Event of Default or Default
Termination Event has occurred.
14.6
Delivery of core services does not
relieve the private party of its
contractual obligations
The private party is not relieved of its obligations by the use and occupation of the facility
by government (as contemplated by the project agreement) except to the extent that relief
is given for 'Intervening Events'.133
14.7
Utility services
•
The private party is responsible (at its own cost) for the continuous supply of utility
services134 to the facility in accordance with the specified standards.
•
Government will generally take the risk on the unit price of utilities.
•
However, depending on the nature of the project, government may look to either:
132
By way of example, if the same Quality Failure occurs in more than [X] consecutive operating periods, then
each consecutive Quality Failure of the same type after the first Quality Failure will incur double the number of
Quality Failure points as the previous Quality Failure. This process of doubling will continue until no Quality
Failures of that type have occurred for [X] consecutive operating periods. [X] amounts or periods should be
determined on a project-specific basis.
133
See section 17 (Intervening Events during the operational phase).
134
These include any utility service, such as water, electricity, gas, telephone, drainage, waste, sewerage and
electronic communications.
April 2008
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•
¾
transfer the full volume risk to the private party for some or all utilities (for example,
where the private party takes demand risk, such as in a toll road or in respect of
social infrastructure projects, where the core service environment is reasonably
predictable, such as in a school or prison or a carpark in a hospital project); or
¾
share volume risk above a specified threshold.135
This will be determined on a project-specific basis taking into account:
(a) life cycle costs for the term of the project agreement;
(b) incentives to use environmental and energy saving materials and systems;
(c) which party is best placed to manage long-term consumption risk;
(d) difficulty of estimating long-term consumption risk; and
(e) most importantly, value for money.
•
Government will also look to share volume savings on the same basis (i.e. below a
specified threshold) if the private party uses less utilities than a baseline expected
volume.
•
To incentivise the private party to design an energy efficient facility, there will be no
cap on the private party's exposure.136
•
The Specifications may also include energy efficiency standards that the facility will
need to meet in order to be commissioned. Ongoing energy efficiency tests may be
required throughout the operational phase.
14.8
Government relief for private party
failure to comply with service
obligations
The State is entitled to abate service payments made to the private party if the private
party fails to comply with its service obligations under paragraph 14.1.2. Abatement is the
sole remedy for which the private party is liable in respect of Service Failures except those
which give rise to a claim or liability for:
(a)
third party injury (including death) or property damage;
(b)
loss or damage to, or destruction of, the facility or the site;
135
To be bid by the private party on a project-specific basis. Government will generally look to the private party
to take responsibility for utility volume risk in relation to utility end uses over which the private party has a degree
of control because, for example, of the way it designs the facility or approaches the delivery of the contracted
services (through plant and material selection and operational and maintenance policies). The State will generally
retain 100 per cent utility volume risk in relation to utility end uses that are not reasonably within the private party's
responsibility.
136
During the evaluation of bids, the State will consider any environmentally sustainable design benefits and
energy efficiency benefits which flow from the private party's bid.
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(c)
costs incurred by government in remedying the breach or default or exercising
step-in rights; or
(d)
reasonably foreseeable economic loss suffered by government or governmentrelated parties (including the facility operator) which is caused by the unlawful or
negligent act or omission of the private party,137 and in each case, only to the
extent the amount of any such claim or liability exceeds any service payment
abatements resulting from such act or omission.
137
Depending on the nature of the project and any direct relationships which the State has with third parties in
relation to the facility, government may carve out all reasonably foreseeable economic loss and not only that
which is "caused by the unlawful or negligent act or omission of the private party".
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15. Maintenance and refurbishment
Principle
The private party must maintain and refurbish the facility (at its own cost) as necessary to
ensure it delivers the contracted services to specification.
15.1
Maintenance and refurbishment during
the operating phase
Throughout the operating phase, the private party must (at its cost) maintain and refurbish
the facility in accordance with an asset management plan or as otherwise required in order
to meet the service specifications (including ensuring that the assets achieve their full
working life).
15.2
Asset management plan
15.2.1
Content
•
The asset management plan must provide for all preventative maintenance, lifecycle
repair and asset management, replacement and refurbishment necessary during the
operating phase to ensure delivery of the contracted services to specification
(including, where relevant, handing the asset back to government in the necessary
handover condition).
•
Although the private party may be given some flexibility to vary its asset management
plan, it will be limited to the extent necessary to ensure the private party can continue
to meet its contractual obligations throughout the contract term. For example, the
private party may be permitted to defer scheduled refurbishment works for a limited
period.
15.2.2
Provision of endorsed asset management plan as a
condition of Commercial Acceptance
•
A draft asset management plan must be submitted as part of the private party's bid and
will be incorporated into the project agreement.
•
A final updated asset management plan (which has been reviewed and commented on
by government and which is consistent with the draft plan submitted as part of the
private party's bid) must be provided as a condition to achieving Commercial
Acceptance.
•
Government's right to comment is limited to differences between the draft and final bid
plan or to the extent that there are adverse impacts on the private party's ability to
provide the contracted services to specification.
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•
Failure to agree on amendments to the plan as a result of government comments will
lead to the matter being referred to an independent expert for resolution.138
15.2.3
Regular updating
•
The private party must update the asset management plan regularly to take account of
all approved modifications, together with improvements in best practice and technology
and any other matters relevant to the maintenance of the project assets.
•
Any change to the final asset management plan must be provided to government for
review and comment.
•
The private party must provide government annually with a fully consolidated updated
asset management plan and a report on the private party's performance against the
current plan.
15.2.4
No obligation on government
Neither government's involvement nor that of the independent expert in the development or
approval of the asset management plan relieves the private party of any of its obligations
(including warranties) or constitutes a representation by government as to the private
party's compliance.
15.3
Funding maintenance and
refurbishment obligations
The service fee will include amounts to fund the private party's maintenance and
refurbishment obligations. This will generally be reflected in a smooth service payment
profile, although depending on the project’s funding arrangements, government may
consider a lumpy payment profile.
The service fee will generally be abated to the extent the private party’s obligations are not
satisfied.139
However, government may consider exempting the lifecycle/maintenance
component of the service fee depending on the project’s funding proposal (in particular, the
associated reserve costs).
15.4
Monitoring performance of maintenance
and refurbishment obligations
The private party's performance of its maintenance and refurbishment obligations will be
monitored in accordance with the performance monitoring system and be subject to
government's audit rights.140
138
See section 32 (Dispute resolution).
139
In projects where it is expected that a high degree of technological obsolescence will occur or where major
refreshes of facilities will be required, it may be value for money for government to carve out refurbishment
obligations from the service fee and benchmark them separately.
140
See section 16 (Performance monitoring and review).
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15.5
End-of-term arrangements
See section 31 (End-of-term arrangements) for a discussion on end-of-term arrangements
such as handover obligations upon expiry of the contract term, end-of-term
surveys/inspections and additional end-of-term maintenance and refurbishment
obligations.
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16. Performance monitoring and
review
Principle
The private party will be required to monitor its performance against the project
specifications, using a comprehensive performance management methodology.
16.1
Monitoring obligations
16.1.1
Performance monitoring system
The parties will agree upon a comprehensive performance monitoring system (PMS) to
monitor on a timely and effective basis whether the private party is delivering the
contracted services to specifications.141 The robustness of this system is an important
source of comfort to government that the private party is meeting its obligations.142
16.1.2
Who does the monitoring
The private party must monitor its own performance by means of the PMS (subject to
government's rights of review and audit). The performance monitoring must commence on
the date of commencement of service provision.
16.1.3
Performance data warranted
The performance data which results from the application of the PMS (including source
information, periodic performance reports, documentation and data created for or by the
PMS) must be contractually warranted by the private party as being at all times accurate,
complete and correct.
16.1.4
Periodic performance report
The private party must prepare a regular periodic performance report143 which is delivered
to government (generally, through the contract administrator). This report will provide
sufficient information to allow the calculation of the service fee by the contract administrator
(or where the service fee is calculated by the private party, to allow confirmation of the
141
The methodology for the performance management system will be fully set out in the project agreement.
142
Note that this comprises only one component of the broader project and contract monitoring that government
should carry out. Government party reporting and monitoring is discussed in Chapter 8 of the Partnerships
Victoria Contract Management Guide.
143
The relevant monitoring periods will depend on the nature of the project. However, it is usual for performance
reporting to occur on a monthly basis and within a set number of days from the end of each month. Chapter 8 and
Templates H-K of the Partnerships Victoria Contract Management Guide provide further guidance on what the
private party should be required to include in its periodic performance reports.
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calculations by the contract administrator) and will include, amongst other things, the
number of Service Failures144 in the preceding period, details of each Service Failure and
how often it was repeated during that period.
16.2
Additional performance monitoring
rights
16.2.1
Monitoring rights of government145
Government (through the contract administrator) may also monitor and review the private
party's performance and the PMS in any way it thinks fit. Except where costs are payable
by the private party as described in paragraph 16.3.3, this will be at government's cost.146
These additional monitoring rights include the use of:
(a)
customer satisfaction surveys;
(b)
audit processes;
(c)
scheduled and unscheduled reviews and inspections; and
(d)
feedback from users (including, where appropriate, the core services) as to the
adequacy and quality of the facility or the services being provided by the private
party.
16.2.2
Access to information
•
The private party must grant access to the PMS and any performance data for, or
resulting from, the PMS on the provision of reasonable notice by government. Copies
of all information, documents and data relevant to the PMS or the provision of the
service by the private party must be kept for seven years after their creation or
production.
•
The private party must provide such assistance and access as government requires in
the exercise of its performance monitoring rights.
16.3
Auditing
16.3.1
Requirement for audit
Government can (through the contract administrator) require an audit of the PMS or any
performance data for, or resulting from, the PMS at any time up to six months after the end
of the term of the project.
144
See paragraph 14.3.2 in section 14 (Service requirements and specifications) for definition of 'Service Failure'.
145
By way of clarification, the intention of this paragraph 16.2 is to provide a mechanism for government to review
and monitor the private party's performance under the project agreement, not to introduce additional service
requirements.
146
Broader government party reporting and monitoring is discussed in Chapter 8 of the Partnerships Victoria
Contract Management Guide.
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16.3.2
Who will conduct the audit?
The audit will be conducted by an independent person appointed by government on terms
and conditions determined by government.
16.3.3
Who will pay for the audit?
Government will pay for the cost of the audit. However, if an audit identifies incorrect
information provided by the private party that affects the service fee, the private party must
pay for the costs of the audit.
16.3.4
Inaccurate PMS or performance data
If the auditor's written report shows an inaccuracy, incorrectness or incompleteness in the
PMS or any performance data for, or resulting from, the PMS then the private party must:
(a)
correct and re-issue the affected report or data and take steps to remedy the fault
in its monitoring, measuring and reporting system; and
(b)
if the error has affected the amount of a service fee, make the appropriate
adjustment from the next scheduled service fee, or if there is no further service fee
scheduled and the adjustment amount is a deduction, the amount will be a debt
due and payable from the private party to government.
16.3.5
Fraudulent or false, misleading or negligent
reporting
If any fraud or false, misleading or negligent reporting is disclosed in the auditor's report,
this will constitute a serious breach potentially leading to termination of the project
agreement.147
16.4
Operating committee
16.4.1
Composition of the operating committee
During the operating phase an operating committee must be established typically
comprising two representatives of the private party, two representatives of government and
the contract administrator (who will be the chairperson).148
16.4.2
Role of the operating committee
The operating committee will meet regularly149 to discuss any matters relating to the project
including issues of public concern, facilities management and maintenance issues,
community and media relations issues and issues arising from the reports provided by the
PMS.
147
See sections 27 (Default) and 28 (Termination).
148
This is a usual structure of the operating committee although it may vary on a project-specific basis.
149
Usually not less than once a month.
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16.4.3
Authority of the operating committee
The operating committee will not have any legal responsibility to either the private party or
government and will not have power to require either party to act or refrain from acting in
any way. Its decisions do not affect the rights or obligations of either the private party or
government under the project documents.
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17. Intervening events during the
operational phase
Principle
The private party will be relieved from termination for failure to deliver the contracted
services during the operational phase where the event causing such failure is clearly within
government's control. Relief from termination may also be given for certain events outside
the control of both parties provided the private party could not have avoided or mitigated
the effects of such event on its performance. Compensation for private party losses will
generally be limited to those attributable to events within government's control.
17.1
•
Intervening Events
The following will be Intervening Events150:
(a)
any breach of a project document by government151;
(b)
an act or omission by the State or relevant government-related parties152 at the
facility/site (but only in their capacity as a contracting party) other than:
(i)
the performance of the core services or any act or omission authorised or
permitted under the project documents; or
(ii)
an act or omission which is a reasonably foreseeable consequence of the
performance of the core services153 or other authorised/permitted acts or
omissions154;
150
This is not intended to be an exhaustive list of Intervening Events for all projects. Government recognises that
there are some sector specific projects which will require additional events or the removal of certain events.
However, the concept of intervening events will be extended in limited circumstances and only after very careful
consideration of the project specifics. These events may be defined in various ways in different projects (e.g.
'Acts of Prevention').
151
This is only intended to capture project documents to which the State is a party and the relevant government
entity that has entered into the relevant document. .
152
whom government effectively controls (for example, as a result of delivering the core services). The focus of that
risk will depend on the nature of each of the contracted services and core services and the level of interface
between them.
153
154
This is intended to also capture ancillary services incidental to or otherwise in support of the core services.
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(c)
any disruption or delay caused by a third party (other than the private party)
engaged by government to undertake additional capital works or services on the
site;155
(d)
fire, flood or explosion (which is not a Force Majeure Event);
(e)
failure by a statutory authority to carry out works or provide services unless the
statutory authority, in failing to carry out the works or services, is acting in
accordance with or pursuant to its statutory powers, duties and discretions or
obligations;
(f)
site specific blockade or embargo affecting specialised project equipment (to be
determined on a project-by-project basis);
(g)
industrial action but only to the extent that it directly affects the project (whether it
also affects the relevant project related industries156 or a significant segment of
them) and the private party can demonstrate that it results directly from an act or
omission of the contracting government party or any of its employees at the
facility/site;157
(h)
any event or occurrence (outside the control of either party) which causes lack of
possession of or access to the project site, other than any event or occurrence
arising from third party rights to use or access the site; and
(i)
artefact (provided the cessation order does not result from a private party breach
of its obligations in dealing with discovered artefacts).
•
Relief to be provided as a result of force majeure events, government-initiated
modifications and compensable changes in law is dealt with in sections 24 (Force
majeure), 22 (Modifications) and 23 (Change in Law).
•
Where the act or omission for which relief is given involves additional works
government has decided to undertake, any such relief may be conditional on the
private party entering into reasonable and appropriate interface agreements with the
relevant government contractors.
compensation).
155
The intention is, to the extent government engages a third party to undertake capital works, it will provide the
private party relief against any adverse effects of those works on the private party's obligations under the project
documents. However, relief will not be given where the need for those works arises because of a breach or
failure by the private party to meet it's obligations under the project documents.
156
157
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17.2
Relief for an Intervening Event or a Compensable Intervening Event158 will only be given to
the extent that:
(a)
the private party can demonstrate to government's reasonable satisfaction that it is
prevented from or delayed in providing the contracted services and is otherwise
complying with its contractual obligations as a direct result of an Intervening or
Compensable Intervening Event;
(b)
neither the private party, nor any of the private party's related parties, agents or
employees, nor any subcontractor has directly or indirectly caused or contributed
to the Intervening Event or Compensable Intervening Event (in each case, whether
as a result of an action or inaction including, as a result of breach by the private
party of its obligations under the project documents);
(c)
the private party has taken all proper and reasonable steps to minimise the
duration of the Intervening Event or Compensable Intervening Event and to
prevent and minimise the effect of the Intervening Event/Compensable Intervening
Event and continues to use reasonable endeavours to provide temporary
measures during any suspension period; and
(d)
the private party has, within a specified period of the occurrence of the Intervening
Event or Compensable Intervening Event, given notice to government of the
Intervening Event or Compensable Intervening Event and its effects on the private
party and of the private party's intention to claim relief.
Government will not provide relief for either the occurrence or effects of events which are
within the private party's control. This includes where the private party should have put in
place appropriate contingency plans so as to reduce or avoid any effects on its ability to
perform its obligations under the project agreement.
17.3
Relief for Intervening Events
17.3.1
Form of relief
If the threshold requirements are met, then:
(a)
the private party's obligation to deliver the affected service or comply with its
affected contractual obligations will be suspended;159
(b)
the relevant service fee will not be abated for the Service Failures160 except:
(i) by way of adjustment for costs not incurred by the private party during
suspension; and
158
159
This includes obligations to provide temporary measures. Where the Intervening Event prevents the cure of a
default within the specified cure period, the cure period will be extended by a reasonable time period given the
effect of the Intervening Event.
160
This principle is currently under review for events which are controlled or better managed by the private party
and for which, therefore, only time relief (not money relief) should be given. Government will issue separate
guidance material in the event any change is made to the current principle.
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(ii) to the extent the Intervening Event or any risk occurrence that caused the
Intervening Event was required to be insured against by the private party under
the project agreement;161 and
(c)
no default notice may be given in respect of such Service Failure.
17.3.2
Period of suspension of obligations
The private party's obligations affected by the Intervening Event will be suspended from
the date it gives notice to government of the Intervening Event until it ceases to be
prevented from performing its obligations.
17.4
Compensation
17.4.1
Compensable Intervening Events
•
The following will be Compensable Intervening Events:162
(a)
any breach of a project document by government;163
(b)
loss directly caused by the malicious, unlawful or reckless act of government
employees or other government-related parties164 (but only in their capacity as
a contracting party)165;
161
The private party will be expected to take out adequate levels of insurance, including business interruption
insurance to cover servicing of senior debt.
162
This is not intended to be an exhaustive list of Compensable Intervening Events for all projects. Government
recognises that there are some sector specific projects which will require additional events or the removal of
certain events included below. However, the concept of Compensable Intervening Events will be extended in
limited circumstances and only after very careful consideration of the project specifics. These events may be
defined in various ways in different projects (e.g.. 'Compensation Events' or 'Compensable Acts of Prevention) as
applicable.
163
Being the government party under the project agreement and only to the extent government is a party to the
project document.
164
whom government effectively controls (for example, as a result of delivering the core services), the focus of the
risk will depend on each of the contracted services and core services and the level of interface between them.
Although government may in theory have a relatively greater level of control than the private party over actions of
government-related parties, the private party is expected to be able to manage wilful damage (by any party)
through appropriate facility design and security services. In other words, government expects the private party to
deliver a solution which accommodates risks associated with the delivery of core services and the governmentrelated parties delivering or using those core services.
165
compensation).
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(c)
industrial action but only to the extent that it directly affects the project
(whether it also affects the relevant project-related industries166 or a significant
segment of them) and the private party can demonstrate that it results directly
from an act or omission of the contracting government party or any of its
employees at the facility/site;167
(d)
a government or court direction to suspend or cease all or any part of the
works because of a native title claim or application or as a result of the
discovery of an artefact (providing the cessation order does not result from a
private party breach of its obligations in dealing with discovered artefacts).
17.4.2
Relief
•
If the threshold requirements are met, then government will pay the private party the
reasonable additional costs incurred by the private party as a direct result of the
Intervening Event less any insurance proceeds paid or payable to the private party for
the loss or damage168. The amount of compensation will be determined, and the
financial model adjusted, in accordance with the service fee adjustment principles set
out in section 18 (Payment provisions).
•
Government has the option of compensating the private party by:
•
(a)
an adjustment to the service fee;
(b)
a lump sum payment; or
(c)
subject to the private party's agreement, extending the operating term.
Where option (a) is adopted and the amount the private party must fund up-front is
above a specified threshold, the private party must use its best endeavours to obtain
competitive funding for such costs. If, having used its best endeavours, the private
party is unable to obtain funding acceptable to government, government will pay for
those costs by way of a lump sum payment.
17.5
Alternative arrangements
During the suspension of the private party's obligations government may make alternative
arrangements for the delivery of the suspended services. The allocation of risks
associated with the delivery of any alternative arrangements will be determined on a
project-by-project basis depending on the nature of the additional services and their
interface with the existing contracted services and the nature of the event leading to the
suspension.
166
167
Industrial action that is caused or motivated by opposition to PPPs will be deemed not to be the direct result of
a government act or omission.
168
Project Co will be required to make a claim under its insurance policy for any damage or liability arising as a
result of the compensable event occurring. Project Co will not be permitted to remedy the damage prior to lodging
a claim with the insurer unless expressly permitted by the State.
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17.6
Cessation of the Intervening Event
The private party must notify government immediately after it ceases to be prevented from
performing its obligations as a result of an Intervening Event. The private party must
continually update information previously provided to government in respect of the
Intervening Event as and when circumstances change or as reasonably directed by
government.
17.7
No effect on government's step-in rights
The private party's right to relief arising from an Intervening Event does not affect
government's step-in rights for an emergency situation.
18. Payment provisions
Principle
The payment mechanism will provide for deductions from the service fee to be made for
sub-standard performance. The level of deduction will reflect the severity of the
performance failure.
