Have an idea for an infrastructure project? There’s a regime for that!

Have an idea for an infrastructure project?  There’s a regime for that!

By Swati Johri and Gerald Arends

Australia is widely considered to have an ‘infrastructure deficit’. Various state and federal governments have attempted to plug this funding gap by increasing infrastructure spending in recent years, in particular in the aftermath of the global financial crisis.

In order to limit the politicisation of infrastructure spending, Infrastructure Australia was established in 2008 as an independent statutory body with a mandate to prioritise infrastructure projects and initiatives. The Infrastructure Priority List issued by Infrastructure Australia annually seeks to provide guidance to both public and private sectors on Australia’s medium to long-term infrastructure requirements.

In its 2015 Australian Infrastructure Audit, Infrastructure Australia forecast that Australia’s population would grow by another 7 million over the coming years to over 30 million by 2031.  The vast majority of this growth is anticipated to be in Australia’s major cities putting ever greater strain on transport and social infrastructure.

A key concern of both governments and communities in Australia is whether the additional infrastructure required by such a fast growing population can be developed and delivered as quickly as is required by communities.

Addressing the infrastructure deficit

Traditionally, governments identified infrastructure needs and procured projects through a competitive tender process. The consensus in both the public and private sectors seems to be that this traditional method of infrastructure procurement is not nimble enough to respond as quickly as is necessary to address the infrastructure needs of the nation.

Consequently, governments have increasingly looked to alternative infrastructure procurement strategies. One of these strategies has been allowing the private sector to approach government with their solutions for infrastructure development via an ‘unsolicited proposal’ or a ‘market led proposal’.

Unsolicited proposals — a global trend?

Regimes for unsolicited proposals have developed around the world, with many countries coming to the realisation that governments do not have either the financial capacity or personnel to identify, develop and procure infrastructure projects as swiftly as is required by their growing populations and/or the changing demographics of their cities. 

In August 2014, the Public-Private Infrastructure Advisory Facility, an organisation supported by multilaterals such as the World Bank, the Asian Development Bank and the European Bank of Reconstruction and Development, investigated the unsolicited proposals processes in more than 17 countries and issued its findings in a report entitled ‘Unsolicited Proposals — An Exception to Public Initiation of Infrastructure PPPs’. The report identified an increasing global trend of unsolicited proposals being utilised by governments. With more and more projects being procured in this manner, frameworks for the submission and assessment of such proposals are becoming common and increasingly sophisticated.

Unsolicited proposals in Australia

In Australia, the National PPP Guidelines allow Australian states and territories to implement their own policies and procedures to deal with any unsolicited proposals made by the private sector to the government. 

The National PPP Guidelines recognise that unsolicited proposals can be a source of innovative ideas regarding the delivery of government services. However, governments are not permitted to support such proposals on the basis of commercial viability alone. Given their unsolicited nature, the National PPP Guidelines requires any unsolicited proposal to demonstrate:

  • unique value for money benefits;
  • an overall benefit to the community; and
  • consistency with the government’s plans and priorities.

An important aspect of the National PPP Guidelines is the latitude given to government in the procurement process. Unlike in a traditional procurement model where a competitive tender process must be deployed, a government may enter into exclusive negotiations with a proponent of an unsolicited proposal provided that, as a general principle, the government can confidently demonstrate the unique value for money benefits proffered by the proponent.

Unsolicited proposals regimes in Australian states and territories

Specific guidelines and assessment frameworks for the submission and evaluation of unsolicited proposals or market let proposals have been put in place by the governments of New South Wales, Queensland, Victoria, South Australia, the Australian Capital Territory and the Northern Territory.

While the guidelines and assessment frameworks differ in each jurisdiction and have different stages of valuation, there are two key traits which are common across each of these jurisdictions. The unsolicited proposal must:

  • be unique and innovative; and
  • provide value for money.

While limited guidance is provided as to what may qualify as a ‘unique’ proposal, some of the guidelines give examples of what will fail to qualify. Many guidelines also provide that the unsolicited proposal must satisfy a community need or government priority. In some instances, for exclusivity in negotiations to apply, the proposal must not be the same as or similar to another proposal under consideration by the government.

The Western Australian government also recently issued guidelines for unsolicited proposals.  Notably, these guidelines are limited in that they only apply to unsolicited proposals in relation to state-owned land. It remains to be seen how these guidelines will be applied in practice and whether they might encompass infrastructure development.

Success of unsolicited proposals in the infrastructure sector

While the unsolicited proposals frameworks around Australia are relatively new, some flagship infrastructure projects have been procured through these frameworks.

In New South Wales, the NorthConnex road tunnel is the first major transport project to be delivered via an unsolicited proposal. The project was first submitted to the NSW Government by a consortium comprising Transurban, the Queensland Investment Corporation and the Canadian Pension Plan Investment Board in March 2012 and achieved financial close in January 2015.

In Victoria, a consortium comprising MTR, John Holland and UGL Rail approached the Victorian government to upgrade the Cranbourne to Pakenham rail line.  This proposal was approved by the Victorian government, albeit in a modified form. In March 2015, Transurban submitted an unsolicited proposal to the Victorian government for the construction of the Western Distributor in Melbourne. This project is currently under review by the Victorian government.

Watch this space

It is encouraging to see that major infrastructure projects are able to be delivered through the various unsolicited proposals regimes giving the private sector the opportunity to provide ideas, innovate and proactively lead the development of much needed infrastructure. 

Given the infrastructure deficit that exists in Australia, unsolicited proposals may prove to be a useful tool in progressing projects that typically have extremely long lead times and may help to keep infrastructure development apace with the needs of the community.

Not all states and territories that have guidelines in place for unsolicited proposals provide details of the projects or initiatives that are being evaluated. Providing greater visibility of the projects that have been submitted for consideration will ensure transparency and maintain public confidence in the process.

While it has been mainly been the procurement of large-scale infrastructure projects that have grabbed headlines as success stories of the unsolicited proposals regimes across Australia, it should be noted that these regimes provide scope for the private sector to utilise these regimes for other forms of service delivery. It will be interesting to see whether the unsolicited proposals regimes are similarly successful in the procurement of equally necessary smaller scale government projects and services. 

Pegasus Legal is a boutique law firm with an exceptional level of expertise in the energy and social infrastructure sectors. Our lawyers have worked on a large number of projects in these sectors in Australia and around the world. For further information please contact our directors Gerald Arends or Swati Johri.

This article will appear in the June 2016 edition of procurement magazine, In-procurement.  (www.in-tend.co.uk)