18.1
Service payment
18.1.1
Service fee
The service fee may be made up of sub-elements reflecting particular categories of
expenses faced by the private party (both fixed and variable), but collectively these will
comprise a single service fee payable for each unit of service. All payments of the service
fee by government shall be made in arrears.169
18.1.2
Whole of service fee to be abatable
No sub-element of the unitary service fee should be such that it is always received by the
private party regardless of its performance or that it is immune from abatement for
169
In some very limited circumstances, there may be specific components of a project’s construction costs that
may be highly uncertain, leading to those components being highly priced in bids. In these circumstances,
government may hope to obtain a better value-for-money outcome by including a “provisional sum” for that
construction component in the service fee, which represents the expected cost of that component but is subject to
adjustment once the actual cost becomes known during construction. If it is proposed that provisional sums be
included, care is needed to ensure that the component of the works to which the provisional sum relates is clearly
and comprehensively defined, the costs incurred in delivering the component of the works to which the provisional
sum relates will be identifiable as a discreet component of the total construction costs (this may not be possible
unless the construction contractor enters a separate subcontract for those works), and the project agreement
contains a clear and robust process for determining the actual amount payable by government in respect of the
relevant component of the works - for example, a tender process to engage a subcontractor to perform the works,
with both government and the private party having a role in evaluating the tenders.
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particular service failures.
However, government may consider exempting the
lifecycle/maintenance component of the service fee depending on the project’s funding
proposal (in particular, the associated reserve costs).
18.1.3
Calculating actual service fee
For any given period the service fee should be calculated in accordance with a formula
commencing with the pre-agreed amount payable for the full performance of services in the
period less amounts for:
(a)
Quality Failure abatement;
(b)
the sum of abatement amounts for each Availability Failure and Incident Failure;
(c)
the repeated failure abatement amount (if any);170 and
(d)
any utility volume adjustments.
18.1.4
Maximum amount deductible for service failure
The maximum amount that can be deducted in any given payment period should be no
more than the entire service fee for a payment period. If the operation of the payment
mechanism results in a negative amount for that payment period it will be deemed to be
zero.
18.2
Payments
18.2.1
Invoicing
•
If government disputes the private party's claim for payment it may notify the private
party of the amount that government considers it should pay and why it differs from the
private party's claim. Government will pay any undisputed part of the payment on the
date that payment is due.
•
If government's payment notice is issued after the private party's claim is paid,
government may deduct the amount by which the payment made to the private party
exceeded the amount in the government's payment notice from the amount due for the
next payment period.
•
Payment of moneys by government to the private party will not of itself be evidence
that any works or services have been carried out in accordance with the project
agreement.
•
Any late payment of amounts that are properly due and payable (including a previously
disputed amount where the dispute is resolved in favour of the private party), will incur
interest at a pre-agreed default rate.
•
All payments will be made in arrears.
170
To the extent that abatement amounts ratchet up for repeated failures. These failure types are defined and
discussed further in section 14 (Service requirements and specifications).
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18.2.2
Set off
•
Government may set off amounts payable to the private party under the project
documents against any amounts owing by the private party to government or paid by
government on the private party's behalf.171
•
The private party must make all payments under the project documents without setting
off, counter-claiming or deducting any amounts.
18.3
Indexation
The payment mechanism will include provisions for indexing the service fee. This will be
determined on a project-by-project basis.
18.4
Service payments for phased
completion
•
As discussed in section 11 (Construction and commissioning) certain projects
(especially linear infrastructure projects) may require phased service commencement.
•
In these circumstances, either:
•
(a)
Commercial Acceptance, and therefore commencement of payments, will only
occur when all the facilities in the scheme reach the required output specification;
or
(b)
Commercial Acceptance of each facility in the scheme (or each part of the
facility) will take place as it reaches the required output specification, such that
government pays for elements of the service as they come on stream.
Although the first option is intended to incentivise the private party to complete all of
the facilities as soon as possible, government would effectively be receiving a service
(in the form of the completed facilities) for which it is not paying. This will generally
come at a cost and unless the time period between delivery of the first facility and the
last facility is relatively short, this approach may not delivery value for money. The
second approach can be adapted to more fully incentivise the private party with
government withholding a percentage of the payment to be made for services
delivered in relation to the completed facilities until all facilities (or all parts of a facility)
reach Commercial Acceptance.
18.5
Service fee adjustment principles
The following service fee adjustment principles apply to adjustments to the service fee
which result from specific agreed events that are explicitly set out in the project
agreement.172
171
By way of clarification, this does not include amounts owing by the private party that are in dispute (for the
duration of the dispute).
172
Examples of such events which may require adjustment of the service fee include agreed modifications, force
majeure events, compensation events, relief events or re-financing gains.
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18.5.1
Overriding principles
•
The overriding factor in determining the adjustment principles upon which the private
party is effectively compensated, is government receiving value for money.
Government has the right to appoint an independent party to audit any information
prepared by the private party in this regard.
•
Government reserves the right to pay a lump sum for any adjustment which would
otherwise result in an increase in the service fee and to receive by way of payment
from the private party the benefit of any adjustment that would otherwise result in a
decrease in the service fee.173
•
The private party will not be entitled to compensation for any indirect costs.
18.5.2
Recurrent expenditure
The private party will provide government with a written reasonable quote for the cost or
saving applicable to an event requiring an adjustment in recurrent expenditure (which
quote will not include any private party profit margin).174.
To the extent that the quote is not acceptable to government, government may appoint an
Independent Reviewer to review the quote and if appropriate, provide an alternative cost
estimate. Where this occurs, the cost or saving applicable to the event will be the lower of
the private party's quote and the Independent Reviewer's estimate.175
18.5.3
Financing costs
If any debt or equity is required to fund an event requiring an adjustment then the service
payment will be adjusted according to the following principles:
(a)
if the funding is provided by a third party financier any necessary increase in the
service fee will reflect the minimum amount required to amortise the new debt by
the expiration of a specified repayment period taking into account interest and
indexation;
(b)
if the funding is to be provided by subscription of shares in the private party or new
loans by its shareholders, any necessary increase in the service fee will generally
be the minimum amount required to give new equity a return not greater than the
prevailing market rate of return for projects of a similar risk profile over the
remaining period of the project term (to be determined on a project-by-project
basis).
173
In determining the method of payment it will require from the private party, government will give due regard to
the form in which the private party is receiving the benefit (including, the availability of financing at the time).
However, in making such determination government must ensure value for money is delivered.
174
Government will only compensate the private party for subcontractors' reasonable profit margins.
175
This is subject to the private party's right to refer the issue to dispute resolution.
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18.6
Variations to financial model
18.6.1
When will the base case model be varied?
The base case financial model (as at financial close) may only be varied on the occurrence
of certain specified events and in accordance with the principles and procedures set out
below and only to the extent that such variation events result in an adjustment to the
service fee over the remaining contract term.
18.6.2
Variation events
The variation events will generally include:
(a)
modifications, as discussed in section 22 (Modifications);
(b)
change of law, as discussed in section 23 (Change in Law);
(c)
force majeure event, as discussed in section 24 (Force majeure);
(d)
benchmarking/market testing, as discussed in paragraph 19.3.4 of section 19
(Review and market testing of services);
(e)
insurance, as discussed in section 26 (Insurance);
(f)
government requested acceleration of the construction works;
(g)
compensation events, as discussed in paragraph 12.3 of section 12 (Relief for
construction delays) and paragraphs 17.3 and 17.4 of section 17 (Intervening
Events during the operational phase);
(h)
refinancing, as discussed in section 33 (Re-financing gain); and
(i)
other events requiring an adjustment to the periodic service fee as specified under
18.6.3
Principles for variations to base case financial
model
Where a variation event occurs, the base case financial model will be varied taking into
account only the following:
(a)
the changes to the private party's incremental costs directly resulting from the
variation event, in light of certain specified parameters such as minimum debt
coverage ratios and the internal rate of return (as agreed in the base case financial
model); and
(b)
any changes to the periodic service fee made in accordance with the project
agreement.
18.6.4
•
Procedure for variations to base case financial
model
Promptly after it becomes aware of a variation event, the private party must submit a
modified base case financial model for endorsement by government giving full details
of the assumptions and calculations used.
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•
The private party must provide government with full and complete access to any
electronic copies of the calculations required to amend the base case financial model.
In addition, the private party must promptly provide any other additional information
requested by government in relation to the variation event and any necessary
amendments to the base case financial model.
•
Government may:
•
(a)
agree with the variation event;
(b)
disagree with all or any aspect of the submission by the private party; or
(c)
require the modified base case financial model to be reviewed by an independent
expert in accordance with the dispute resolution procedures.
Once the modified base case financial model is agreed or is determined by the
independent expert, the modified base case financial model will be endorsed and
become the base case financial model under the project agreement.
18.7
Taxes
18.7.1
General tax liability
The private party is responsible and indemnifies government for all taxes payable pursuant
to the project documents and any transactions evidenced or contemplated by them.
However, government will generally reimburse the private party for any land tax and stamp
duty payable to the Victorian government.
18.7.2
Rates and taxes
Where rates and taxes are assessed in respect of the site, the private party must pay those
when due (if separately assessed) or, if not separately assessed, must pay a portion of the
rate or tax based on the proportionate area of the site to the total area assessed.
However, government will consider on a project-by-project basis, and based on a value for
money outcome, reimbursing the private party for part or all of those costs.176
18.7.3
Goods and services tax
If a goods and services tax (GST) is payable on a taxable supply made under the project
documents then the party paying for that taxable supply must also pay the GST amount
(having accounted for any input tax credit entitlement).
176
Particular attention will be given to whether the design submitted, or the uses proposed (e.g. ancillary
commercial uses), by the private sector party is able to influence the quantum of rates charged in respect of the
site. Rates are generally pass-through costs save that, to the extent that the private party's bid solution can
influence the quantum of rates charged, government will consider reimbursing the private party for part or all of
these costs if a value-for-money outcome is being achieved.
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19. Review and market testing of
Services
Principle
Review and market testing of the cost of specified soft services is used to keep service
costs competitive over the long life of the project and ensure government achieves value
for money.
19.1
Reviewable services
19.1.1
Types of services that can be reviewed/market
tested
For the majority of projects, only ‘soft services’ (such as catering, cleaning, security and IT
services which do not involve a large capital component) are appropriate for either review
by government or market testing. This is because price comparison with a potential
alternative subcontractor is generally only feasible where capital costs are excluded from
the service being compared.177
19.2
Review of soft services
19.2.1
Review by agreement
•
At agreed intervals,178 the private party can submit (and must submit if so required by
government) an offer for the provision of specified soft services for the next interval.
The offer must provide a comparison to market prices and detail all relevant factors
and inputs into the proposed price on an open-book basis.
•
If an offer is submitted within the required period prior to expiration of the previous
interval, government will negotiate exclusively with the private party for [two] months179
and accept or reject the offer within [one further] month.
•
If the private party is required to submit an offer but fails to do so or the parties are
unable to reach an agreement during the period of exclusive negotiation, either the
private party or government may elect to refer the matter for dispute resolution.
However, if government elects to utilise the competitive tendering provisions (see
below), the parties will not have recourse to the dispute resolution process.
177
Where utility costs represent a relatively significant portion of the project operating costs, government may
consider making certain utility services (e.g. electricity, gas and water) subject to review/market testing.
178
Usually between five to seven years, depending on the type of service being reviewed. In a falling or highly
competitive market, a shorter time interval may provide better value for money.
179
Or such other period agreed by the parties at the time.
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•
The private party must continue to provide the services during the tender process on
the same terms as during the previous interval.
19.2.2
Cost sharing arrangement
Any decrease in the cost of providing the benchmarked services will, depending on a value
for money considerations, either be shared on a percentage basis to be agreed in light of
the project specifics, or fully retained by government.180 Although government may on
individual projects fully bear any cost increases where it is value for money it will seek to
substantially but not fully bear the increase.181 The respective percentages may be items
upon which the private party is required to bid.
19.3
Market testing
19.3.1
Competitive tender
•
The private party will be required to market-test the reviewed services by calling for
tenders from at least three independent tenderers where:
(a)
in the event it has been required to, the private party fails to make an offer within
the agreed time;
(b)
government rejects the private party's offer or the parties fail to reach agreement
within the exclusive negotiation period (and the matter is not referred to dispute
resolution);
(c)
the difference between the existing price and new offer is greater than an agreed
percentage;182
(d)
government elects to market-test the offer; or
(e)
the outcome of any dispute resolution process related to any exclusive
negotiation recommends or requires market testing.
•
The private party must continue to provide the services during the tender process on
the same terms as during the previous interval.
•
Government and the private party will agree the procedures for market testing.
However, at a minimum, the tender process must:
180
(a)
include tenders from at least three independent tenderers;
(b)
be open, transparent and inclusive with agreed evaluation criteria;
(c)
subject to these requirements, be managed by and conducted at the cost and
risk of the private party;
Generally, government will look to share in any decrease on a 50:50 basis.
181
Where government seeks to share it, less than 100 per cent of the increase in the cost of providing the
reviewed soft services will be passed through to government. This cost sharing approach reflects the fact that the
review by government process is likely not to result in costings which are as precise as performing a full market
testing process and also incentivises the private party to control its costs.
182
Percentage to be agreed on a project-specific basis.
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(d)
be conducted so that government has an observational role;
(e)
avoid actual or perceived conflicts of interest arising (e.g. if a company
associated with the private party or its shareholders or its principal operating
subcontractor intends to bid, then an independent tender process manager
should be appointed);
(f)
be overseen by a project team made up of representatives of both the private
party and government;183 and
(g)
if government requires, be certified as compliant with these requirements by an
independent probity auditor.
19.3.2
Prospective tenderers
Government must be satisfied that all prospective tenderers are of good character and
have appropriate financial standing and technical capacity.184
19.3.3
Call for tenders
The call for tender must be accompanied by a draft services provider subcontract from the
private party (approved by government) which the successful tenderer will be required to
enter into, so that the service obligations are the same in all material respects as the
current service subcontract (except for the fee, term or any other provision agreed by
government).
19.3.4
Outcome
•
Government may either approve any tender made under the competitive tender
process or accept the offer from the private party arising from the benchmarking
process.
•
The service payment will then be adjusted in accordance with agreed cost sharing
arrangements185 and with such modifications as required to reflect the terms and
conditions of the approved tender or accepted offer.186
•
If the private party enters into a subcontract with the approved tenderer on the terms of
the approved tender, the services provider subcontract will be deemed to be approved
by government under any replacement of subcontractor approval provisions.
•
If government and the private party are negotiating in good faith or a dispute is being
resolved through the dispute resolution procedures regarding government approval of
a tender or the acceptance of the private party's offer, then the private party will
183
Although government may have a role in overseeing/observing the tender process, it is simply to ensure it is
compliant with agreed process requirements. The risk and cost of carrying out the tender process and appointing
appropriate subcontractors, rests with the private party.
184
Appropriate interface arrangements between operators will need to be considered on a project-by-project
basis.
185
186
The market testing process will result in a 100 per cent pass through of the increase or decrease in the cost of
providing the market tested services whether this is determined through the approved tender or the accepted
offer.
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continue to provide the market tested soft services at the existing price until that
negotiation or dispute is resolved.
19.3.5
•
Cost sharing arrangements
Any decrease in the cost of providing or subcontracting the relevant services under the
approved tender or the accepted offer (as the case may be) will, depending on value
for money considerations, either be shared on a percentage basis to be agreed in light
of the project specifics, or fully retained by government.187 Although government may
on individual projects fully bear any cost increases where it is value for money it will
seek to substantially but not fully bear the increase.188 The respective percentages
may be items upon which the private party is required to bid.
187
Generally, government will look to share in any decrease on a 50:50 basis. However, this may vary on a
project-by-project basis.
188
Where government seeks to share it, less than 100 per cent of the increase in the cost of providing the
benchmarked soft services will be passed through to government. Although government understands the need to
share such costs increases, it must also ensure that the private party is fully incentivised to continually control its
costs and to mitigate against any cost increases.
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20. Subcontractors
Principle
All subcontracts and material sub-subcontracts must be in an agreed form. The main
construction and operations subcontracts may not be amended without government
consent. Amendments to other material subcontracts (including, sub-subcontracts) which
may impact on government's rights or lessen the ability of the private party to perform its
obligations, may not be made without government consent.
The private party is not relieved of any of its obligations and liabilities under the project
agreement by subcontracting the performance of the contracted services.
20.1
Subcontracts - generally
20.1.1
Timing of appointment of major subcontracts
189
Government will, as a standard position, require the private party to appoint the main
construction and operational services subcontractors at contractual close. However, in
exceptional circumstances, this may be a condition precedent to financial close.
20.1.2
Construction and operations subcontracts to be in
agreed form
•
The construction and operations subcontracts entered into by the private party (in
respect of all or any part of the contracted services) must be in a form agreed by
government.190
•
Provided there is compliance with all other requirements set out in this section 20,
government's prior written approval to every subcontract will not be required.
20.1.3
Effects of unapproved amendments
Government will not be bound by, and none of its rights (under the project agreement or
otherwise) will be affected by, any amendment to, termination, assignment or replacement
of, any subcontract entered into by the private party, which has not been approved by
government.191
189
A breach of any of the subcontractor provisions (including unauthorised amendments to subcontracts) will
constitute an Event of Default, see Default regime in section 27 (Default).
190
Details of the type of provisions required in material subcontracts (which includes the main construction and
operations subcontracts) are more fully set out in paragraph 20.2.3.
191
See 20.3 in respect of amendments to material subcontracts.
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20.2
Additional material subcontract
requirements
20.2.1
Material subcontracts
•
The project agreement will specify what type of subcontracts (including subsubcontracts) are to be regarded as 'material'. They will usually include subcontracts
above a specified threshold value, but may also include subcontracts of a specified
duration and subcontracts for the provision of particularly important or sensitive
services (such as security services in a prisons contract).
•
The threshold value will depend on the nature and value of the project and whether the
subcontract is for construction or operation. However, it is effectively intended to
represent a material part of the works or operational services (as appropriate).
•
Material subcontracts will be deemed to include the main construction and operations
subcontracts.
20.2.2
Provision of material subcontracts
The private party must promptly provide to government a copy of each material
subcontract entered into.
20.2.3
Terms and conditions of material subcontracts
Each material subcontract must include192:
(a)
a covenant requiring entry into a side deed (if requested by government) and
collateral warranty with government and for the assignment, at government's
option, of the benefit of the material subcontract to government if the project
agreement is terminated;
(b)
an undertaking from the subcontractor to provide such consents and information as
may be required under the project agreement in respect of its employees;193; and
(c)
provisions recognising and permitting government to exercise its step-in rights and
any of its rights arising as a result of a default or probity event.194
In addition, the main construction and operating contracts must include:
(a)
an undertaking from the subcontractor to rectify any defects;
192
These reflect government's minimum requirements and are not intended to be an exhaustive list of material
subcontract requirements. Additional requirements or amendments to the requirements may apply on a projectby-project basis.
193
Employee-related requirements will be more fully detailed in the project agreement on a project-specific basis.
194
A probity event will be defined to include an event, matter or thing that relates to a subcontractor and has a
material adverse effect on the public interest and public confidence in the facility or which involves a material
failure by the subcontractor to achieve or maintain standards of ethical behaviour reasonably expected of an
entity involved in a government project. See section 37 (Probity).
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(b)
an undertaking from the subcontractor to provide such guarantees, warranties and
manuals as are required by the private party; and
(c)
provisions which give full effect to the provisions of the project agreement relating
to intellectual property and moral rights.
20.2.4
Collateral warranty
No material subcontractor195 is to be engaged in connection with the works or contracted
services without having delivered to government a collateral warranty196 in substantially the
form set out in the project agreement.
20.3
Amendments to material subcontracts
•
The main construction and operation subcontracts (to be determined on a project-byproject basis) are not to be amended, terminated, assigned or replaced without
government's prior written consent.
•
The other material subcontracts are also not to be amended, terminated, assigned or
replaced without government's prior written consent where such amendment may
impact on government's rights or lessen the ability of the private party to satisfy its
obligations under the project agreement.
•
Where prior government consent is not required, the private party must give
government prompt notice of the termination or material amendment of a material
subcontract.
•
The private party must not, without government's prior written consent, compromise or
waive any claim it may have against a material subcontractor.
20.4
Side deed
A side deed (substantially in a form agreed by the parties and set out in the project
agreement) must be provided in respect of the construction and operations subcontracts.
20.5
•
195
Subcontractor requirements
The private party must ensure that each subcontractor is reputable and has access to
sufficient experience, expertise and ability to perform its obligations in accordance with
the project documents.
A material subcontractor is a subcontractor which enters into a material subcontract.
196
The collateral warranty constitutes a direct covenant from the subcontractor in favour of government with
respect to its performance of relevant obligations including, without limitation, maintenance and non-vitiation of
insurances, provision of information regarding defaults and claims, and the continuing performance by the
subcontractor of its obligations in certain circumstances for the benefit of government. This is a necessary
element of government's 'security' package, given that it is dealing with a special purpose vehicle which itself
does not have the necessary resources and competencies to perform the project. In addition, since government
consent to all subcontracts is not required, it needs direct rights against the subcontractors (such as making
claims in respect of defects) which are not dependent on the subcontract or upon government exercising its stepin rights.
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•
Key material subcontractors must not be replaced without government's prior written
consent.197
•
In respect of Change in Control in material subcontractors, refer to section 21.198
20.6
Private party's obligations in respect of
subcontracts
The private party must:
(a)
comply with its obligations and enforce the terms of any subcontract as necessary
to comply with the project obligations; and
(b)
advise government of any claims made by a material subcontractor (in respect of
outstanding payments or otherwise).
20.7
Subcontractors appointed by financiers
The subcontractor requirements set out in this section 20 also apply to any substitute
subcontractor appointed by financiers under their funder's direct agreement.
20.8
No relief to private party by
subcontracting obligations
The private party is not relieved of any of its obligations and liabilities under the project
agreement as a result of subcontracting any of the contracted services or government's
approval of any subcontractor. The private party will, in each instance, be responsible for
the subcontractors' performance.
20.9
Probity
The private party must use reasonable endeavours to ensure that all of its employees,
subcontractors and authorised officers (and those of all material subcontractors) are
competent, experienced, reputable, hold relevant licences and are of good character.
197
It is intended that this generally only capture the main construction and operating subcontractors. However,
depending on the importance of the other material subcontracts, this requirement may be extended to other
material subcontracts.
198
Key material subcontractors must not undergo an unauthorised Change in Control. Failure to rectify the
situation by the private party may constitute an Event of Default. See section 21 (Change in Control) for further
details.
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21. Change in Control199
Principle
With the exception of transfers to related bodies corporate and of listed shares and
interests, the private party must obtain prior government consent to any Change in Control
of the private party or any member of the private party's group and to any change in the
private party group's structure (in each case, from the situation as at contract signing).
21.1
Warranty as to Control
The private party will warrant the legal and beneficial ownership of each member of the
private party group200 and the private party group structure as at contract signing.
21.2
Change in Control of private party
21.2.1
Prior consent
•
Except as set out in paragraph 21.2.2, the private party must not permit any
Change in Control of any member of the private party group or material
subcontractors201 without government's prior consent (not to be unreasonably
withheld). It will be reasonable for government to withhold its consent if any of the
conditions in paragraph 21.3 (Consent may be withheld) apply.
•
Failure to obtain this consent will give rise to a government right of immediate
termination as a Default Termination Event (where it relates to the private party) or
a default subject to cure as an Event of Default (where it relates to key
subcontractors or other relevant related bodies corporate such as a parent
guarantor). Where it is an Event of Default, the private party may be required to
cure the event by replacing the subcontractor or parent guarantor within a
199
'Control' means the ability or capacity to determine the outcome of decisions about the relevant entity's
financial and operating policies.
'Change in Control' means a change;
(a)
in the board of directors or decision making control or influence;
(b)
in the parties who are able to cast (or control the casting) of 20 per cent or more of the votes at a general
meeting; or
(c)
in the shareholding which affects 20 per cent of the shares.
200
The constitution of the private party group will be defined on a project-specific basis. However, it will generally
include all relevant related bodies corporate of the private party as at contract signing or as otherwise approved
by government during the contract term in accordance with Change in Control provisions.
201
In certain projects, government may require some control over key material subcontractors ( e.g. for security or
other public interest reasons or where government has placed particular importance on the identity, ability or
financial strength of the original subcontractor when selecting the winning bidder). In these circumstances,
Change in Control provisions relating to key material subcontractors will be introduced.
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reasonable period. The private party must notify the State of any change in the
legal and beneficial ownership of the private party, its relevant related bodies
corporate and key subcontractors (i.e. even where the State’s consent is not
required because it is not a Change in Control or because it falls in the exception
in paragraph 21.2.2).
21.2.2
Exception to consent requirement
Government's prior consent is not required for a Change in Control of any listed equity
interests202 or any transfer of equity interests by a party to its related body corporate.
21.2.3
•
Publicly listed holding companies
If a Change in Control occurs due to the transfer of listed shares or interests in an
entity with ultimate control of any member of the private party group or, where relevant,
a key subcontractor:
(a)
the private party must promptly notify government of such event (providing full
details); and
(b)
government must notify the private party within a specified period whether it
accepts or rejects the Change in Control.
•
If government rejects the Change in Control, the private party must procure that the
relevant person ceases to have the voting power or control or to hold the share capital
or other equity interests (giving rise to the Change in Control), within a specified time.
Failure to so procure will give rise to a government right of immediate termination as a
Default Termination Event (where it relates to the private party) or a default subject to
cure as an Event of Default (where it relates to key subcontractors or other relevant
related bodies corporate such as a parent guarantor). Where it is an Event of Default,
the private party may be required to cure the event by replacing the subcontractor or
parent guarantor within a reasonable period.
•
Government may, but is under no obligation to, provide pre-approval to a Change in
Control if the private party so requests and provides sufficient information to
government.
21.3
Consent may be withheld
Government may withhold its consent to a Change in Control if it is of the reasonable
opinion that one or more of the following conditions apply:
(a)
the private party has not provided it with full details of the proposed Change in
Control and any further information requested by government;
(b)
the Change in Control is to take effect prior to the second anniversary of
Commercial Acceptance (where it relates to the private party only);
(c)
the proposed entity:203
202
Equity interests includes shares or units.
203
Proposed entity to be considered and defined on a project-specific basis.
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(i)
is not solvent and reputable;
(ii)
has an interest which conflicts in a material way with the interests of
government and is involved in a business or activity which is
incompatible or inappropriate in relation to the construction or operation
of the facility; and
(iii)
does not have a sufficient level of financial and technical capacity;
(d)
the proposed Change in Control is against the public interest;
(e)
the proposed Change in Control would increase the level of risk or liabilities
to government; or
(f)
the proposed Change in Control would impact adversely on the ability or
capacity of the private party to perform its obligations under the project
agreement or any other project documents and, if applicable, of the material
subcontractor to perform its obligations under the material subcontract.
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22. Modifications
Principle
Government may initiate modifications to the facility and the service specifications at any
time during the contract term. The cost of government-initiated modifications will be borne
by government.
The private party may initiate modifications to the facility at any time during the contract
term. Government will have complete discretion as to whether and on what basis it
accepts a proposed modification. If accepted, the modification will be funded by the private
party.
22.1
Government-initiated modification to
the facility
204
22.1.1
Right to request
Government may at any time request a modification to the facility by serving a notice on
the private party.205
22.1.2
Private party's proposal
•
Within a defined period after government's request, the private party must advise
government of the cost of preparation of a proposal for carrying out the requested
modifications. Government will either accept or reject this quote.
•
If government rejects the quote, it may:
•
204
(a)
require the private party to submit a further price;
(b)
refer the issue to an independent expert for dispute resolution; or
(c)
advise the private party that it will not proceed with the modification.
If government accepts the quote for the proposal, the private party must provide
government with its proposal for carrying out the requested modification, including
details of any effect on the facility and delivery of the contracted services, necessary
Government-initiated modifications to services and service specifications are dealt with in paragraph 22.3.
205
Government will provide the private party with sufficient detail of the required modification to enable the private
party to quantify the effects and costs in its proposal (see paragraph 22.1.2). If the private party considers a
government request constitutes a modification, the private party will be required to notify government of this. A
determination will then be made as to whether the request constitutes a government-initiated modification and
whether government wishes to proceed with that request.
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capital expenditure, any impact on recurrent costs (on a fully transparent basis) and,
where necessary, how the private party will fund the costs.206
22.1.3
•
Cost of modification works
The cost of carrying out government-initiated modification works will be borne by
government. Government will determine (and advise the private party when notifying it
of its modification request) whether it:
(a)
requires the private party to initially fund the modification works (with government
paying for that cost through an adjusted service fee over the contract term). This
requirement will be subject to the last bullet point in this paragraph 22.1.3;
(b)
will pay the initial costs directly through a one-off capital expenditure payment; or
(c)
will, subject to the private party's agreement, extend the operating term.
•
The private party will only be compensated for its reasonable costs arising as a direct
result of carrying out the modification works. The private party must provide
government with all quotations it receives in relation to carrying out the proposed
modification on an open-book basis.
•
During the bid phase of the project, the private party will be required to bid fixed or
maximum margins and other on-costs that the private party or its subcontractors may
apply to the cost of modifications during both the design and construction phase and
the operating phase. These will be taken into account in evaluation of the bids and,
once agreed by government, will be included in the project agreement.
•
The private party will not be entitled to apply any margin or other on-costs to the price
charged to the private party (by its subcontractor) for modifications up to a specified
threshold. This threshold will be determined on a project-specific basis and will
depend on the value of the project, but is intended to capture those modifications for
which the private party does not require additional resources or which do not materially
affect the private party's project risk profile.
•
Allowance will be made for the builder's margin for profit up to the relevant bid margin
(in respect of the modification works only) and any incremental changes in overhead,
management and administration costs (which are to be provided at no more than the
bid rates).
•
An allowance may also be made for delay costs or prolongation costs arising directly
from the variation (subject to there being no double counting).
•
Any compensation amount will be reduced by an amount equivalent to:
(a)
expenditure that was anticipated to be incurred to replace or maintain assets that
have been affected by the government modification and which will be avoided as
a result of the modification; and
(b)
any previously planned capital costs that will no longer be incurred due to the
modification.
206
This is not an exhaustive list of everything the private party must provide for any one project but a general
description of the key items.
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•
The private party must provide evidence that it has used reasonable endeavours
(including, where practicable, the use of competitive quotes) to ensure that its
subcontractors minimise increases in costs and maximise any reduction in costs.
•
Where government requires the private party to fund the modification and the
modification requires capital expenditure in excess of a specified limit,207 the private
party must use its best endeavours to obtain competitive funding for the cost of the
modification works. However if, having used its best endeavours, the private party is
unable to obtain funding acceptable to government, the private party does not have to
carry out the modification unless government pays up front for the cost.
22.1.4
Acceptance or rejection of a proposal
Government may, at its discretion, accept (with or without conditions) or reject the private
party's proposal or withdraw its modification request.
22.1.5
•
Failure to agree
Where the parties fail to agree upon the cost of the modification works and government
still wishes to proceed with the modification, the cost will be determined either by:
(a)
the independent expert during the construction phase;208 or
(b)
competitive tender209 during the operating phase.
•
Where the cost is to be determined by competitive tender, the private party must
appoint the tenderer whom the parties agree (or an independent expert determines)
offers best value for money.210 In the event that government agrees to proceed, it will
compensate the private party for the cost in accordance with the tender which it is
agreed or determined offers best value for money.
•
Where the parties fail to agree on any aspect of the private party's proposal (other than
the cost of the modification works during the operating phase), the matter may be
referred to an independent expert for resolution.
22.1.6
Government's options following expert
determination
Where the expert determination or tender cost is not to government's satisfaction,
government may elect not to proceed with the modification works or to carry out the
modification itself.211
207
To be agreed on a project-specific basis but is intended to be set at a fairly low level in light of the value of the
project.
208
See section 32 (Dispute resolution).
209
The private party will call for tenders (for a fixed price for carrying out the works) from a list of three contractors
agreed with government or determined by an independent expert.
210
The value-for-money assessment will have regard to, amongst other things, the experience, skills, reputation
and financial capacity of each tenderer.
211
Where government carries out or appoints a third party to undertake the modification works, it will compensate
the private party for costs directly incurred by the private party as a result of such works.
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22.1.7
Obligation to carry out modification works
•
Where a proposal for carrying out the modification is agreed by the parties or
government wishes to proceed with a modification in accordance with the independent
expert determination or tender proposal, the private party must implement the
modification.
•
The private party must continue to provide the contracted services except to the extent
that it is prevented from doing so as a consequence of implementing the modification.
22.1.8
Adjustment to service fee
•
Any adjustment to the service fee (to reflect the modification cost) must be agreed by
the parties or determined by an independent expert in accordance with the service fee
adjustment principles.212
•
Any payment made to the private party by government (as a result of a modification)
will be on a whole-of-life basis (i.e. it will take into account the positive and negative
effect of the modification on the private party's recurrent expenditure, as well as the
capital cost of any works).
22.1.9
Third party costs
Where government does not proceed with a government-initiated modification, it will pay
the reasonable, fully audited third party costs incurred by the private party in preparing its
proposal up to the amount of the quote given by the private party under section 22.1.2
(Private party's proposal).
22.1.10 Works that do not constitute modifications
Government-initiated modifications will not include:
(a)
during the operational phase, any minor works;213
(b)
the development and refinement of the design documentation in accordance with
the project agreement;
(c)
during the design and construction phase, minor design changes to the facility
works of a non-structural nature which are requested by government which do not,
in aggregate, increase the capital cost of the works214 or cause a delay to the
achievement of completion of the facility by the Date for Commercial Acceptance;
(d)
any refurbishment and maintenance works required during the operational phase;
or
(e)
any other modifications required to ensure the facility is fit for its intended purpose.
212
213
See paragraph 22.4 (Minor works).
214
Government may, in certain projects, identify a monetary threshold for these purposes.
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22.2
Private party initiated modification
works
22.2.1
Private party's right to request modification
•
The private party may at any time request modifications to the facility works provided
they are consistent with the project agreement and the functional brief and do not have
an adverse effect on the facility or the delivery of the contracted services (including the
core services).
•
The private party must demonstrate that it has the appropriate financial and technical
resources to undertake the proposed modification.
22.2.2
Government's response
Government may not unreasonably withhold its approval to a private party proposed
modification. However, it may accept the proposal subject to conditions and amendments.
Where government does so, the private party may either accept them or withdraw its
proposal.
22.2.3
Private party's right to proceed
The private party may carry out the modifications only if its proposal is approved by
government. Where it is so approved, the private party must implement the modification at
its own cost, in accordance with its proposal and otherwise in accordance with all the
design, construction and commissioning provisions of the project agreement as if it were
part of the original works.
22.2.4
No extension of time
No extension of time (to the Date for Technical Completion, the Date for Commercial
Acceptance, the Sunset Date or any other milestone date) will be given to the private party
as a consequence of any private party-initiated modification unless government considers
(at its sole discretion) that to do so would deliver value for money.
22.2.5
Government to share in any efficiency or saving
Government will share in any revenue upside and/or saving arising from the modification
(whether as a result of a decrease in the private party's capital expenditure or recurrent
costs or the subcontractors' costs and having deducted the private party's costs in
implementing the change). Sharing will occur in accordance with a mechanism to be
agreed as part of the project agreement. Any service fee reduction (reflecting the saving
being shared) will be set in accordance with the service fee adjustment principles.215
215
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22.2.6
Modifications required due to a Change in Law
Government cannot reject a modification required by the private party to comply with a
Change in Law. The costs of such modifications will be dealt with in accordance with the
Change in Law provisions.216
22.3
Government-initiated modifications to
service standards
22.3.1
Government's right to request modification
Government may at any time request an addition or modification to the specified service
standards (i.e. key performance indicators (KPIs)) provided it has first consulted with the
private party.
22.3.2
Private party's proposal
Within a defined period from government's request, the private party must provide
government with its proposal as to how it will implement the modification, the effects of the
proposed modification on the contracted services and the private party's ability to deliver
them, the estimated effect of the modification on the private party's recurrent expenditure
and any necessary adjustment to the service fee.
22.3.3
Obligation to implement KPI modifications
If government agrees with the private party's proposal, the private party must provide the
contracted services to the amended KPI. It must do so in a way which avoids or minimises
any disruption to the delivery of the contracted services to specification.
22.3.4
Failure to agree on private party's proposal
If the parties, after making reasonable endeavours, cannot agree upon the private party's
proposal, the matter will be referred to an independent expert for resolution.
22.3.5
Adjustment to the service fee
The cost of implementing a government-initiated KPI modification will be borne by
government through an adjustment to the service fee. Any adjustment to the service fee
must be made in accordance with the service fee adjustment principles.217
22.3.6
Government sharing of any benefit arising from a
modification
Government will share in any cost savings to the private party arising from a KPI
modification (having deducted from the saving the private party's costs in implementing the
change) by way of a reduced service fee in accordance with a mechanism to be agreed as
216
See section 23 (Change in Law).
217
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96
part of the project agreement.
principles.218
22.4
Any sharing will reflect the service fee adjustment
Minor works
•
In addition to and notwithstanding the modifications regime, government may elect to
create a minor works regime.219
•
The minor works regime will be utilised by the private party to complete works (Minor
Works), the cost of which fall under specified per event monetary thresholds and
which are considered to be a routine element of administering the relevant social
infrastructure (whether it be a hospital, school etc). Any thresholds will be determined
on a project-specific basis.
•
A minor works regime will only be relevant to works completed during the operational
phase of the project. Minor works requested by government or the operator of the
facility will be deemed to be part of the Services. No additional margin or other costs
will be payable to the private party for the minor works.
•
If minor works are requested, the private party must cost them on an open-book basis.
•
Minor works will not impact on the risk transfer between the private party and
government. Although it is envisaged that the minor works will generally be agreed
directly between the facility operator and the facilities management subcontractor.
•
Generally, any overspend of the provisional sum allowed for minor works over the
operating term will be recovered directly by the facilities management subcontractor
from the facility operator on an annual basis. Any annual underspend will be rolled
forward to the next year. Any accumulated underspend will be payable to the State.
218
219
In making this decision, government will consider (inter alia) the level of minor modifications expected during
the operation phase as well as budgetary constraints of the operator.
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23. Change in Law
Principle
Government will compensate for changes in law which exclusively affect the project or
category of project. Government will also share the cost of changes in law which
necessitate significant capital expenditure or operating cost effects not captured through
indexation or benchmarking. Government expects thresholds to be realistic so the private
party is incentivised to minimise the costs of implementing changes in law. Generally,
changes in tax arrangements are to be borne by the private party.
23.1
Scope of Change in Law
23.1.1
Definition
'Change in Law' encompasses the following occurrences after the execution of the project
agreement:
(a)
the enactment of new laws;
(b)
the amendment, repeal or change of any law; and
(c)
any judgment of a relevant court of law which changes a binding precedent.
For these purposes, 'law' means legislation, subordinate legislation, rules and regulations
and policies or guidelines with which the private party is legally required to comply.
23.1.2
Exclusions
Change in Law does not include:
(a)
changes in the way the law is interpreted (except as provided in paragraph
23.1.1(c));
(b)
changes to the Income Tax Assessment Act 1936 (Cth), the Income Tax
Assessment Act 1997 (Cth) and the A New Tax System (Goods and Services Tax)
Act 1999 (Cth);
(c)
changes in law or policy which, as at the date of the project agreement:
(i)
were published or of which public notice had been given (even as a possible
change); or
(ii)
a party experienced and competent in the delivery of services similar to the
contracted services (including the works) would have reasonably foreseen or
anticipated,
in substantially the same form as the change eventuating after the date of the
project agreement;
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(d)
changes in law or policy effected in response to an illegal act or omission by the
private party (other than an act or omission which becomes illegal by virtue of the
change); and
(e)
a change in relation to Part IVAA - Proportionate Liability of the Wrongs Act 1958
(Vic) or its application.
23.2
General Change in Law
23.2.1
Relief for Change in Law
•
Relief for Change in Law220 is limited to changes which:
(a)
require significant capital expenditure (as set out in paragraph 23.2.2); or
(b)
have significant operating cost effects221 not captured through benchmarking or
indexation (hard operating costs) (as set out in paragraph 23.2.3).
23.2.2
General Change in Law as a shared risk and
agreeing suitable thresholds
•
Although change of law is not a risk which the private party cannot control, in practice
the private party is usually in the best position to manage the effects of changes of law
and minimise their impact on the business. For this reason a sharing approach is often
the most equitable way to ensure that the costs of implementing changes in law are
minimised. The advantage of sharing risk in the way described in paragraphs 23.2.2
and 23.2.3. is that this should incentivise the private party to minimise the cost of
implementing the change (as opposed to simply invoicing the government for whatever
it costs), reduce any concern the private party may have that government may take
advantage of the situation and also enable the private party and its financiers to
quantify the private party's maximum exposure.
•
Both the government and the private party should seek to ensure that cost and
adequate risk transfer are balanced as far as possible to achieve the best value for
money on a particular project. The threshold figures agreed and the number of
graduated steps will take into account the size of the project and the impact of other
factors such as the likelihood of environmental and health and safety legislation.222
220
As distinct from project specific Change in Law - see paragraph 23.3 below.
221
Government will only bear the operating cost effects above a threshold (not captured through indexation or
benchmarking) in a core services model project. This principle does not necessarily apply to economic
infrastructure projects.
222
Government hopes that the competitive bidding process will incentivise bidders to accept realistic maximum
thresholds and competitively price general Change in Law risk.
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23.2.3
•
•
Capital expenditure relief
Government will share the relevant capital expenditure cost effects arising from a
change in law (per event) in accordance with a three tiered cost sharing mechanism as
follows:223
(a)
the private party will bear 100 per cent of the capital expenditure cost effect up to
a specified threshold (first threshold);
(b)
the private party and government will share the capital expenditure cost effect
above the first threshold on a percentage share basis (to be agreed on a projectspecific basis) until a higher threshold (second threshold) is reached;224 and
(c)
government will bear 100 per cent of the capital expenditure cost effect above the
second threshold.
Where a change in law results in both increased capital expenditure and hard
operating costs, government will not consider the private party's claim for capital
expenditure relief until the next specified review date225 (following the private party's
claim) as part of its assessment of the private party's claim for hard operating costs.
However, where the increased capital expenditure is above a specified threshold226
and the private party, having used its reasonable endeavours, is unable to obtain
competitive funding for the cost of additional works which is acceptable to government,
government will consider the private party's claim for capital expenditure in isolation
from the operational effect at the time the private party submits its claim.
23.2.4
Hard operating cost relief227
•
For hard operating cost increases, no relief will be given for costs arising in the interval
before the next specified review date. Subject to the requirements in the following
bullet point, government will share the increased hard operating costs arising after the
relevant review date above a specified threshold.228
•
Government will only share hard operating cost increases as set out above, provided:
(a)
223
the private party provides a written claim to government for such cost increases
as soon as reasonably practicable following the relevant change in law; and
The form of payment relief given shall be at government's discretion, see paragraph 23.4.
224
This three tiered cost sharing mechanism is illustrative only. More stages in the graduation could be
considered on a project-specific basis if the private party and government believe this achieves a better balance
between cost and achieving adequate risk transfer (see footnote 205).
225
The relevant review dates for these purposes will be determined on a project-specific basis. However, it is
expected that they will coincide with the benchmark dates.
226
To be agreed on a project-specific basis.
227
Examples include cost increases arising from a general change in law affecting the provision of hard facilities
management services such as maintaining large items of plant and equipment and changes to the ‘as-built’ form.
Government will share the risk of increased hard facilities management costs on a percentage basis subject to
thresholds on a project-specific basis, in the same way that the risk of increased capital expenditure costs are
shared.
228
It is intended that this threshold will be lower than the threshold for capital expenditure.
paragraph 23.2.2.
April 2008
However, see
100
(b)
that sufficient detail of the relevant operating cost increases (including steps
taken to mitigate its effect) is provided by the private party to government.
•
Government will not assess or respond to the private party's claim for hard operating
cost increases until the next review date following the private party's claim.
•
To the extent that government bears hard operating costs in accordance with the
above regime, the service fee will be increased accordingly over the balance of the
term from the next review date following the relevant change in law with no
retrospective adjustment for increased costs incurred during the period prior to that
review date.
23.2.5
Sharing of Change in Law benefits
Government will share in any cost benefits or savings arising from a change in law above a
specified threshold229 on a percentage share basis to be agreed between the parties.
Government will share in any cost savings or benefits whether arising from reduced hard
operating costs or because capital expenditure that was otherwise anticipated to be
incurred by the private party is avoided as a result of the change in law. Government will
only share hard operating cost savings or benefits arising in a period during which it would
otherwise share in cost increases.
To the extent government shares in a cost benefit or saving, the service fee will be reduced
accordingly over the balance of the term.
23.2.6
No relief for soft operating costs230
Costs arising from general changes in law affecting soft facilities management services
should generally be for the account of the private party, as these services are reviewable
and the private party is protected on pricing the risk through the combined effects of
government review, market testing and indexation.
23.3
Project-specific Change in Law
23.3.1
Project-specific changes compensable
•
Where a change in law is a project-specific Change in Law (as set out in paragraph
23.3.2), government will, subject to nominal threshold levels to be agreed on a projectspecific basis,231 take full risk of a project specific change in law (per event) and
compensate the private party for any increases in the private party's operating costs,
as well as bearing any capital expenditure consequences.232 However, government will
also share in the benefit of any decreases in operating costs.
•
Where the private party's claim for relief is only in respect of capital expenditure arising
from a project-specific Change in Law, government will assess and respond to the
229
230
Examples of soft operating cost increases would include services such as cleaning, security, grounds
maintenance, porterage and catering.
231
232
See paragraph 23.4.
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private party's submission as soon as practicable following the submission of the
private party's claim.233
•
Subject to the bullet point that follows, where the private party's claim is only in respect
of hard operating cost increases or a mixture of capital expenditure and hard operating
cost increases, government will assess and respond to the private party's claim at the
next review date following the submission of the claim. To the extent the private
party's claim is accepted by government, government will compensate the private party
(by way of a one-off payment) for any approved capital expenditure and hard operating
costs incurred by the private during the period between the relevant project-specific
Change in Law occurring and the relevant review date.
•
Where:
(a)
the private party's claim is for a mixture of capital expenditure and hard operating
cost increases;
(b)
the capital expenditure is above a specified threshold;234 and
(c)
the private party, having used its reasonable endeavours, is unable to obtain
competitive funding for the cost of additional works which is acceptable to
government,
government will consider the private party's claim for capital expenditure in isolation
from the operational effect at the time the private party submits its claim.
23.3.2
Meaning of project-specific Change in Law
A project-specific Change in Law is a change in law of the relevant State, the terms of
which apply expressly to the:
(a)
project and not to similar projects procured by government;
(b)
project facility or site and not to other similarly situated land or facilities;
(c)
private party in relation to the project and not to other persons; or
(d)
companies undertaking projects procured under public private partnerships
arrangements and not to other persons.
23.3.3
Exceptions
A change in law will not be a project-specific Change in Law:
(a)
solely on the basis that its effect on the private party is greater than its effect on
other companies; or
(b)
if it is a change in taxes (including GST).
233
The project agreement will specify appropriate time periods for government to assess and respond to the
private party's claim.
234
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23.3.4
Threshold levels
The private party will be entitled to compensation for any direct cost increases (including
financing costs)235 either in the works or the provision of services arising from a projectspecific Change in Law above a nominal threshold.236
23.4
Form of relief
23.4.1
Form of relief at government's discretion
•
•
Government may, at its discretion, choose to provide the private party with
compensation relief in any of the following forms:
(a)
an increase in the service fee over the balance of the term;
(b)
a lump sum to be paid at the time of the next services fee; or
(c)
subject to the private party's agreement, an extension to the operating period.
Where option (a) is adopted and the cost of such capital expenditure is in excess of a
specified limit,237 the private party must use its best endeavours to obtain competitive
funding for the cost of the works. If, after using its best endeavours, the private party is
unable to obtain funding acceptable to government, government will pay for those
costs up-front by way of a lump sum payment.
23.4.2
Adjustment of service fee
The service fee will be adjusted or a lump sum payment will be determined in accordance
with the service fee adjustment principles for the project,238 The financial model will be
adjusted in accordance with the service fee adjustment principles to reflect the
compensation amount.
235
The private party will not be compensated for any profit margin on any additional costs incurred (only profit
margins at the subcontractor level will be compensated (to the extent incurred)).
236
These nominal threshold levels will be determined on a project-specific basis but are intended to avoid the
administrative burden to government of frequent claims for relatively small amounts of monetary relief. Examples
of the type of thresholds government may consider appropriate are $200,000 (indexed) for capital costs and
$20,000 (indexed) per annum for operating costs.
237
To be agreed on a project-specific basis but is intended to be set at a fairly low level in light of the value of the
project.
238
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23.5
239
Relief for Changes in Law and project-specific Changes in Law will only be given to the
private party in accordance with the principles of this section 23 provided the private party:
(a)
uses all reasonable endeavours to mitigate any costs incurred as a result of the
relevant change in law; and
(b)
notifies government of the relevant change in law and its effects as soon as
possible after the private party becomes aware (or should have reasonably been
aware) of the change or its effects.
23.6
Inconsistency with performance
standards
The private party must continue to provide the services except to the extent that they
cannot be provided as a necessary and intended consequence of implementing and
adopting the project-specific Change in Law.
239
This is not intended to be an exhaustive list of the threshold requirements for the giving of Change in Law relief
by government. Whenever government bears some of the risk of a change in law, the private party should be
obliged to keep any cost increases to a minimum and this should be clearly stated in the project agreement. This
duty to mitigate can be measured, in part, by reference to the extent to which price increases in comparable
sectors are experienced. It will also require the private sector to foresee and anticipate the effect of changes in
law, particularly in relation to expenditure which it has planned to incur anyway in the ordinary course of the
project agreement.
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24. Force majeure
Principle
For a limited category of events of exceptional severity which are outside the control of
either party and prevent the private party from performing all or a material part of its
non-financial obligations under the project agreement, the private party will be given relief
from termination and any other liability for breach.240
24.1
Qualifying events
The 'Force Majeure Events' for which relief will be given are:
(a)
lightning, cyclones, earthquakes, natural disasters, landslides, tsunamis and
mudslides;
(b)
civil riots, rebellions, revolutions, terrorism, insurrections and military and usurped
power, sabotage, ex public enemy and war (declared or undeclared);
(c)
ionising radiation, contamination by radioactivity, nuclear, chemical or biological
contamination unless caused by the private party or subcontractors;241
(d)
fire, flood or explosion caused by events referred to in paragraphs (a) or (b) above;
and
(e)
during the operating phase only, one or more utility services required for the
operation of the facility not being available for use at the mains connection to the
site, due to a major distribution or transmission system failure, except to the extent
the non-availability is because of an act or omission of the private party or its
subcontractors including failure to comply with any of its obligations such as having
to provide back-up or other security requirements,242 or a dispute between the
private party and the relevant utility supplier.
where these directly delay or prevent the private party performing all or a material part of
its non-financial obligations under the project agreement.243
240
Although the principles in this section 24 focus on giving relief to the private party for a breach resulting from a
force majeure event, the same regime will apply in respect of government and a breach of its non-financial
obligations (if any).
241
The reference to contamination in this definition excludes the risk of pollution and contamination allocated to
the private party in accordance with section 5 (Environmental issues).
242
Regardless of whether or not provision of such back-up supply, connection or other security of supply would
have prevented the event occurring.
243
Although what is considered to be a Force Majeure Event for a particular project may vary, the definition
should only be expanded where the nature of the particular project necessitates it. The definition will not be
extended where to do so would undermine the underlying risk allocation. The definition of Force Majeure Events
should only include events which, unlike EOT Events or Intervening Events, are likely to have a catastrophic
April 2008
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•
However relief will not be given when:
(a)
any of the above events are caused (directly or indirectly) by the private party,
any of the private party's related parties, agents or employees or any
subcontractor (and in each case, whether as a result of their action or inaction
including, as a result of a breach by the private party of its obligations under the
project documents); or
(b)
the occurrence or effects of an event are otherwise within the private party’s
control. This includes where the private party should have put in place
appropriate contingency plans so as to reduce or avoid any effects on its ability to
perform its obligations under the project documents.
24.2
Form of relief
24.2.1
Suspension of obligations
•
The private party's obligation to provide any contracted service or perform any other
obligation affected by a Force Majeure Event will be suspended from the date the
private party notifies government of the occurrence of the Force Majeure Event until
the Force Majeure Event ceases or the private party ceases (or should have ceased)
to be prevented or delayed by the Force Majeure Event.244
•
An Event of Default or Default Termination Event will be deemed not to have occurred
to the extent that the failure or breach is the direct result of a Force Majeure Event.
24.2.2
Service fee reduced
Government's right to abate the service fee while the Force Majeure Event subsists is not
affected. Accordingly, the service fee payable by government during the period of
suspension will be reduced to the extent that the services are not being delivered as a
result of the Force Majeure Event.
24.2.3
Additional relief
Where (and only where) a period of suspension arises as a result of a Force Majeure
Event which is not:
•
required to be insured against by the private party under the project agreement245
(as distinct from uninsurable events arising during the term to which the
uninsurability regime under the project agreement applies)246, and
effect on either party's (although usually the private party's) ability to fulfil its obligations under the contract and
which neither party can prevent or where neither party is in a better position to manage the consequences of the
event occurring. In practice, such events are highly unlikely to occur and this should be reflected in the drafting of
Force Majeure Events as the potential consequences to government under paragraph 24.5 are much more
serious than the granting of relief for EOT Events and Intervening Events.
244
The private party is therefore relieved of the risk of contract termination (and other government action for
default).
245
Government will consider, on a project-specific basis, the force majeure events which are not required to be
insured against, for example, damage caused by earthquake. Once identified, it is only on the occurrence of such
Force Majeure Events that government will service forecast senior debt.
246
See paragraph 26.4 of section 26 (Insurance).
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•
an insurable risk customarily insured by operators of facilities similar to the facility
or providing a service similar to the contracted service,
government will service the lower of the actual senior debt commitments and the
senior debt commitments forecast by the base case financial model as being due and
payable during the period of suspension.
24.3
Temporary measures and alternative
arrangements
24.3.1
Best endeavours to mitigate effect
During the period of suspension the private party must use its best endeavours to remove
or mitigate the effect of the Force Majeure Event and restore the services. This may
include incurring reasonable expenditure, rescheduling resources or implementing
appropriate temporary measures.
24.3.2
Alternative arrangements
During the period of suspension, government may make alternative arrangements for the
performance of any suspended services.
24.4
Financial relief
24.4.1
No financial relief unless project agreement
terminated
Government will not provide any financial relief to the private party during the period of
suspension (e.g. to meet the private party's fixed operating costs) other than in respect of
senior debt commitments in accordance with paragraph 24.2.3.
An appropriate
compensation amount will be paid (taking into account payments made in respect of the
senior debt during the period of suspension) if the project agreement is terminated for a
Force Majeure Event.247
24.4.2
No compensation to government
The private party will not be liable to compensate government for any costs or losses
government incurs (such as the increased costs of obtaining services from an alternative
source) during the period of suspension.248
247
See paragraph 24.5.
248
Paragraphs 24.4.1 and 24.4.2 are consistent with the principle that for risks (such as Force Majeure Risk)
which neither party is better placed to control or manage, the loss should lie where it falls.
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24.5
Termination
24.5.1
Either party may terminate
249
If the Force Majeure Event or its consequences continues to prevent the private party from
performing all or a material part of its non-financial obligations for a specified continuous
period (usually six to 12 months) either party may terminate the project agreement by
giving written notice.250 In addition, the private party’s right to terminate only arises:
•
during the design and construction phase, once the period for which the builder
has advanced consequential insurance has expired; and
•
during the operational period, where the private party is unable to recover under
business interruption insurance.
24.5.2
Compensation
Upon termination of the project agreement, government will pay the private party
compensation in accordance with the principles set out in paragraph 29.2 in section 29
(Termination payments).
249
For projects involving multiple sites or where the force majeure event otherwise affects a separable portion of
the site, the project agreement will contemplate the option of partial termination.
250
In the event that the private party issues a termination notice, government may require the project agreement
to continue subject to government paying the service fee in full (less costs not incurred by the private party) for
any continuing period.
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25. Reinstatement and repair
Principle
Subject to the uninsurability provisions, the private party is responsible, at its cost, for
repairing and reinstating any loss or damage to the site, the works or the facility. However,
where such loss or damage is a direct consequence of any fraudulent, unlawful or
negligent act or omission by government or its associates, government will bear the costs
of the private party repairing or reinstating the loss or damage.
25.1
Obligation to repair or reinstate
25.1.1
Proposed reinstatement plan
If any part of the site, the facility or the works is damaged or destroyed or cannot be used
or occupied, the private party must as soon as practicable notify government of the
damage and submit a proposed reinstatement plan for approval.251
25.1.2
Repair or reinstatement
The private party must repair the damage or reinstate the facility at its cost in accordance
with the approved reinstatement plan, except where it is prevented from doing so by a
Force Majeure Event or other event for which relief is given252 or the event which caused
the damage is an uninsurable risk in which case the uninsurability provisions referred to in
paragraph 26.4 in section 26 (Insurance) will apply.
25.1.3
Insurance proceeds
•
Any insurance proceeds received in respect of such damage253 (including, any
amounts representing insurance proceeds paid by government where the relevant
event was uninsurable) must be applied towards the cost of reinstatement or repair.
•
All insurance proceeds will be paid into a separate insurance account in the joint
names of government, the private party and, as appropriate, the private party's
financiers, and may only be withdrawn for reinstatement purposes.
25.1.4
Limitation of liability
The private party does not bear the risk of property damage or third party claims to the
extent that they are the direct result of a fraudulent, unlawful or negligent act or omission of
251
This obligation is subject to government's right to direct the private party not to repair or reinstate (see
paragraph 25.2).
252
In each event, the relevant relief regime will apply.
253
This refers to proceeds paid under all risks/physical damage policies, not third party liability, employer's
liability, business interruption or advance loss of profits insurance.
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government (or its associates) or a government breach of the project agreement, unless
and to the extent that the private party is entitled to, or does, recover under required
insurances.
25.2
Direction by government not to
reinstate or repair
25.2.1
Direction
Where the facility has been materially damaged or destroyed, government may direct the
private party not to reinstate or repair the relevant damage and may then also terminate
the project agreement.254
25.2.2
No termination
If government directs the private party not to repair or reinstate the damage but does not
terminate:
(a)
the private party waives in favour, and for the benefit, of government its right to
give a notice of claim under its insurance policy;
(b)
the private party must pay government any insurance proceeds it receives
(including monies paid by government as an insurer of last resort in respect of an
uninsurable risk)255;256
(c)
the private party will be relieved of its obligations to construct the works or provide
the services to the services specification, to the extent reasonably determined by
government in the context of the damage;257 and
(d)
government will issue a government modification request in relation to the private
party's reduced obligations.258
25.2.3
Termination
If government terminates the project agreement and the damage was caused by an event
which was:
(a)
a Force Majeure Event259, government must pay compensation on the basis of a
Force Majeure Termination Event;260
254
It is envisaged that a monetary threshold will be agreed on a project-specific basis, above which the facility will
be deemed to be materially damaged or destroyed. In addition, government will consider limiting its ability to
exercise this right to a limited period before contract expiry.
255
See paragraph 26.4 in section 26 (Insurance).
256
This is subject to the rights of the financiers under any funder's direct agreement.
257
The service fee will be adjusted in accordance with paragraph 22.1.8 in section 22 (Modifications).
258
259
See paragraph 24.1 in section 24 (Force majeure) for a definition of Force Majeure Event.
260
See paragraph 29.2 in section 29 (Termination payments).
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(b)
a private party default, government must pay compensation on the basis of a
Default Termination Event;261
(c)
an event other than a Force Majeure Event or private party default, government
must pay compensation on the same basis as for a voluntary termination by
government.262
25.3
Direction by government to reinstate to
different specifications
Government may require the private party to reinstate or repair the facility on the basis of
different specifications. Any such request will be treated as a government-initiated
modification (but only to the extent that the specifications differ from those which would
otherwise have been required under the project agreement and to the extent that any
insurance proceeds do not cover the full reinstatement cost).263
261
262
263
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26. Insurance
Principle
The private party must obtain and maintain such insurances as a prudent owner or
services provider would obtain and maintain for the type of facility from which the project
services are delivered. In the current insurance climate, government will share within
agreed thresholds any insurance cost increases for certain categories of operational
insurance.
26.1
Insurance generally
26.1.1
Required insurance
The private party must, at its own cost, effect and maintain such insurances throughout the
construction and operating phases as a prudent owner or services provider would obtain
and maintain for the facility in light of all relevant circumstances including but not limited to
the private party's obligations under the project agreement (being insurances of a kind and
on no less favourable terms than the minimum insurance requirements specified in the
project agreement).264 The private party must also ensure that it and its subcontractors
effect and maintain appropriate insurances in accordance with good industry practice and
at a prudent level of cover, having regard to the nature and scope of the services each
subcontractor is to provide. Levels of cover should be linked to the rate of inflation, such
that the amount of insurance increases over time.
26.1.2
Proof of insurance
•
By financial close, the private party must have provided government with evidence
from its insurers that the construction phase insurances are in effect.
•
Throughout the contract term, the private party must provide government with copies
of insurance policies, certificates of currency, renewal certificates and any
endorsement slips in relation to all required insurances. If actual policy copies cannot
be provided due to commercial confidentiality, appropriately worded certificates
confirming expressly all of the insurance terms and conditions, as set out in the
contract, must be provided from the insurer or insurance broker.
264
Insurance requirements will reflect the degree of risk transfer, the ability of the private party to pay premiums
(relative to the size of the risk), value-for-money considerations and the specifics of the particular project in
question. Examples of required insurances during both the construction and operating phase include workers
compensation insurance, property/material damage insurance, public/products liability insurance and motor
vehicle insurance. In certain instances, insurances may be affected by means of the private party's existing group
insurance policies, with appropriate care taken that these are extended to adequately cover the required project
risks on an individual and aggregate basis.
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26.1.3
Reputable insurer
The insurances are to be effected and maintained at all times with reputable insurers
approved by government and on conditions required by government. When determining
whether to accept the insurances proposed by the private party and what conditions it may
seek to impose, government may have regard to the rating (if any) of the proposed insurer,
the contracting entity of the proposed insurer and their relationship to the ultimate
underwriter, the proposed insurer's exposure to other projects of a similar nature in the
State and such other matters as government considers relevant in the circumstances.
26.1.4
Amendments
The approved insurances are not to be materially changed (including the scope of cover,
limits/sub-limits to liability, deductible levels etc.) without government's prior consent (which
is not to be unreasonably withheld).265 The private party must indemnify government for its
reasonable legal and other costs (if any) associated with determining whether or not to
consent to any requested change.
26.1.5
Government may effect insurance policies
If the private party fails to effect or maintain the required insurances, government may
effect and maintain the relevant insurance and pay the premiums for that insurance. Any
amount paid by government will be a debt due and payable from the private party and may
be deducted from amounts owing to the private party under the project agreement.
26.1.6
Terms of insurance
All required insurance policies must, at a minimum, include:
(a)
a provision requiring the policy to operate as if each was a separate policy of
insurance covering each insured party;
(b)
a waiver of subrogation against any of the insured parties;
(c)
a breach of condition or warranty/severability/non-vitiation provision acceptable to
government;
(d)
a provision requiring at least 30 days notice to be given to government prior to
cancellation or amendment; and
(e)
government as a person to whom the benefit of the insurance policy extends for its
relevant rights and interests (as appropriate).266
265
In determining whether and on what basis to provide its consent, government will consider the proposed
changes in light of market conditions at the time, the impact of the changes on the project risk profile and valuefor-money considerations generally.
266
The extent of government's rights and interests in respect of specific insurance policies (such as public and
products liability insurance and workers' compensation insurance) will be detailed in the project agreement. This
requirement will not extend to those policies which relate only to private party interests (such as professional
indemnity insurance). Please note that the actual terms in which the government's interest is noted in the policies
are very important, as the words used will define the extent to which cover is extended and thus the
circumstances under which the government can claim on the insurance. It is only notation on the policy that
enables this. No form of words in the contract document above will create such a right for the government.
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26.1.7
Settlement of claims
Any insurance proceeds received in respect of repairing or reinstating damage to the site,
works or facility must be dealt with in accordance with paragraph 25.1.3. Upon settlement
of a claim for any other property loss or damage under any required insurance where
government did not have an insurable interest, the private party must pass through to
government the benefit of the insurance where government has suffered a loss for which
government has been indemnified by the private party under the project agreement.
26.2
General insurance obligations
The private party will ensure that it:267
(a)
does not do or permit (insofar as it is reasonably within its power) anything to occur
which prejudices any insurance;
(b)
reinstates any policy if it lapses;
(c)
does not cancel, vary or allow an insurance policy to lapse without the prior written
consent of the other party;
(d)
gives full, true and particular information to the insurer of all matters which might
otherwise prejudice any policy or the payment of benefits under the insurance;
(e)
immediately informs government when it receives or gives a notice under, or in
connection with, any insurance policy, including any notice of cancellation of claim;
and
(f)
does everything reasonably required by government or any other person in whose
name the policy is effected to enable government or that other person to claim,
collect or recover monies due under any insurance policy.
26.3
Changes in insurance costs
26.3.1
Sharing mechanism
•
Government will not share in cost increases to the design and construction insurances
other than in exceptional circumstances such as where there is a very long
construction period and insurances for the whole period cannot be obtained up front.
•
Although operational insurances will not be reviewed or market tested like other ‘soft’
services,268 government will share cost increases of certain categories of required
operational insurances.269 The cost of such insurances will be reviewed annually270 on
a forward-looking basis to determine whether and by how much the actual costs of
insurance for the following year will vary from the projected costs of insurance
267
This is not intended as an exclusive list but highlights the key obligations.
268
Accordingly, the cost of required insurances is (subject to inflation) fixed for the term of the project at financial
close. It is not 're-set' as a result of any review.
269
Government will not share the cost of insurances which cover risks the private party is required to bear (such
as loss of profit, professional indemnity and non-vitiation insurances).
270
Or such other period considered appropriate on a project-specific basis.
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applicable to the forthcoming operating year.
increases solely due to general inflation.
Government will not share in cost
•
The private party must obtain and submit to government at least three separate
quotations from reputable insurance brokers with respect to the annual premium costs
of obtaining the shared operating insurances for the first year of the operating phase,
and must notify government of the private party's preferred quotation and insurer. If
government and the private party fail to reach agreement on the preferred approach to
and cost of obtaining the shared operating insurances, the matter may be referred to
an independent expert for determination.
•
At least three months prior to each anniversary of the operations commencement date,
the private party must repeat the above procedures in respect of shared operating
insurances to be taken out for the ensuing year. If government and the private party
fail to reach agreement on the most suitable insurer, premiums and other terms and
conditions of the shared operating insurances, the matter may be referred to an
independent expert for determination.
•
Eligible insurance cost increases will be shared (on a forward-looking basis) as follows:
(a)
the private party will bear the insurance cost increases for the relevant period up
to a specified threshold (first threshold);271
(b)
government will share272 the insurance cost increases for the relevant period
above the first threshold until a specified higher threshold (second threshold) is
reached; and
(c)
government will bear a substantial percentage of the insurance cost increases for
the relevant period above the second threshold.273
•
Where the insurance costs increase above the second threshold, government will have
the option of either sharing the cost on the above basis or declaring that the relevant
insurance falls within the uninsurability provisions.274
•
The private party will, in all circumstances, be liable for the original fixed cost of
insurance.
271
The thresholds and the percentage of cost increases to be borne by government at each threshold level will be
determined on a project-specific basis bearing in mind the need to ensure that the private party remains
incentivised to prudently manage the cost of its insurance premium. In particular, government will consider what
percentage of the overall operating costs is represented by insurance costs and the risk and magnitude of likely
insurance cost changes (in light of the market conditions at the time). Government may wish to invite variant bids
based on the size of thresholds and frequency of review periods.
272
For example, on a 50;50 basis. However, the exact basis for sharing cost increases will be determined on a
project-specific basis. For example, the project may contain a mechanism outlining a base premium (indexed to
Consumer Price Index) and a new premium and setting out a basis for sharing insurance cost increases between
government and the private party linked to these two criteria.
273
The relevant percentage will be greater than the percentage borne by government for cost increases falling
between the first and second thresholds. Government will bear a substantial part of any cost increases above the
second threshold, and may consider bearing 100 per cent of those increases if the private party can demonstrate
this would deliver a value-for-money outcome. The private party is generally required to share some component
of such cost increases. Of course such sharing arrangements will be subject to the uninsurability regime and the
protections that regime offers to the private party.
274
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•
Where government is to share an insurance cost increase in the above manner, the
service fee payable in the payment period following the review will be increased to
reflect government's share of the insurance cost.
•
Similar sharing arrangements will apply if the insurance costs fall over the relevant
review period, with any decrease from the original fixed cost being a debt due and
payable to government by the private party.
26.3.2
Eligible costs increases
•
The ‘cost’ of insurance refers to the premium only. It does not, for example, include
increases in broker's fees and commissions or the costs of any modifications required
by an insurer.
•
In order to obtain the benefit of this costs sharing mechanism, the private party must:
(a)
have conformed and continue to conform with specified minimum risk
management requirements in respect of the risks covered by those operational
insurances included in the costs sharing mechanism;275 and
(b)
deliver to the government at least two copies of an Insurance Cost Report
containing an account of the reasons for the change in insurance costs. This
Report should be prepared with the assistance of the private party's broker.276
26.3.3
Portfolio cost savings
•
A 'Portfolio Cost Saving' is any insurance cost saving attributable to either the private
party placing any of the required insurance within a policy or policies covering risks in
other projects or matters outside the scope of the project in questions, or to a change
in how that insurance is placed as compared with that which had been anticipated at
financial close.
•
Any portfolio cost saving is to be shared with the government, under the costs sharing
mechanism set out above.
26.3.4
Dispute resolution
If the parties, after reasonable endeavours in good faith, cannot reach agreement about
the contents of the Insurance Cost Report within 30 days of its submission to the
government by the private party, the matter is to be resolved through the dispute resolution
process set out in paragraph 32.3.
275
These risk management requirements will be developed in consultation with risk management experts,
including the VMIA.
276
This would include any variations arising from the claims history of the private party or a subcontractor; the
effect of placing some or all of the required insurances within a policy or policies covering risks which are outside
the scope of the project; the effect of a change in how some of all of the required insurance is placed as
compared to that which had been anticipated at financial close; the opinion of the private party's broker as to the
reasons why the premium has changed, including specification of the impact of each of the factors and
quantifying the amount attributable to each factor; evidence satisfactory to the government (acting reasonably)
that the relevant costs change is, with the exception of any portfolio cost saving, due to circumstances generally
prevailing in the Australian insurance market. When notifying government of a change to the cost of any shared
operating insurances for the forthcoming operating year, the private party must exclude and separately identify
any increases attributable to the acts and omissions or insurance claims history as outlined above.
April 2008
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26.3.5
Mitigation
•
The increase must be due to circumstances generally prevailing in the Australian and
overseas insurance market for the relevant class of insurance. Government will not be
liable for insurance cost increases caused by the private party, its subcontractors or
any member of the consortium (including the claims history of each such party).
•
The private party must use reasonable endeavours to minimise any increase and
maximise any reduction whilst maintaining the minimum level of insurance agreed
between the parties.
26.3.6
Effect of an appropriate insurance index
The cost sharing arrangements set out in this section will be reviewed by government
when an independently compiled index of Australian market movements in the annual
premium cost of obtaining certain categories of required operational insurance is
developed.
26.4
Uninsurability
26.4.1
Meaning of uninsurable risk
An 'uninsurable risk' occurs where:
(a)
insurance is not available in the recognised international insurance market with
reputable insurers of good standing (including the minimum credit rating specified
in the project agreement) in respect of that risk at the time that the insurance is
sought to be obtained; or
(b)
the insurance premium payable for insuring that risk is at such a level that the risk
is not generally being insured against in the international insurance market with
reputable insurers of good standing by prudent, competent and experienced
providers of services similar to the services at the time at which the insurance was
sought to be obtained.277
26.4.2
•
Treatment of uninsurable risk
If either party considers that a risk which is covered by the required insurances278 is or
will be uninsurable then that party must immediately notify the other in writing, giving
particulars. If the parties agree, or it is determined through the dispute resolution
procedure, that the relevant risk is uninsurable, and the fact that the risk is uninsurable
is not attributable to the actions of the private party or a subcontractor, the private party
is not required to procure insurance against that risk for so long as that risk is and
remains uninsurable.
277
The effect of this provision should not be to give protection against changes in terms of insurance or levels of
deductibles. It is intended to offer protection if the cost of insurance is such that the market is not generally
insuring against that risk (on any terms).
278
Uninsurability protection does not extend to insurances which cover risks which the private party is required to
bear (such as loss of profit, professional indemnity and non-vitiation insurances). However, for value-for-money
reasons, the uninsurability provisions will extend to cover business interruption insurance.
April 2008
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•
The parties will then meet and seek to agree any changes to the private party's rights
and obligations arising out of the unavailability of the relevant required insurance
including the amount of any change to the service fee.279
•
If the uninsurable risk materialises, government may:
(a) request a modification to the facility which removes the affected part of the site and
the uninsurable risk from the project;280
(b) pay to the private party an amount equivalent to the insurance proceeds that would
have been payable if the relevant insurance was available; or
(c) terminate the project agreement if the facility is wholly or substantially damaged or
destroyed, in which case compensation will be payable on a force majeure
termination basis. 281
•
Where a risk is uninsurable, the private party must approach the insurance market on
a regular basis to establish whether that risk remains uninsurable and advise
government accordingly. If the insurance becomes available again, the private party
must effect that insurance.
279
The change in the service fee should reflect the fact that the private party is not paying an anticipated
insurance premium.
280
Modifications may only be requested by government in this context on the condition that such modifications
will not materially adversely affect the private party.
281
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27. Default
Principle
Depending on its severity a default is categorised as:
(a)
an 'Event of Default'; or
(b)
a 'Default Termination Event'.
The type of event will determine the remedies available to government and the opportunity
given to the private party to cure the default before government can exercise its remedies.
27.1
Events of Default
•
An Event of Default gives rise to various government remedies (such as termination
and step-in). However, it does not of itself give rise to an automatic right of
termination.
•
The following events will each constitute an Event of Default:282
(a)
a serious Service Failure;283
(b)
failure to achieve either Technical Completion or Commercial Acceptance by the
due dates;
(c)
the independent expert determines (following a reasonable period after financial
close)284 there is no reasonable prospect the private party will achieve Technical
Completion or Commercial Acceptance by the due dates respectively;285
282
The listed Events of Default are not intended to be exhaustive and depending on the nature of the project they
may need to be varied (as may the dichotomy of the Event of Default and Termination Event). Additional Events
of Default may need to be added such as breaches of law, vitiation of project documents, any applicable limits on
the private party's liability under the project documents being reached or the private party failing to provide or
make available any licence, sub-lease or other tenure required by government. Breaches caused by an
Intervening Event, see section 17 (Intervening Events during the operational phase) or Force Majeure Event,
including a compensable Change in Law, see section 24 (Force majeure) do not constitute an Event of Default to
the extent that relief is given from the relevant obligations.
283
A serious Service Failure is evidenced by the service fee being abated by a specified percentage within a
specified period or performance points accruing beyond a specified level within a specified period. See
paragraph 14.3.2 in section 14 (Service requirements and specifications) for what constitutes a Service Failure.
284
What constitutes a reasonable period is to be agreed on a project-specific basis. There may also be more
than one look-forward period.
285
See paragraph 11.5.6 in section 11 (Construction and commissioning).
April 2008
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(d)
the works not being commenced within such period after financial close286 as is
likely to have a material adverse effect on the ability of the private party to
achieve Commercial Acceptance by the Date for Commercial Acceptance;
(e)
fraudulent,287 misleading or deceptive conduct by the private party or its
subcontractor, in the performance of its obligations or otherwise in relation to the
project documents (including, any reporting in the form of financial and payment
statements and invoices or other books or records of the private party and any
reporting obligations of the private party in respect of the master works program
and sub-programs);288
(f)
a false or misleading representation or warranty made by the private party in the
project agreement or other specified contracts which has a material adverse
effect on government or the private party's ability to perform its obligations;
(g)
the private party's right to obtain finance or continue to have available funds
under the finance agreements being materially restricted or cancelled;
(h)
a breach of the subcontractor provisions;289;
(i)
a failure by the private party to cure an unauthorised Change in Control of a key
material subcontractor within a reasonable time;290
(j)
a breach by the private party of its assignment obligations;291
(k)
the private party failing to take out and maintain required insurances (subject to
the Unavailability provisions);292
(l)
failure by the private party to comply with its obligations to reinstate damage or
destruction;293 and
(m) any other breach by the private party of the project agreement which has not
been remedied within a reasonable period or a breach of other specified
contracts with government or third parties which has a material adverse effect on
government or users of the facility or the private party's ability to perform its
obligations.294
286
This date may change depending on the project. For example, if access is not freely available it would be
appropriate to require that the works be commenced from the date that access is granted under an access
regime.
287
The State will retain all its common law rights in relation to any fraudulent activity.
288
This Event of Default will also capture where it is discovered that the private party acted fraudulently or
breached the law in the awarding of the contract (e.g. collusive behaviour).
289
See section 20 (Subcontractors). It would also be an Event of Default if the employee provisions of the project
agreement were breached.
290
See paragraph 20.5 in section 20 (Subcontractors).
291
See paragraph 35.3 in section 35 (Restrictions on private party).
292
See paragraph 26.3.3 in section 26 (Insurance).
293
See section 25 (Reinstatement and repair) and paragraph 24.3 in section 24 (Force majeure).
294
If parent guarantees are taken as security, similar provisions to that contained in sub-paragraphs (e) and (m)
will need to be inserted in respect of the guarantee, (i.e. false or misleading statements under, or breaches of, the
guarantee).
April 2008
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•
Although government will generally treat a failure to reach Technical Completion by the
Date for Technical Completion as a separate event of default, it may consider waiving
this requirement295 in circumstances where achievement of Commercial Acceptance is
conditional on the private party having provided government with sufficient time to
transition into and test the functionality of the facility. This period will be specified by
government on a project-specific basis.
27.2
Cure periods and remedies for Events
of Default
27.2.1
Cure periods
•
Government may give a default notice to the private party specifying that an Event of
Default has occurred.
•
Where the Event of Default is capable of cure:
(a) the private party must, within a specified period, provide a draft cure plan
proposing a program of rectification (including the proposed cure period);296
(b) the private party and government must consult with a view to agreeing on the cure
plan, but if agreement cannot be reached within a specified period, the private
party must amend the draft cure plan in accordance with the requirements of
government (acting reasonably).297 This then becomes the approved cure plan;
and
(c) the private party must comply with the approved cure plan or otherwise diligently
pursue a cure of the Event of Default.298
•
Where the Event of Default is not capable of cure it will not automatically give
government a right to terminate the project agreement. In this situation the steps
outlined below must be followed within reasonable timeframes agreed on a projectspecific basis:
(a) the private party must prepare a prevention plan for submission to government for
endorsement which will overcome the consequences of, or compensate the State
for, the relevant Event of Default within an appropriate timeframe;
(b) government must consider the prevention plan in compliance with the review
procedures;
295
Thereby limiting the events of default to a failure to meet Commercial Acceptance by the Date for Commercial
Acceptance.
296
The cure period applicable to a serious Service Failure will be in addition to the original response and
rectification times for that Service Failure.
297
If the private party is still not satisfied with the approved cure plan, it may refer the matter for resolution
pursuant to the dispute resolution procedures set out in the project agreement - see section 32 (Dispute
resolution). In the event that the matter is referred to dispute resolution, the private party will need to comply with
the cure plan (as amended to reflect government's requirements) until the dispute is resolved.
298
Although the financiers will have separate step-in rights under the funder's direct agreement, they will not have
separate cure periods before an Event of Default can be called. Appropriate cure periods will be agreed as part
of the cure plan. In addition, the cure periods may be extended in accordance with paragraph 27.3.
April 2008
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(c) if the prevention plan is accepted by government (such acceptance not to be
unreasonably withheld), the private party must comply with that prevention plan;
and
(d) if the prevention plan is not accepted by government, government may require the
private party to comply with other requirements it considers (acting reasonably) will
overcome the consequences of, or compensate the State for, the relevant Event of
Default. If government does not exercise the right or, having exercised it, the
private party fails to comply with those requirements, this will give rise to an
immediate government termination right.
•
Failure by the private party to comply with these requirements will allow government to
treat the Event of Default as a Default Termination Event as set out in
paragraph 28.1.2.
27.2.2
Remedies for Event of Default
•
If a default notice has been given, government may exercise its Step-in Rights except
where the private party is complying with an approved cure plan and diligently pursuing
a remedy.299
•
If a default notice has been given and the Event of Default is either not capable of cure
or, if it is capable of cure, the private party:
(a)
fails to provide a draft cure plan;
(b)
fails to comply with the approved cure plan or to otherwise diligently pursue cure
of the Event of Default in accordance with the approved cure plan; or
(c)
fails to cure the Event of Default within the relevant cure period,
government may:
•
(d)
require the private party, at its own cost, to replace any subcontractor performing
the obligations to which the Event of Default relates; or
(e)
exercise any of its security rights.
In addition to the above remedies, if the private party fails to:
(a)
provide a draft cure plan;
(b)
otherwise diligently pursue cure of the Event of Default in accordance with the
approved cure plan; or
(c)
comply with the approved cure plan,
government may give notice specifying such failure and requiring the failure to be
rectified within a specified period.
•
299
Failure to comply with the notice will give government the right to terminate.300
See section 30 (Step-in).
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27.3
Extension of cure period
Prior to the expiry of a cure period, the private party may request an extension301 by
providing government with a written request together with the private party's reasons (in
appropriate detail) as to why an extension is required and a detailed plan of the actions to
be taken by the private party to ensure the default is cured during any extended period.
Provided the private party:
(a)
has provided government with sufficient reasons for the extension (and has
provided any further information reasonably requested by government);
(b)
can satisfy government (acting reasonably) that it will cure the default within the
extended period; and
(c)
can satisfy government that it has complied and is continuing to comply with the
approved cure plan (as may be amended with government's agreement) and is
diligently pursuing cure of the Event of Default,
government must act reasonably in considering the request. The private party may only
request one extension.
27.4
General remedies
The exercise by government of any of its remedies set out in this section does not prevent
government from:
(a)
exercising any other power under the project agreement; or
(b)
suing the private party, or exercising any other legal or equitable rights or
remedies, in relation to a default or any other action or conduct of the private party.
300
See paragraph 28.1.2(c) in section 28 (Termination). The suspension of termination rights will only be
available for so long as the approved cure plan is being diligently pursued by the private party.
301
The extension period may not exceed a specified percentage (for example 50 per cent) of the original cure
period.
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28. Termination
Principle
Government may terminate the project agreement on the occurrence of a Default
Termination Event or Force Majeure Termination Event or may voluntarily terminate the
project agreement subject to payment of a termination payment.
28.1
Default Termination Event
28.1.1
Termination without cure
If a Default Termination Event occurs, government has the right to terminate the project
agreement without any cure period being given to the private party.
28.1.2
What constitutes a Default Termination Event?
The following events will each constitute a Default Termination Event:302
(a)
the private party wholly or substantially abandoning the works, the facility or the
provision of the services;
(b)
failure by the private party to cure an Event of Default (which is capable of cure)
within the relevant cure period;
(c)
failure by the private party to:
(i)
prepare a prevention plan which is subsequently approved by government;
(ii)
comply with the government approved prevention plan; or
(ii)
comply with government's reasonable requirements as notified to the
private party in the absence of an approved prevention plan,
in relation to an Event of Default not capable of cure;
(d)
failure by the private party to comply with a notice given by government where the
private party has failed in a material or substantial way to comply with an approved
cure plan, diligently pursue cure of the default or provide a draft cure plan;303
302
The listed Default Termination Events are not intended to be exhaustive and depending on the nature of the
project they may need to be amended or further Default Termination Events included.
303
See paragraph 27.2.2 in section 27 (Default). Breaches caused by an Intervening Event (see section 17
(Intervening Events during the operational phase) or Force Majeure Event, see section 24 (Force majeure),
including a compensable Change in Law, do not constitute an Event of Default to the extent that relief is given
from the relevant obligations.
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(e)
the occurrence of an 'Insolvency Event'304 in relation to:
(i)
the private party; or
(ii)
any other member of the private party group,305any guarantor or relevant
key subcontractor, if the private party fails to replace that other member of
the private party group, guarantor or key subcontractor within 60 business
days306 of the occurrence of that Insolvency Event;
(f)
a breach of the relevant Change in Control provisions307 of the project agreement;
(g)
an independent expert making a determination that there is no reasonable
prospect that the private party will achieve Commercial Acceptance by the Sunset
Date;308
(h)
Commercial Acceptance not having occurred by the Sunset Date;
(i)
a specified cap or a specified percentage of the cap being reached in respect of
any performance bonds or parent company guarantees provided to government as
required under the project agreement or any such bond or guarantee ceasing to be
valid without, in each case, rectification or replacement within a specified period;
(j)
government directing the private party not to reinstate or repair damage309 where
the relevant damage was caused by a private party default;
(k)
performance points accumulated over a fixed period (i.e. due to a series of Service
Failures) exceeding a specified level;310
(l)
the private party suffering abatements over a specified number of consecutive
months, which in value equate to an amount which is a specified percentage of the
total services fee; and
304
An Insolvency Event would include voluntary and involuntary winding up (except for the purposes of a
reconstruction, merger or consolidation), administration, insolvency (including inability to pay debts as and when
they fall due and failure to comply with a statutory demand), the appointment of a receiver, receiver and manager,
controller or provisional liquidator, or entering into arrangements with creditors or bankruptcy.
305
See footnote 184 in section 21(Change in Control) for what constitutes the private party group.
306
Or such other reasonable period to be agreed by the parties at the time.
307
See section 21 (Change in Control).
308
See paragraph 12.2.7 in section 12 (Relief for construction delays) and paragraph 11.5.6 in section 11
(Construction and commissioning).
309
See paragraph 25.2 in section 25 (Reinstatement and repair).
310
Note that this specified level will be significantly higher than the level which triggers an Event of Default. See
paragraph 27.1(a) in section 27 (Default).
April 2008
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(m)
the occurrence of more than a specified number of private party breaches311
(whether or not such breaches are remedied) in a specified period312 if:
(i)
in the opinion of government, there has been a persistent or repeated
failure by the private party to comply with its obligations; and
(ii)
the breach continues or recurs more than a specified number of times
within a specified period after a final warning notice is given by
government.313
28.2
Force Majeure Termination Events
28.2.1
Force Majeure Event
Either party may terminate the project agreement if a Force Majeure Event314 subsists for a
specified continuous period315 or if government directs the private party not to reinstate or
repair damage316 and the relevant damage was caused by a Force Majeure Event.
28.2.2
Uninsurability provisions
Government may terminate the project agreement pursuant to the uninsurability
provisions.317
28.3
Voluntary termination
In addition to the above termination events, government may at any time, in its sole
discretion and without giving any reasons (but subject to a termination payment as set out
in section 29 (Termination payments), terminate the project agreement by giving a
specified period of notice. Where government has directed the private party not to
reinstate or repair damage,318 and the relevant damage was not caused by a Force
Majeure Event or private party default, termination of the project agreement by government
will be treated as a voluntary termination.
311
This is intended to capture both repeated breaches of the same type or class and persistent breaches not of
the same type or class.
312
These breaches would exclude any breach for which government otherwise has the right to abate the service
fee.
313
The project agreement will set out a procedure for warning notices to be given before a final warning notice
(leading to termination) is given.
314
See paragraph 24.1 in section 24 (Force Majeure) for the definition of Force Majeure Event.
315
See paragraph 24.5.1 in section 24 (Force majeure).
316
See paragraph 25.2 in section 25 (Reinstatement and repair).
317
See paragraph 26.4.2 in section 26 (Insurance).
318
See paragraph 25.2 in section 25 (Reinstatement or repair).
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28.4
Procedure
•
Following a Default Termination Event, Force Majeure Termination Event or otherwise
in accordance with paragraph 28.3, government may elect to terminate the project
agreement by giving notice to the private party.
•
Termination will take effect within a specified time after the date of the notice, or such
earlier time as specified in the notice.
28.5
Consequences
•
Upon termination, the private party will be entitled to compensation in accordance with
the principles set out in section 29 (Termination payments).
•
The rights and obligations of the parties to the project agreement319 will cease except
for:
(a)
any accrued rights and obligations; and
(b)
any rights or obligations which are expressed to continue after termination.
319
Other agreements may be relevant to include here, such as any lease between the private party and
government.
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29. Termination payments
Principle
On early termination of the project agreement, government must pay a termination
payment to the private party, calculated in accordance with the principles set out in this
section.320
29.1
Default Termination Payment
29.1.1
Payment amount
On termination of the project agreement resulting from a Default Termination Event,321
government will pay the private party an amount equal to:
(a)
the fair-market-value of the project as determined through a re-tendering process
under paragraph 29.1.3; or
(b)
if there is no liquid market or if government otherwise elects to, the estimated
fair-market-value of the project as between a willing buyer and a willing seller (as
calculated by the independent valuer,322
less the deductions in paragraph 29.1.2 (Default Termination Compensation Amount).
29.1.2
Deductions
The following deductions will be made from the amount determined in paragraph 29.1.1:
(a)
any costs incurred by government in determining the fair-market-value, including
engaging the independent valuer (as applicable);
(b)
any amounts owing by the private party to government as at the termination date
(including all amounts government can set off under the project agreement);
(c)
credit balances standing to any of the private party's bank accounts and insurance
proceeds or other amounts owing to the private party, in each case only to the
extent not taken into account in calculating the fair-market-value;
(d)
government's reasonable actual or forecast internal and external re-tendering
costs (where applicable); and
320
This section assumes that the private party has not taken residual risk on the project assets, and that those
assets are transferred to government upon termination. In other circumstances, different termination payments
may be appropriate.
321
See paragraph 28.1.1 in section 28 (Termination).
322
See paragraph 29.1.4 (Determination of fair-market-value)
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(e)
to the extent not covered by paragraph (b) above, any additional costs [reasonably]
incurred by government as a result of the default.323
If the amount is negative, it will be deemed to be zero.
29.1.3
Determination of fair-market-value by tendering324
•
If there is a liquid market, government will be entitled to sell (i.e. re-tender) the
unexpired term of the project agreement (on its terms as at the termination date) and
pay the proceeds of the sale to the private party provided the senior lenders have not
and are not continuing to exercise their step-in rights. If, despite a liquid market, the
government receives no compliant bids, the proceeds received from the tender will be
deemed to be zero.
•
A liquid market will exist if there are a sufficient number of contractors in the prevailing
market (or markets for similar contracts to Partnerships Victoria contracts) to ensure
that the price that is likely to be achieved through a tender to be a reliable indicator of
fair value.325 Any dispute as to the existence of a liquid market for the project will be
referred for resolution to the dispute resolution procedure.
•
Government will not be entitled to re-tender the unexpired terms of the project
agreement if the senior lenders have exercised their right to step-in under their direct
deed with government and have not procured the transfer of the private party's rights
and liabilities under the project agreement to a suitable substitute private party
(provided they have used all reasonable efforts to do so).326
29.1.4
(a)
Determination of fair-market-value by an
independent valuer
In determining the estimated fair-market-value, the independent valuer must
determine the net present value of the projected cash flows for the unexpired
contract term (ignoring any abatements and assuming no breach had arisen)
calculated on a nominal, pre-tax basis, taking into account agreed rates of
indexation327 and assuming:
323
This would generally exclude indirect and consequential losses for which government would otherwise not be
liable.
324
The re-tendering mechanism and associated tests for a liquid market will be developed and refined by
government on a project-by-project basis.
325
The minimum number of required market participants (in addition to participants controlled by the senior
lenders) will be determined on a project-specific basis but will be at least two (although if no, or only one
compliant bid is received, there may still have been a liquid market when the test for re-tendering was run).
326
The senior lenders must take the risk of the private party's performance (this risk is mitigated by their right to
step-in and cure or to transfer the project). Where government elects to terminate the project agreement for poor
performance, senior lenders are incentivised to exercise their step-in rights and use their reasonable efforts to
transfer the project (which may include accepting offers which do not fully pay out senior debt). If the senior
lenders have used their reasonable efforts to transfer the project and have been unable to do so (for reasons
other than not achieving full pay-out of senior debt), then government considers that a liquid market is unlikely to
exist.
327
The inflation rate to be used in this calculation will be the forecast general inflation rates from the predictions in
the State budget papers. See Partnerships Victoria Advisory Note – Determining the General Inflation Rate for
Use in Partnerships Victoria projects (August 2005). If the parties cannot agree any other rates of indexation
which are applicable, the relevant indexation rates must be referred to dispute resolution.
April 2008
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(b)
(i)
a reasonable time to achieve Commercial Acceptance;328
(ii)
the subsisting grounds for termination of the project agreement have not
arisen (but the costs of remedying any default by the private party giving
rise to termination, including any rectification costs, must be taken into
account); and
(iii)
any breach of the project agreement arising prior to the successful tender
will not entitle government to terminate the project agreement.329
The projected cash flows must take into account the amount and timing of any
rectification and reinstatement costs required to be incurred to enable the delivery
of the contracted services to specification for the unexpired contract term, as well
as all other forecast costs (including every day operating costs and life cycle
maintenance costs), indexed at the agreed or determined rate. These will include
any costs forecast to be incurred to achieve Commercial Acceptance and all costs
incurred or to be incurred by government where:
(i)
it directly completes the works and/or delivers the relevant services; or
(ii)
procures the completion of the works or delivery of the services by a third
party.
(c)
In addition, the costs identified above will be adjusted for a reasonable contingency
over the base amount. The resultant projected cash flows are to be the valuer's
estimate of the operating cash flow stream which, had a liquid market existed and
the project been tendered, a hypothetical bidder would have valued to determine
the amount to bid for the project and must be discounted to its net present value at
the termination date.330
(d)
The discount rate to be used by the independent valuer to establish the net present
value of the projected cash flows will be derived using the following formula:
R = ((1 + real base case pre-tax project IRR331 + CB B – CB A) * (1 + i)) - 1, where:
328
R
= the discount rate;
CB B
= the real yield to maturity on a benchmark Commonwealth bond traded
in the Australian bond markets with a modified duration closest to that
of the weighted average life of any outstanding senior debt as shown in
the base case financial model as at the date of termination;
CB A
= the real yield to maturity on a benchmark Commonwealth bond traded
in the Australian bond markets with a modified duration closest to that
of the weighted average life of any outstanding senior debt as shown in
the base case financial model as at the date of financial close; and
Where the project agreement is terminated prior to Commercial Acceptance
329
In making this determination some amendments to the project agreement's terms and conditions may need to
be assumed to allow for the incoming service provider to deliver the project (e.g. all things being equal, any
accrued warning notices and frequent and persistent breaches will need to be cancelled or where termination
occurs during the construction phase, the date for completion and the sunset date may need to be extended).
330
Using the discount rate determined in paragraph 29.1.4(d)
331
As at project commencement.
April 2008
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i
= the assumed inflation rate used in paragraph (a)332 to index the cash
flows.
For the purposes of the above formula, government recognises that there may not
be a product with an appropriate tenor. If this occurs, an appropriate alternative
will be determined at the time in consultation with the private party.
29.1.5
•
Post termination service fee or interest
Where government pays the private party an amount determined under paragraph
29.1.3 (Determination of fair-market-value by tendering), then from the termination
date until the termination payment is made, government will pay the private party a
post termination service fee calculated as the full service fees less:
(a)
the greater of all cost components related to the provision of the hard and soft
services and the costs to government of alternative provision of the services;
(b)
all cost components related to the provisions of insurance; and
(c)
rectification costs incurred by government.333
29.1.6
Method of payment and interest
•
Government will be entitled to pay to the private party the Default Termination
Compensation Amount by way of a lump sum payment or in a specified number of
instalments,334 no later than a specified period after the date on which such amount is
determined.335
•
Interest will be payable on the Default Termination Compensation Amount where
payment is delayed, on a project-specific basis336.
332
i.e. the forecast general inflation rate from the predictions in the State budget papers.
333
The term of the new project agreement will typically be the same as the unexpired term of the terminated
project agreement (i.e. the expiry date in the new project agreement will be later than that in the old project
agreement by the amount of time the re-tendering procedure has taken). In such circumstances, any post
termination service amounts should be deducted from the ultimate termination payment made. It may be,
however, that a service requirement can only be delivered for the period that expires on the original expiry date.
In such circumstances, it would not be possible for the term of the re-tendered project agreement to be for a
period equal to the unexpired term of the original project agreement and the parties will have to fix a date for the
new project agreement to come into effect, so that tenderers can bid for a fixed term. In such circumstances the
post termination service amounts should not be deducted from the ultimate termination payment made.
334
To the extent that government pays by instalments, the instalments will (to the extent possible) reflect debt
commitments. Alternatively, government will compensate the financiers for their costs and expenses incurred as
a consequence of government exercising such a right.
335
This is subject to any disputed element of the payment being referred to dispute resolution, in which case
payment of the disputed component will be deferred until the matter has been determined.
336
Whether interest is payable and the applicable interest rate will depend on the type of financing and the
reasons for the delay in payment.
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29.2
Force Majeure Termination Payment
29.2.1
Payment amount
•
337
On termination of the project agreement for each type of Force Majeure Termination
Event,338 government must, subject to paragraph 29.2.3 and paragraph 29.2.5, pay to
the private party an amount equal to:
(a)
the lower of senior debt339 owing to financiers at the termination date and the
amount forecast in the base case financial model (as varied from time to time in
accordance with section 18.6) to be owing to financiers as at the termination
date;340 and
(b)
any break costs payable by the private party to the financiers under the finance
documents as a direct result of early termination341 (not included in paragraph (i)
above),
less the deductions in paragraph 29.2.2 below (Force Majeure Compensation
Amount)342.
•
Accordingly, in a project financed by bonds, government will only pay the par value of
the bonds outstanding (together with any accrued and unpaid interest) less any
deductions.
•
The debt component of a Force Majeure Compensation Amount will include amounts
payable and must be reduced by any gains receivable, as a direct result of early
termination of hedging arrangements.
•
Where the Force Majeure Compensation Amount could potentially include amounts to
be refinanced by an anticipated contribution from equity at the end of the construction
phase, government may seek to cap the compensation amount to the level of what
would have been the long term senior debt.
337
The termination payments for force majeure and voluntary termination are based on the assumption that the
debt finance component of the project is bank debt or bond funded. To the extent that the project is fully or partly
financed by a hybrid issue or another form of finance, appropriate amendments to the senior debt element of any
payment will need to be made.
338
See paragraph 28.2 in section 28 (Termination). The term Force Majeure Termination Events captures
termination resulting from a Force Majeure Event and termination pursuant to the uninsurability provision.
339
Mezzanine and other subordinated debt will be afforded the same protection as senior debt for purposes of the
Force Majeure Termination Payment and the voluntary termination payment but only to the extent that such debt
has the essential characteristics of senior debt (other than to the extent that it is subordinated to pure senior
debt). This will be determined on a project-specific basis before the execution of the project agreement
depending on the debt structure of the private party. However, government will not compensate subordinated
debt which is effectively equity.
340
In either case, ensuring that any senior debt payments of principal made by government during any period of
suspension (arising from a force majeure event) are appropriately taken into account.
341
This will be subject to the private party's obligation to mitigate any such break costs. The break costs are also
intended to capture any break costs incurred as a result of early termination of hedging arrangements. Any break
gains must be deducted.
342
The Force Majeure Compensation Amount must take into account any payments made to keep senior debt
whole under paragraph 24.4.1 in section 24 (Force majeure).
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29.2.2
Deductions
The following deductions will be made from the amount set out in paragraph 29.2.1:
(a)
all credit balances on any bank accounts held by or on behalf of the private party
on the termination date;
(b)
(including any amounts government is entitled to set-off);
(c)
any insurance proceeds paid or payable to the private party (or which would have
been payable to the private party if it had complied with its insurance obligations)
at any time between the termination date and the date of payment other than
payments that are to be applied to repairing or rebuilding the facility or to third
party liabilities;343 and
(d)
all sums due and payable to the private party from the financiers as a result of any
prepayment of senior debt344 and any third party amounts paid to the private party
at any time during the period between the termination date and the date of
payment..
29.2.3
The higher of the Default Termination
Compensation Amount and Force Majeure
Compensation Amount
Where the Force Majeure Compensation Amount is less than the Default Termination
Compensation Amount which would have been payable had termination (and the relevant
loss or damage to the project) occurred as a result of a contractor default rather than a
force majeure event, then government will pay the Default Termination Compensation
Amount.
29.2.4
Method of payment and interest
Government will be entitled to pay the Force Majeure Compensation Payment amount in a
specified number of instalments.345
Interest will be payable on the Force Majeure Compensation Amount where payment is
delayed, on a project-specific basis346.
343
Government would also be seeking to deduct insurance proceeds which would have been received before the
termination date and applied against a component of the Force Majeure Compensation Amount, if the private
party had complied with the project documents.
345
To the extent that government pays by instalments, the instalments will (to the extent possible) reflect debt
commitments. Alternatively, government will compensate the financiers for their costs and expenses incurred as
a consequence of government exercising such a right.
346
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133
29.2.7
Subsisting private party default termination event
Where a private party Default Termination Event is subsisting at the time that notice of
termination is given for a Force Majeure Termination Event, the termination payment is to
be calculated on the same basis as for termination following a Default Termination
Event.347
29.3
Payment for voluntary termination by
government
29.3.1
Voluntary Termination Payment Amount
On termination of the project agreement resulting from a government voluntary
termination,348 government must (subject to section 29.3.3) pay to the private party an
amount equal to the aggregate of:
(a)
where the senior debt amount has been financed by bank debt, the lower of senior
debt owing to financiers at the termination date and the amount forecast in the
base case financial model (as varied from time-to-time in accordance with section
18.6) to be owing to financiers as at the termination date;
(b)
where the senior debt amount has been financed by capital market instruments
(bonds), the lower of the present value of the:
(i)
future cash flows under the outstanding bonds; and
(ii)
the future cash flows under the bonds forecast to be outstanding at the
date of termination in the base case financial model (adjusted for any
refinancing pursuant to which government is paid a refinancing gain),349
calculated at the termination date having regard to the yield at which the underlying
capital market instruments are priced in the market at the termination date, using
standard market conventions for each relevant instrument,350 on the basis that the
project agreement and the other project documents as existing immediately prior to
the termination date continue to operate to the expiry date;
(c)
an amount which gives an equity return351 (from the date of termination to the
original expiry date of the project agreement) of the greater of:
347
348
See paragraph 28.3 of section 28 (Termination).
349
In both paragraph (i) and (ii), the future cash flows must exclude any 'bond payout amount' or the like payable
under the bond terms on default or early repayment of the bonds.
350
The determined yields should each comprise a market reference (base) interest rate plus the lower of the issue
margin as set out in the base case financial model and the trading margin derived from the average offer rate as
quoted by a panel of leading dealers in the Australian bond market over five trading days preceding the date the
government gives notice of the voluntary termination. The precise calculation of any bond payout will depend on
the terms of the specific funding proposal.
351
Being on both any share capital subscribed at financial close and any shareholder subordinated debt not taken
into account as 'debt' above.
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(i)
the blended equity internal rate of return in the base case financial model
(as varied from time-to-time in accordance with section 18.6); and
(ii)
the market rate of equity return, having regard to market rates of return, for
the project cash flows taking into account the independent valuer's
reasonable assessment of forecast cash flows to equity from the date of
termination to expiry of the project agreement, in each case:
(A)
assuming the services will be delivered in accordance with the
performance standards set out in the project agreements;
(B)
assuming the service fee provisions will continue to apply as set
out in the project agreement;
(C)
taking into account deductions for forecast costs (including
everyday operating costs, finance costs and life cycle maintenance
costs) required to enable the delivery of all the contractual services
to specifications for the un expired term; and
(D)
taking into account the net present value of the projected
distributions to equity for the unexpired contract term;]
(d)
the break costs352 and all other reasonable costs incurred by the private party as a
direct result of terminating a finance agreement; and
(e)
redundancy payments for employees of the private party and amounts owing to the
subcontractors, which are, in each case, reasonably and properly incurred and
arise as a direct result of the termination,353
less the deductions in section 29.3.2 below (Voluntary Termination Payment Amount).
29.3.2
Deductions
The following items will be deducted from the amount set out in paragraph 29.3.1:
(a)
all credit balances on any bank accounts held by or on behalf of the private party
on the termination date;
(b)
(including any amounts government is entitled to set-off);
(c)
any insurance proceeds paid or payable to the private party (or which would have
been payable to the private party if it had complied with its insurance obligations)
at any time between the termination date and the date of payment other than
352
The break costs are also intended to capture any break costs incurred as a result of early termination of
hedging arrangements. If there are any break gains they must be deducted.
353
Government will not compensate the private party for redundancy amounts and subcontractor costs arising
from arrangements not entered into in connection with the project or in the ordinary course of business and on
commercial arm's length terms. In addition, government will not compensate subcontractor loss of profit for work
not performed or for indirect or consequential loss.
April 2008
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payments that are to be applied to repairing or rebuilding the facility or to third
party liabilities;354 and
(d)
all sums due and payable to the private party from the financiers as a result of any
prepayment of senior debt355 and any third party amounts paid to the private party
at any time during the period between the termination date and the date of
payment.356
29.3.3
The greater of outstanding debt and Voluntary
Termination Payment Amount
In the event the Voluntary Termination Payment is less than the senior debt amount
identified in paragraph 29.3.1(a)357 or paragraph 29.3.1(b),358 as applicable, (together with
break costs under paragraph 29.3.1(c)), government will pay the private party the relevant
senior debt amount.
29.3.4
Interest
Government will pay interest on the Voluntary Termination Compensation Amount, where
payment is delayed, on a project-specific basis.359
29.4
Mitigation
The private party must use all reasonable endeavours to mitigate losses or costs in respect
of which government is making a termination payment.
29.5
Transfer of debt obligations
Government will have the right to request (in its absolute discretion) that it have transferred
to it all outstanding debt obligations instead of paying any outstanding debt amount as part
of a termination payment. In the event this occurs, the termination payment will be
reduced accordingly.
354
Government would also be seeking to deduct insurance proceeds which would have been received before the
termination date and applied against a component of the Force Majeure Compensation Amount, if the private
party had complied with the project documents.
355
This will include any amounts payable as a result of early termination of hedging arrangements.
356
Upon termination, the private party must assign to government its rights to any claims against third parties
which have not been determined or paid by the payment date.
357
i.e. the lower of senior debt owing to financiers at the termination date and the amount forecast in the base
case financial model (as varied from time to time in accordance with section 18.6) to be owing to financiers as at
the termination date.
358
ie. the lower of the present market value of the future cash flows under the bonds forecast to be outstanding at
the date of termination in the base case financial model and those forecast to be paid at the termination date.
359
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30. Step-in
Principle
Government may step-in and assume all or some or the service delivery obligations of the
private party when:
(a)
there is an emergency, a serious risk to the environment, the public or users of the
facility or a serious risk of material damage to the facility;
(b)
step-in is necessary to discharge a statutory duty; or
(c)
an Event of Default remains unremedied or a termination event occurs.
30.1
Circumstances of step-in
30.1.1
Circumstances
Government may assume all or some of the service delivery obligations of the private
party360 for a period of time where:
(a)
there has been an Event of Default361 except where the private party is complying
with an approved cure plan and diligently pursuing a remedy;
(b)
a Default Termination Event362 occurs;
(c)
there is likely to be a serious risk to the environment, a risk to the health or safety
of the users of the facility or other members of the public or a serious risk of
material damage to public or private property (including the facility) or other
emergency; or
(d)
it is necessary for government to take immediate action to discharge or exercise a
statutory duty or power.363
360
In some circumstances (such as in emergencies and to discharge a statutory duty) government may require
the private party to suspend the performance of the services or request that alternative services be provided until
normal operation of the facility can resume. Such rights are in addition to government's 'traditional' step-in rights
but will generally be treated in a similar manner to step-in rights under the project agreement. The focus of the
right, particularly in respect of emergencies, is a serious short-term problem that can or must be solved quickly,
where the government is in a better position to do this than the private party. Government should not in any
situation be obliged to step-in.
361
See paragraph 27.1 in section 27 (Default).
362
See section 28 (Termination). Although reference to Force Majeure Termination Event has been omitted the
intention is that government has the right to exercise its step-in rights under paragraphs (c) and (d) at any time
during the contract term, including during any period of suspension following the occurrence of a force majeure
event but before the contract is terminated for a Force Majeure Event. However, it is not intended that any
government emergency step-in regime cut across the force majeure regime (e.g. operation of termination rights
for force majeure).
April 2008
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30.1.2
Funders' step-in rights
Government's step-in rights in paragraphs 30.1.1(a) and (b) will be subject to funders'
step-in rights under the funders' direct agreement.
30.2
Rights and obligations on step-in
30.2.1
Extent of rights
Government may elect to:
(a)
temporarily assume total or partial possession, management and control of the
facility and the provision of the services; and
(b)
take such other steps as are necessary or desirable to continue the provision of
the services and to minimise the risk to the environment, the public or users of the
facility or of material damage to the facility.
30.2.2
Assistance by private party
The private party must assist government whenever and however possible to exercise its
step-in rights as set out in paragraph 30.2.1.
30.2.3
Government obligations
•
When exercising its step-in rights, government must use all reasonable endeavours to
operate the facility and otherwise deliver the contracted services consistent with the
project agreement. What is reasonable under the circumstances will be determined in
light of the reason for government stepping-in.
•
Government is not obliged to remedy or cure any Event of Default or Default
Termination Event to overcome or mitigate any risk or risk consequences in respect of
which it exercises step-in rights.
30.2.4
Private party's rights and obligations suspended
The private party's rights and obligations under the project agreement are suspended to
the extent necessary to permit government to exercise its step-in rights.
30.2.5
Power of attorney
The private party irrevocably appoints government (and its nominees) as its attorney with
full power to exercise its step-in rights.
30.3
Costs of step-in
While government is stepped-in, it must continue to pay the full service fee reduced by the
following amounts:
363
Where the service being provided is an essential service, government may be given step-in rights to guarantee
the continuity of an essential service.
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(a)
Where government has stepped in as a result of an Event of Default or a Default
Termination Event364 (without double counting):
(i)
government's reasonable estimate of the costs not incurred by the private
party as a result of it not providing the contracted services; and
(ii)
the costs incurred by government in exercising that step-in right, including
all reasonable and proper costs incurred by government in delivering the
affected services (whether directly or through a replacement
subcontractor).
If the aggregate amount to be deducted under paragraphs 30.3(a)(i) and (ii) is
greater than the service fee, the difference will be a debt due and payable from the
private party to the government.
Where government has stepped-in as a result of any other triggering event,365 the
operating or other costs which will not be incurred by the private party as a result of
the exercise of the step-in rights.
(b)
30.4
No liability or limitation on
government's rights
30.4.1
No liability
Government will have no liability to the private party and the private party will not be
entitled to make any claim arising out of or in connection with the exercise of step-in rights
unless government has acted negligently (in relation to emergency step-in only),
fraudulently or in bad faith in the exercise of those rights.
30.4.2
No limitation on existing rights
The exercise of step-in rights does not limit any other right of government under the project
agreement, including rights arising pursuant to an Event of Default and Default Termination
Event (but subject to funders' step-in rights366).
30.5
Stepping-out
30.5.1
Circumstances
•
Government may cease to exercise step-in rights at any time.
•
Government must cease to exercise step-in rights in each of the following
circumstances:
(a)
where government has exercised its step-in rights as a result of an Event of
Default or Default Termination Event,367 as soon as the Event of Default or
364
See paragraphs 30.1.1(a) and (b).
365
See paragraphs 30.1.1(c) and (d).
366
367
See paragraphs 30.1.1(a) and (b).
April 2008
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Default Termination Event is remedied or government ceases to pursue a
remedy; or
(b)
•
where government has exercised its step-in rights as a result of any other
triggering event,368 the relevant material risk is averted, overcome, or mitigated to
government's satisfaction or the statutory duty has been performed.369
Government will not be obliged to cease exercising its step-in rights in respect of a
particular step-in event if, prior to the date upon which government would otherwise
have been required to step-out (in respect of that event), there occurs another step-in
event entitling government to step-in. Government will then be required to step-out in
accordance with paragraphs (a) or (b) above as applicable to the later step-in event.
30.5.2
Private party recommencing performance
Upon government ceasing to exercise any step-in rights (and subject to government not
having terminated the project agreement):
(a)
the private party must immediately recommence performance of the suspended
obligations; and
(b)
government will, at the cost and expense of the private party, give reasonable
assistance to ensure a smooth transition.
368
See paragraphs 30.1.1(c) and (d).
369
See comments in footnote 339 in paragraph 30.1.1 in respect of the effect of emergency step-in rights on the
force majeure regime.
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31. End-of-term arrangements
Principle
The private party must (at its own cost) ensure that the project assets meet government's
return conditions at contract expiry. The project assets and site will vest in government at
the end of the contract term.
Where government is to re-tender the contracted services at the end of the contract term,
the private party must take all reasonable steps to ensure that the contracted services
continue with minimum disruption and risk to government employees and public users.
31.1
Return conditions at contract expiry
31.1.1
Inspection at contract expiry
•
An independent assessor appointed by government:370
(a)
must during the 12 months prior to the last five years of the operating term; and
(b)
may (if requested by government) at any time within the last five years of the
operating term,371
inspect the project assets to determine what condition they will be in at contract
expiry.372
•
Following the inspection and subject to expected normal breakage and fair wear and
tear, the independent assessor must notify government and the private party of:373
(a)
the rectification and maintenance works (if any) the independent assessor
considers are required from the date of the review until contract expiry to bring
the condition of the project assets to the standard they would have been in had
the private party properly performed its maintenance and refurbishment
370
See paragraph 11.5.7 in section 11 (Construction and commissioning) for a discussion on the requirements for
the appointment of an independent assessor (completion certifier). Depending on the nature of the project, it may
be more appropriate for government (rather than an independent assessor) to survey the condition of the facility,
in which case the Project Director/Contract Administrator will carry out such assessment on government's behalf.
In such a case, the private party could refer any dispute (regarding the works required or their cost) to an
independent expert for resolution.
371
This period may be changed depending on the relevant life cycle expectations of the assets.
372
The project agreement will also provide for a contract termination inspection.
373
The private party may refer the matter for dispute resolution by an independent expert if it disagrees with the
assessment by the independent assessor.
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obligations under the project agreement and to ensure that on contract expiry the
project assets comply with the 'return conditions';374
(b)
a reasonable program for the private party to carry out such works; and
(c)
the expected cost of carrying out the works in accordance with the program.
31.1.2
Cost of inspection
The cost of the inspection will be borne equally by government and the private party.375
31.1.3
Obligation to cooperate
The private party must cooperate with the independent assessor and provide all assistance
necessary for the inspection to be carried out.
31.1.4
Deductions from service fee
•
Government will deduct from each remaining scheduled service fee due for payment
during the period from the inspection until contract expiry, an amount equal to the cost
of the final maintenance and refurbishment works (as determined by the independent
assessor) divided by the number of remaining payments.
•
Government will deposit such deductions into the escrow account.376
•
As an alternative, government may consider accepting a performance bond or
appropriate security for the cost of the final maintenance and refurbishment works.
31.1.5
Obligation to carry out works
•
The private party will carry out the final maintenance and refurbishment works in
accordance with the agreed program, all applicable laws and approvals, all specified
quality, design and construction standards and otherwise to the independent
assessor's satisfaction.
•
The private party must ensure that, on contract expiry (having carried out any final
maintenance and refurbishment works), the project assets comply with the return
conditions. The independent assessor must be satisfied this has been achieved.
31.1.6
•
Private party successfully performs the final
maintenance and refurbishment works
If the independent assessor is satisfied that the private party has completed the final
maintenance and refurbishment works (or any relevant part of them), then upon the
independent assessor advising government to that effect, government will pay the
private party the cost of the works by drawing on the escrow account.
374
The project agreement will specify the condition the project assets must be in at contract expiry, taking into
account the design life requirement after contract expiry.
375
The project agreement will specify the condition the project assets must be in at contract expiry, taking into
account the design life requirement after contract expiry.
376
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•
Government's obligation to pay for the private party's costs is limited to the amounts
held in the escrow account.
31.1.7
Refurbishment bond
Where:
(a)
the cost of the final maintenance and refurbishment works is greater than the
aggregate amount of any remaining scheduled payments (until expiry); or
(b)
at any time during the period from the inspection and contract expiry, the cost of
any remaining works to be completed is greater than the balance standing to the
credit of the escrow account at such time,
the private party must provide government with a performance bond with a face value of
not less than the amount of the shortfall and which expires one year after contract expiry.
31.1.8
Deductions from termination payments
To the extent not already accounted for in any termination payment, the value of any
maintenance and refurbishment works that have not been carried out by the private party
but for which government has paid during the contract term will be deducted from any early
termination payment.377
31.1.9
Escrow account
•
Government will be the sole signatory to the escrow account which is to be an interest
bearing account with an authorised deposit-taking institution and on call with 24 hours
notice.
•
Interest earned on money standing to the credit of the escrow account will be
deposited in the escrow account.
•
The private party will be given full particulars of the escrow account.
•
Money in the escrow account is government's property.
31.2
Other private party rights and
obligations
378
31.2.1
Surrender and return of the project assets
The private party must surrender and return to government all its right, title and interest in
the facility and site (licensed or leased to the private party) free from encumbrances and
consistent with the return conditions.379
377
See section 29 (Termination payments).
378
These provisions will depend on the specific project and the extent to which government may already own
relevant assets and the extent to which government requires the assets to be transferred to it.
379
The project assets and site become the absolute property of government at the end of the contract term. The
private party may, if relevant for the particular project, also be required to make available any handover packages.
April 2008
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31.2.2
Novation
If government so requests, the private party must novate to government or its nominee any
project lease, sub-lease or licence granted by the private party or any other agreement
entered into by the private party in respect of the works or the services.
31.2.3
Re-tendering requirements
•
The private party must use reasonable endeavours to assist government where
government is to tender the right to deliver the contracted services following the end of
the contract term. This includes making available any information government or any
successor party reasonably requires relating to the project (excluding confidential
financial information).
•
The private party must take all reasonable steps to assist government and any
successor so that any continuation of the contracted services is achieved with
minimum disruption and risk to government employees and public users. However,
the private party is not required to undertake activities which will unreasonably interfere
with the operation of its business.
31.2.4
Power of attorney
From the end of the contract term, the private party will appoint government (and any
persons nominated by government) as its attorney to carry out any end-of-term rights and
obligations as described in paragraph 31.2.
31.2.5
Continuing obligations
•
Expiry or early termination of the project agreement is without prejudice to any accrued
rights and obligations as at the expiry or termination date (including any rights and
obligations accrued as a result of a default).
•
The parties will agree the specific provisions which will survive termination or expiry of
the project agreement. However, they usually include provisions relating to the
satisfaction of conditions precedent, indemnities and warranties, the defects liability
period, end-of-term maintenance and refurbishment obligations (including the escrow
account), payment and termination provisions, government's step-in rights, general
remedies, intellectual property, confidentiality obligations, dispute resolution, public
relations and publicity, records and end-of-term rights and obligations.
31.2.6
•
End-of-term payment
In circumstances where government believes that the private party is unlikely to
perform any of its specified ongoing obligations after expiry or early termination of the
project agreement, government may either:
(a)
withhold part of the final scheduled payment380 (in the event of contract expiry) or
the relevant termination payment (where there is an early termination); or
(b)
require a performance bond to be provided in respect of those obligations.381
380
Depending on the amount of the final scheduled payment, government may need to withhold part or all of
several scheduled payments near the end of the term.
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•
Any monies withheld by government will be payable to the private party on the earlier
of the outstanding obligations being satisfied and the end of a specified period (to the
extent that the private party has met its obligations arising up to the end of that
specified period).
•
Government may make a demand under the performance bond to the extent that the
private party fails to perform its obligations. The performance bond will expire at the
end of a specified period.382
•
The amount of any withheld monies and the value of any bond (which may be a bid
item) is intended to reflect the costs and losses which government is likely to incur as a
result of the private party's failure to perform its ongoing obligations.
•
Whether government seeks to withhold any funds or requires a performance bond is a
value for money consideration dependent on a number of issues. These include
whether government will continue using the facility at the end of the contract term (and,
in particular, whether it will be re-tendering the services), the risk and effect on
government of the private party not complying with its end-of-term obligations and
whether the private party is a special purpose vehicle or a company of substance
financing the project on balance sheet.
381
The performance bond may also include an amount to cover any latent defects, where the defects liability
period extends past the end of the contract term.
382
This period will be determined on a project-specific basis depending on the nature of the obligations, but would
generally be expected to be a 12 month period.
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32. Dispute resolution
Principle
The dispute resolution processes are designed to provide resolution of matters in dispute
in a speedy and non-litigious but fair and independent manner.
32.1
Panel
A panel will be established under the project agreement as the initial forum for resolution of
disputes (panel).
32.1.1
Notification and obligation to resolve disputes
•
All disputes notified by one party to another will be referred to the panel for resolution.
•
Within a specified period of receiving notice of the dispute, the panel must meet in
good faith and use its reasonable endeavours to resolve the dispute.
32.1.2
Composition
The panel will consist of one senior government representative and one senior private
party representative with sufficient seniority and authority to resolve the dispute (subject to
any requirements for formal approvals as discussed in paragraph 32.1.3).
32.1.3
Decision
A decision of the panel may only be made by unanimous agreement and is binding on both
parties, subject to any formal approval required as part of the parties' governance
structures or by statute.
32.2
•
•
Independent determination
Where the panel is unable to resolve the dispute, it will (depending on the nature of the
disputed matter) refer the matter for independent determination either by:
(a)
an independent expert; or
(b)
an arbitrator.
Matters of a technical or financial nature (including disputes over compensation
amounts) will generally be referred to an independent expert for resolution. However,
arbitration may be the appropriate course in other circumstances.383
383
The project agreement will specify what matters will be referrable to the independent expert and which to the
arbitrator.
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32.3
Independent expert
32.3.1
Appointment
An independent expert will be appointed by agreement of the panel or, failing agreement,
by a third party such as the chairperson for the time being of the Institute of Arbitrators and
Mediators Australia (Victorian Chapter).
32.3.2
Capacity and procedure
The independent expert will act as an expert and not as an arbitrator and may adopt such
procedures as he or she sees fit.
32.3.3
Time for decision
A timeframe will be set for the independent expert to deliver his or her determination.
32.3.4
Decision final and binding
To the extent permitted by law, the decision of the independent expert will be final and
binding on the parties unless a party disputes it within a specified period or the value of the
determination is greater than a specified monetary threshold.384
32.3.5
Costs
•
The costs of the independent expert will be borne equally by the parties.
•
Each party will bear its own costs relating to the independent expert's determination.
32.4
Arbitration
32.4.1
Appointment
Where a dispute is to be resolved by arbitration, an arbitrator will be appointed by
agreement of the parties or, failing agreement, by a third party such as the chairperson for
the time being of the Institute of Arbitrators and Mediators Australia (Victorian Chapter) or
the Australian Centre for International Commercial Arbitration.
32.4.2
Capacity and procedure
The arbitrator will conduct the arbitration in accordance with and subject to the Commercial
Arbitration Act 1984 (Vic) (but excluding section 27).
32.4.3
Time for decision
A timeframe will be set for the arbitrator to deliver a determination.385
384
An appropriate monetary threshold for these purposes will depend on the value of the project.
385
Generally 10 business days from completion of legal submissions.
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32.4.4
Decision final and binding
The decision of the arbitrator is final and binding on the parties.
32.4.5
Costs
The decision of the arbitrator will include a decision relating to the costs of the reference
and the award, including the fees and expenses of the arbitrator.
32.5
Fast-track process
•
Provision will be made for a fast-track option for resolution of disputes where the
outcome is time-critical.
•
The timeframes of both the panel process and expert determination or arbitration will
be truncated.
32.6
Legal rights
A party may appeal to the Supreme Court of Victoria on a question of law arising from the
determination of the arbitrator but will not otherwise be entitled to have recourse to the
courts on disputes subject to dispute resolution under the project agreement.
32.7
Obligation to continue to perform
Despite the existence of a dispute, each party must continue to perform its obligations
under the project agreement (including obligations to pay monies).
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33. Re-financing gain
Principle
All re-financings other than those contemplated at financial close will require government
consent.386
Any re-financing gain is to be shared between government and the private party on a 50:50
basis provided the projected equity return at the time of the re-financing (taking into
account any refinancing) is above that reflected in the original base case financial model.
33.1
Government consent
The private party must not re-finance the project without government's prior consent (which
is not to be unreasonably withheld or delayed) or without a direct agreement being entered
into with the new financier.
33.2
Notice and re-financing details
The private party must give government adequate notice and full details of the proposed
re-financing. Required details will include an amended financial model, the basis for the
assumptions used in the amended financial model, a certificate from the auditors of the
model, any material changes to the private party's obligations to its funders and the
anticipated re-financing gain.
33.3
What is a re-financing?
33.3.1
Re-financing definition
A re-financing is:
(a)
any amendment to or replacement of the current financing agreements387 and the
exercise of any right under such documents, however they may occur; and
(b)
any new contractual or financing arrangement which has the effect of in any way
restructuring the funding arrangements as at contract signing (including the
gearing levels).
386
Government recognises the importance to financiers of being able to obtain government's approval quickly in
circumstances involving a rescue re-financing. Accordingly, government will ensure it acts reasonably and
expeditiously in those circumstances.
387
For these purposes, 'current financing agreements' refers to the agreements for financing the project as at
contract signing (as amended with government's approval).
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33.3.2
Exemptions
Re-financing will not include:388
(a)
any re-financing which was specifically contemplated at financial close and
reflected in the base case financial model;389
(b)
disposals of investments or commitments of debt or equity in an arms length
transaction at market value;
(c)
the syndication or subscription of any debt under the current funding agreements
that is contemplated at financial close;
(d)
the change in control or sell down of any bonds390 in an arms length transaction at
market value; and
(e)
waivers and consents and similar actions which relate to day to day administrative
matters.
33.4
When may government withhold its
consent
Government may withhold its consent where:
(a)
the re-financing would adversely affect government's interests including increasing
or adversely affecting government's contractual liabilities;391
(b)
the terms and conditions of the proposed re-financing (taken as a whole) are
materially more onerous or disadvantageous to the private party than the existing
funding arrangements and government considers the private party will be unable to
adequately service and repay the financial indebtedness assumed under the refinancing or that such financial indebtedness will adversely impact the private
party's ability or capacity to perform its obligations under the project documents;
(c)
the terms and conditions are not in accordance with market practice at the time;
and
(d)
the indebtedness will not be used solely for the project.
388
These exemptions assume that the project is not undertaken on a corporate finance basis.
389
Such re-financings will be exempted only up to the amounts included in the financial close base case financial
model and taken into account in determining the service fee. Government must ensure adequate due diligence of
the base case model is conducted prior to financial close to ensure that any re-financing assumptions are clarified
and agreed.
390
Whether or not this is an exclusion will depend on the funding arrangements of the individual project.
391
For example, government's obligation to pay termination payment amounts. Government will take into account
the level of compensation it will receive in determining the effect of any re-financing on it.
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33.5
Sharing a re-financing gain
Government will be entitled to a 50 per cent share of any re-financing gain but only where
the projected equity return at the time of the re-financing (taking into account any
refinancing) is above that included in the original base case financial model.
33.6
Calculating the re-financing gain
33.6.1
What is a re-financing gain?
Re-financing gain is the difference (greater than zero) between the net present value of:
(a)
the distributions projected at the proposed re-financing date (taking into account
the proposed re-financing) using the updated financial model referred to in
paragraph 33.2 (post-refinancing distributions); and
(b)
the distributions projected immediately prior to the proposed re-financing (without
taking into account the proposed re-financing) using the base case financial model
as varied from time to time in accordance with the project agreement (prerefinancing distributions).392
33.6.2
The discount rate
The discount rate used to determine the net present value of the distributions (for both pre
and post re-financing) will be the equity rate of return provided for in the base case
financial model.
33.6.3
Distributions
Distributions are any dividends, interest payments or other distributions by the private party
to its shareholders, loanstock or related bodies corporate (including amounts available for
such distributions)393 and receipt of any other benefit by those parties (including the
release of any contingent liabilities) but excluding payments made to a related body
corporate under a subcontract (where the related body corporate is a subcontractor) or
otherwise on arm's length terms.
33.6.4
Professional costs
The re-financing gain will be calculated after allowing for the recovery by both parties of
their reasonable and proper professional costs directly incurred in connection with the refinancing.
33.7
Payment of the re-financing gain
Government may elect to receive its share of the re-financing gain in one (or a
combination) of the following ways:
(a)
a single payment from the private party; or
392
393
Whether such distributions are in respect of share capital or subordinated debt.
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(b)
a reduction in the service fee in accordance with the service fee adjustment
principles.394
33.8
Government audit rights
Government may at any time audit any financial model used in connection with the refinancing (including the underlying assumptions for the data and projections used in the
proposed model).
33.9
Acting in good faith
Both parties will at all times act in good faith with respect to any re-financing. In particular,
they must negotiate in good faith to agree the basis and method of calculation of the refinancing gain and the manner and timing of payment of government's share of the gain.
33.10 Funder's direct agreement
The private party must not enter into a re-financing until the new financiers have entered
into a funder's direct agreement.
33.11 Termination payments
Unless otherwise agreed, government is obliged to make termination payments only to the
extent set out in the base case financial model (as varied, including for any re-financing, in
accordance with the principles and procedures in paragraph 18.6 in section 18 (Payment
provisions)).
394
See paragraph 18.4 in section 18 (Payment provisions). In determining the appropriate method for payment,
government will consider the form in which the private party receives the re-financing gain (i.e. whether a reserve
that has been released is paid out).
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34. Indemnities, warranties and
contractual claims
Principle
The private party indemnifies government for death or personal injury, property and third
party claims arising from the project. The private party acknowledges that it has entered
into the project on the basis of its own investigations and not on the basis of any
government representations and it indemnifies government accordingly.
34.1
Private party indemnity
34.1.1
Indemnity
•
•
395
Subject to paragraph 34.1.2, the private party will release and indemnify395 government
and its associates in respect of any action, claim, demand, cost, charge, liability, loss,
damage and expense (including legal expenses) incurred by government (including
any third party claims or liabilities) resulting from:
(a)
the design, construction, operation or maintenance of the facility;
(b)
any acts or omissions of the private party, the subcontractors and their
associates in relation to, or in consequence of, the project (including, from the
performance or non-performance by the private party of its obligations under the
project agreement and their presence on, or access to, the facility and the site);
and
(c)
any contamination or pollution occurring on or from the site other than that
created by a government core service at the site and for which the private party
does not have management responsibility.396
On many projects, government will cap the private party's liability under the indemnity
in respect of:
(a)
third party claims made against government (other than death and personal injury
claims);
(b)
damage to government property; and
(c)
government economic losses.
The project agreement will provide for appropriate procedures for dealing with claims.
396
See paragraph 5.2.7 in section 5 (Environmental issues) in respect of the private party's liability for third party
claims and liability arising from contamination or pollution occurring on or emanating from the site.
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•
While there may be a nexus between such caps and the level of required insurances,
these should not be expressly or directly linked.
•
If it is agreed that government will cap the private party's liability, this cap will not
extend to any actions, claims or liabilities arising or brought against the private party by
a third party.
34.1.2
Limitation of liability
The private party will not be liable under the indemnity to the extent that a claim or liability
is a consequence of fraudulent or negligent acts or omissions of government or its
associates or a breach by government or its associates of any project document.
34.2
Representations and warranties
34.2.1
Representations by the private party
The private party will provide a series of representations and warranties to government
along the following lines:397
(a)
it has corporate status to enter into the transaction and is solvent;
(b)
it has the power to own its property and enter into the transaction;
(c)
all authorisations to enter into the transaction have been obtained;
(d)
all obligations in the project documents are binding on it;
(e)
its compliance with the project documents will not cause any contravention of law,
of any authorisation or undertaking, or of its own constitution;
(f)
it is not acting as a trustee of a trust except to the extent agreed by government in
writing; 398
(g)
no proceedings are current or pending which have a material adverse effect on its
ability to perform its obligations;
(h)
all information given to government is true, accurate and not misleading;
(i)
no filings or taxes are needed to make the project agreement binding;
(j)
no default has occurred and is subsisting;
(k)
there are no security interests other than permitted security interests over its
property; and
(l)
government has been provided with all material documents relating to financing.
397
The representations and warranties are listed in short form and are intended as examples and not as an
exhaustive list. See paragraph 1.3.3 of section 1 (Contractual issues) for government warranties.
398
If the private party is acting as a trustee government will review and agree the trust deed and appropriate
trustee representations, warranties and undertakings will be included in the project agreement.
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34.2.2
Private party's acknowledgment, waiver and
indemnity
•
The private party must acknowledge and agree that government and its associates
have not made any representation, advised or given any warranty or undertaking
(other than as expressly set out in the project agreement) in respect of the project
documents, any transactions contemplated by the project or financing documents or
any other matter relevant to the private party's decision to enter into the project or
finance documents.
•
The private party will also acknowledge and agree the following:399
(a)
disclosed information and intellectual property rights will remain the property of
government and/or its associates;
(b)
disclosed information did not constitute an invitation, recommendation or offer by
government and/or its associates;
(c)
disclosed information was provided to assist in preparing and lodging a proposal
for the project;
(d)
disclosed information did not purport to contain all information required by the
private party;
(e)
government and/or its associates has not and is not obliged to verify the
accuracy or completeness of the disclosed information;
(f)
government and/or its associates has not made any representation or warranty
as to the accuracy or completeness of the disclosed information; and
(g)
the private party has not relied on the disclosed information but on its own
investigations in entering into the transaction.
•
To the extent permitted by law, the private party will waive all rights it has to bring any
action against government or its associates for misrepresentation or misleading or
deceptive conduct in providing the disclosed information.
•
The private party will indemnify government and its associates against all claims or
liabilities in breach of these provisions.
34.2.3
Reliance on representations
The private party must acknowledge that government enters into the project agreement in
reliance on the representations, warranties, acknowledgments and agreements made by
the private party and that these survive the execution and completion of the transactions
contemplated in the project documents.
399
The items listed are in short form and intended as examples and not as an exhaustive list.
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34.2.4
Repetition of representations and warranties
The representations, warranties and acknowledgments are repeated by the private party
on each anniversary of financial close with reference to the facts and circumstances
subsisting at that date.400
34.3
Non-exclusivity of remedies
The rights and remedies provided in the project agreement are in addition to and do not
exclude or limit any right or remedy of government provided by law or equity or by any
agreement.401
400
This is subject to any written disclosures made by the private party to government and waived by government
at or before the time of repetition.
401
See paragraph 14.8 of section 14 (Service requirements and specifications) and in particular footnote 125.
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35. Restrictions on private party
Principle
The private party must obtain prior government consent to any:
(a)
business conduct other than implementation of the project;
(b)
amendment of the project agreement or other agreements to which government is
a party and amendment of the financing documents and key subcontracts;
(c)
assignment or disposal of its interests in the project agreement or other
agreements to which government is a party; or
(d)
disposal of any interest in the project land or facility.
35.1
Restrictions on business
The private party must not conduct any business other than the implementation of the
project without obtaining government's prior consent.
35.2
Restrictions on amending certain
documents
The private party must not:
(a)
amend or terminate the project agreement or other agreements to which
government is a party without obtaining government's prior consent (which consent
will be given or refused within a specified period of the private party's request); or
(b)
terminate, or make or permit any amendment to, any financing or equity document
or subcontract, other than in accordance with the provisions set out in sections 33
(Re-financing gain) and 20 (Subcontractors), respectively.
35.3
Restrictions on assignment
35.3.1
No assignment without consent
Other than a permitted security interest402 or where a replacement private party has been
appointed by a financier under the funder's direct agreement, the private party must not
402
Permitted security interest will be defined as a security interest to which government has provided its prior
consent or which is created under an agreement with government or a lien which arises solely by operation of law
in the ordinary course of ordinary business.
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dispose of any of its rights or interests in the project agreement or other agreements to
which government is a party, without obtaining government's prior consent (to be provided
at its discretion).403
35.4
Restrictions on sale or lease
Other than granting a permitted security interest or otherwise acting in accordance with
provisions in the project agreement, the facility lease or construction licence, the private
party must not dispose of the project land or the facility without the prior consent of
government.
403
Depending on the nature of the project, this restriction may also extend to the private party procuring that
specified major subcontractors do not dispose of their interest in the relevant subcontract.
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36. Records
Principle
The private party must maintain and provide government with all financial and other
records, statements and documentation necessary to enable government to monitor and
assess the private party's financial capacity and its performance of its obligations under the
project agreement and to allow for transparency of costs.
36.1
Maintenance of audited records
•
The private party must keep proper accounts and all other financial records expected
of a prudent and competent person undertaking obligations similar to those of the
private party.404 In particular, the private party must maintain a full record of the costs
of delivering the contracted services (including construction, operation and funding
costs) and details of funds held to cover such costs.
•
All such financial statements must be audited annually.
36.2
Availability of audited records
All the above accounts and records must be available to government (or any party it
nominates) for examination, audit, inspection, transcription and copying.
36.3
Accounting records
36.3.1
Annual business plans
The private party must (on an annual basis) provide government with a copy of its business
plan for the following financial year and its budget for the next two financial years.
36.3.2
•
Six-monthly records
The private party must provide on a half-yearly basis the following unaudited
documents for the financial year to date:
(a)
statement of financial performance, cash flow statement and statement of
financial position;
404
Depending on the creditworthiness of the key subcontractors (and their relationship to the private party) and
the level of information provided by the private party's records, the private party may also be required to ensure
that key subcontractors keep and make available to government the same accounts and financial records
required of the private party and all requirements applying to the provision of the private party's records will apply
equally to the subcontractor records (e.g. warranty, financial audit etc). To the extent that government requires
this of subcontractors, it will only apply in relation to their involvement in the project.
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(b)
comments on any material variations between actual and budgeted to date
results; and
(c)
details of all the private party's indebtedness and changes to its financing
arrangements.405
•
Government requires audited financial statements of the private party to be submitted
to it following the end of the financial year.
•
All books of account are to be kept in accordance with best accountancy practice and
must show in detail the private party's administrative overhead costs, payments to
subcontractors and capital and revenue expenditure.406
36.4
Provision of other details
36.4.1
Consortium details
The private party must notify government of any change to the consortium details for any
consortium member as provided at financial close.407
36.4.2
Other information and records
The private party must provide government with any other information, records or
documents government reasonably requires in relation to the facility and its operation
(including copies of any documents issued to the private party's members, lodged with
ASIC or relevant stock exchange, or any information provided to the private party's
financiers).
36.5
Warranty
All information given by the private party is to be warranted as being true, correct and
complete at the time provided.
36.6
Financial audit
36.6.1
Audit requirements
•
At any time up to six months after the end of the contract term, government may (at its
cost) require an independent audit of any financial statements or accounts provided in
respect of the private party to verify their accuracy, correctness and completeness.
405
Where the project provides for third party revenue, government may also require details of any third party
revenue earned by the private party in respect of which government may have a financial interest.
406
This information allows government to verify expenditure proposed by the private party arising from
government-initiated modifications, compensable events, qualifying changes in law, benchmarking and market
testing.
407
Required information includes the name of the parties' auditors, directors, company secretary and chief
executive, any business name under which they operate, any persons holding a relevant interest in 20 per cent or
more of the shareholding in each of the parties or who are able to control each party. The relevant consortium
members will depend on the corporate structure relevant to the particular project.
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•
The private party must make available for the audit all its financial statements and
accounts and, if necessary, an appropriately trained and qualified member of its staff to
provide accounting system information relevant for audit.
36.6.2
False information
•
If the audit shows that any of the statements or accounts are not accurate, complete
and correct, then the private party must rectify the problem and the cost of the financial
audit will be for the private party's account.
•
If the inaccuracy has affected any payment made to the private party, the next
scheduled payment will be reduced or increased by an appropriate adjustment amount
(as determined by government).
•
Where the financial audit discloses any fraud or false, misleading or negligent
reporting, this will constitute an Event of Default.408
36.7
Maintenance of non-financial records
The private party must maintain a full record of all incidents relating to health, safety,
security and pollution of the environment occurring during the contract term and of all
maintenance procedures carried out during the contract term.409 Such records must be
available to government for inspection and copying.
36.8
Period for retaining records
All records and statements must be retained for at least five years after the private party's
obligations under the contract have ended.
36.9
Confidentiality
All records, statements and documentation referred to above are subject to the
confidentiality and disclosure provisions.410
408
See paragraph 27.2.2(e) in section 27 (Default).
409
Depending on the nature of the project, it may be necessary to include additional specific record keeping
requirements in the project agreement - e.g. where there are information privacy or health record issues. See
Appendix H of the Partnerships Victoria Contract Management Guide for further information in relation to privacy
legislation in Victoria.
410
See section 38 (Confidentiality and disclosure).
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37. Probity
Principle
The private party is responsible for reversing or otherwise addressing the effects of any
probity event to government's satisfaction. Government may require the private party to
carry out probity investigations to ensure those involved with the project are fit and proper
to have such involvement.
37.1
Notification of a probity event
The private party must notify government as soon it becomes aware that a probity event
has occurred or is likely to occur.
37.2
Meaning of probity event
A probity event includes any event or thing which:
(a)
has a material adverse effect on the character, integrity or honesty of an
associate411 of the private party;
(b)
relates to the private party or an associate and has a material adverse effect on the
public interest or public confidence in the project; or
(c)
involves a material failure by the private party or an associate (where it is a
corporation) achieving or maintaining reasonable standards of ethical behaviour,
good corporate citizenship, avoidance of conflicts of interest or other standards of
conduct that would otherwise be expected of a party involved in a government
project.
37.3
Consequences following notice of a
probity event
37.3.1
Parties to endeavour to agree course of action
•
Within a specified period following notice of a probity event, the parties will meet with a
view to agreeing a course of action to reverse the effect of the probity event on the
project or otherwise cure it.
•
The private party must take within the specified time any action agreed with
government.
411
This will generally be defined to include any related body corporate of the private party and any officer,
employee, agent, contractor, consultant or adviser of a member of the private party group for the particular
project.
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37.3.2
Parties unable to agree
•
Where, within a specified period, the parties are unable to agree a course of action
(including where the private party fails to meet with government to agree a course of
action), the private party must take any action required by government to address the
adverse effect of or cure the probity event.412
•
Actions government may require of the private party include:413
(a)
where the corporation triggering the probity event has control over the private
party or relevant associate, that the corporation ceases to have control; and
(b)
procuring that a person triggering the probity event ceases to have any
involvement, shares, entitlement or significant influence, power or control over
any relevant company (being the private party or an associate of the private
party) or the project and removing such person from any involvement in the
project.
37.4
Costs of cure
The private party will bear all costs associated with the above action required by
government as set out in paragraph 37.3.
37.5
Probity investigations
37.5.1
Government requirement for probity investigations
Government may require the private party at any time to conduct probity investigations in
respect of an associate of the private party (or any proposed associate).
37.5.2
Type of probity investigations
Government may require such probity, criminal and security investigations into the
character, honesty and integrity of a person or a corporation as are necessary to ensure
that they are fit and proper for their intended involvement in the project.
37.5.3
Consents
The private party must procure all relevant consents from the party in respect of which
government requires probity investigations.
37.5.4
Costs of probity investigation
The private party will bear the costs reasonably incurred by government in carrying out the
initial investigation in respect of each relevant party or event. The private party will not be
liable for any further probity or security investigations required by government.
412
This is subject to the private party's right to refer a government determination to dispute resolution if it
considers that the required action will not address the adverse effects of the probity event. To the extent that
financiers exercise their step-in rights, they may be able to cure the relevant probity event by appointing a
receiver.
413
This is not intended to be an exhaustive list of the action government may require.
April 2008
163
37.6
No appointment without government
consent
The private party will not appoint an associate unless such party has been approved by
government following a probity investigation and other investigations required by
government.
April 2008
164
38. Confidentiality and disclosure
Principle
Government will be entitled to publish the project agreement and associated transaction
documentation, subject to limited exceptions for commercially sensitive information.
38.1
State disclosure
Government will be entitled to disclose (on the internet or otherwise):
(a)
the terms and conditions of the project agreement and any associated transaction
document; and
(b)
any documents or information arising out of or connected to the agreement or
transaction documents (including the performance of those agreements),
except to the extent that any documents or information are agreed by the parties to be
confidential.414
38.2
Confidentiality
38.2.1
Agreement
The project agreement will identify any matters which are subject to a confidentiality
obligation on both parties.415 The confidentiality of such matters is subject to government's
legislative disclosure obligations set out in paragraph 38.3.1.
38.2.2
Requirement for consent
Any matter which the parties agree should remain confidential must not be disclosed to any
person by either party without the prior written consent of the other, except in specific
circumstances including:
(a)
any disclosure required by law or legally binding statutory approval;
(b)
information already in the public domain;
(c)
any disclosure required by any applicable stock exchange listing rules;
414
415
This will generally be commercially sensitive material (e.g. innovative construction methods or payment and
price mechanisms) which the private party wishes to remain undisclosed, or material relevant to national security,
which government wishes to remain undisclosed. Generally, only information that is exempt from disclosure
under the Freedom of Information Act 1982 (Vic) will be brought under such a confidentiality obligation.
April 2008
165
(d)
any disclosure to solicitors, barristers or other professional advisers under a duty of
confidentiality;
(e)
any disclosure to a banker or other financial institution relevant to a party, to the
extent required for the purpose of raising funds or maintaining compliance with
credit agreements or in respect of a permitted syndication;
(f)
any disclosure by the private party to a related body corporate of the private party
as necessary for the related body corporate to perform its obligations under the
project agreement or other project documents, subject to the related body
corporate providing a covenant to maintain confidentiality which is satisfactory to
government;
(g)
any disclosure of information to any prospective or actual permitted assigns or
investors in, or shareholders of, the private party (and their respective financiers),
subject to such purchaser providing a covenant to maintain confidentiality which is
satisfactory to government;
(h)
any disclosure required in connection with permitted re-tendering or any
benchmarking or market testing;
(i)
any disclosure amongst permitted government parties; and
(j)
any disclosure necessary for the registration or recording of documents where
required.
38.3
Legislative disclosure obligations
38.3.1
Legal requirement of disclosure
The private party will acknowledge and agree that disclosure by government may be
required:
(a)
under the Freedom of Information Act 1982 (Vic);
(b)
under the Ombudsman Act 1973 (Vic); or
(c)
to satisfy the disclosure requirements of the Victorian Auditor General under the
Audit Act 1994 (Vic) or of Parliamentary accountability or in the case of a Minister
to fulfil his or her duties of office.
38.3.2
Obligation
The private party must, at its own cost and expense, use all reasonable endeavours to
assist government in meeting government's legislated disclosure obligations.
April 2008
166
39. Intellectual property
Principle
The private party is responsible for the costs of intellectual property required by the project
(including costs resulting from infringements subject to any government warranties and
indemnities in respect of intellectual property brought to the project by government).
Government must be able to use any intellectual property required to provide the services
in the event that it takes over the service, whether during or beyond the end of the contract
term.
39.1
•
Warranties
The private party must warrant that, in performing its obligations under the project
agreement:
•
(a)
it will not breach the intellectual property (IP) rights or moral rights of any person;
(b)
subject to paragraph 39.3 it has authority to grant to government the licence or
other rights to be granted under the project agreement; and
(c)
neither the use nor exercise of those rights by government (or any party
authorised by government) will infringe any IP or moral rights of any person.
If government brings IP to the project, the scope of this warranty will be adjusted to
exclude matters warranted by government.416
39.2
Grant of licences
Subject to paragraph 39.3, the private party will grant government (and where necessary
ensure the grant by third parties of) non-exclusive but irrevocable, perpetual, transferable
and royalty-free licences with the right to sub-licence, use and exercise all IP rights in or
used in the project including:
(a)
the design of the works;
(b)
the design documentation and final design documentation;
(c)
methods of working and materials used in the construction and commissioning of
the works; and
(d)
operation of the facility as required for government to exercise its rights under the
project agreement (including step-in) and, where applicable, to allow for the
416
See section 39.7.
April 2008
167
continuation of the project services following the termination of the agreement or
expiry of the contract term.417
39.3
Obligation
Where, after having used its reasonable endeavours, the private party is unable to grant
government any of the licences it is required to grant, government and the private party will
negotiate in good faith with respect to the private party obtaining such rights or
arrangements for government's benefit as government reasonably requires having regard
to government's rights as set out in section 39.8.
39.4
Moral rights
In addition to obtaining all copyright and patent consents required for the project, the
private party will be required to obtain, for the benefit of government, the consent of the
authors of all copyrighted works of which use is made for the purposes of the project.
39.5
Survival of rights
The IP and moral rights granted to government survive:
(a)
any frustration, suspension, termination or expiry of the project agreement; and
(b)
government exercising its rights of step-in.
39.6
Indemnity
Subject to the exclusion of any matters warranted by government under section 39.7, the
private party will indemnify government against claims or liabilities arising from any
infringement of a person's IP or moral rights by:
(a)
the private party and any subcontractor; or
(b)
government or government's authorised representatives, where the infringement
arises as a result of the private party's failure to comply with its obligations under
paragraphs 39.2, 39.3 or 39.4.
39.7
IP rights passed from government
If government contributes IP which the private party is either required or entitled to use for
the project, government will provide a licence to the private party that is specifically
restricted to the project and for the term of the project agreement. In such a case,
government may consider appropriate intellectual property and moral rights warranty
and/or indemnity provisions.
417
Government may require that the licence to use IP developed for the project be extended to use in other
projects.
April 2008
168
39.8
Rights to IP on expiry of term
39.8.1
Government rights
The project agreement will provide that:
(a)
if the private party has not been able to grant the licence under clause 39.2 for use
of third party IP rights beyond the expiry or earlier termination of the project
agreement, the private party will procure a novation of any IP licences from those
third parties to government and that the private party will be obliged to ensure that
the IP licences it obtains for the benefit of government make provision for this; or
(b)
if the requirements in paragraph (a) prove impossible, the private party must
secure government's right to obtain those licences at commercial rates.
These obligations survive in the same manner as in paragraph 39.5.
39.8.2
Indemnity
The private party must indemnify government against any costs incurred through nonavailability of the IP necessary for the continuation of the services.
39.8.3
Provision of data
To ensure government's immediate ability to operate the facility, the private party may be
required to provide any data (including source code for software) that is necessary for
operation to an independent party to be held in escrow for release in appropriate
circumstances.
April 2008
169
Partnerships Victoria Guidance Material - Updated Standard Commercial Principles
www.partnerships.vic.gov.au

Updated Standard Commercial Principles

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