Australia: Transport sector scores some wins, but the road could be a bumpy one

Last Updated: 11 May 2012
Article by Ben Allen

In one of the rare wins in an otherwise tough Federal Budget unveiled by Treasurer Wayne Swan last night, the Australian Government reconfirmed its commitment to spend $36 billion on its Nation Building programs aimed at improving road, rail and port networks. Whilst the government's commitment to spending increases in the transport sector will be a winner for communities and commuters, it will raise many issues to be considered in coming years as new agreements are negotiated and various Public Private Partnerships (PPPs) are considered in order to bring to life the initiatives announced.

Budget wins for the transport sector

Last night's budget included commitments to major transport initiatives such as:

  • $232.1 million in new funding to upgrade the Torrens and Goodwood junctions in Adelaide;
  • funding of $4.1 billion over the next four years to assist local government to maintain and upgrade roads, the centrepiece of which is the retention of the Roads to Recovery Program until 2019;
  • $300 million in new funding to extend the government's Black Spot Program for a further five years until 2019;
  • a commitment to replace the existing 23 separate state and federal regulators covering heavy vehicles, rail safety and maritime safety with just three national regulators, administering one set of modern, nationwide laws;
  • funding to start, progress and complete a range of projects in Victoria ($901 million) and Queensland ($879.3 million);
  • an allocation of $3.56 billion in new funding which, if matched dollar for dollar by the NSW Government, could be used to complete the biggest, most complex road construction project ever undertaken in Australia within just five years, being the full duplication of the Pacific Highway.

Negotiating the agreements

For each of these commitments, bringing contacting parties from government and the private sector to the negotiating table may be a complex and costly exercise in its own right, whether for the purposes of establishing funding arrangements, entering into complex infrastructure agreements or in establishing PPPs.

Those participating in transport projects have many challenges ahead, including value for money considerations, procurement issues, proper management of time and cost risk, encouraging greater private sector participation and, more generally, ensuring major projects are successful for all participants.

The success of the initiatives unveiled by the government last night will be compromised if these projects are ultimately affected by major disputes. Such disputes can lead to increased costs (both directly relating to disputes and loss of productivity), lack of public support for projects, reduction in future private sector support, increased consumption of court time by the industry, and projects failing to achieve their objectives for the parties.

Considerations for drafting dispute resolution clauses

In the case of funding agreements, careful consideration of the dispute resolution mechanisms to be included will be a key factor in seeking to minimise the potential for escalation of disputes. Ensuring that workable and tailored multi-tiered dispute resolution clauses are negotiated at the outset can save many headaches, should issues arise with the performance of the contract.

For large infrastructure and construction agreements, harmonising dispute resolution provisions between upstream and downstream contracts can be logistically difficult, especially if any of the contracting parties is foreign-based, so that international arbitration provisions are being considered at one level but court or domestic arbitration may be utilised at other levels.

A key lesson to be learned from recent litigation involving high profile transport projects is that while each party is likely to come to the negotiating table believing they are in the superior bargaining position - in reality they may not be. Particularly in the case of PPPs, each party will have access to something that the other needs, such as expertise, capital, public land or rights. Only when organisations recognise their interdependence will contract negotiations move forward to the point where all parties are confident enough to sign the contract and commit fully to the project. Finding ways to achieve that is not always easy.

Increasing use of Dispute Resolution Boards

Increasingly, governments in Australia and overseas have identified the use of Dispute Resolution Boards (DRBs) as an effective device to ensure that projects are better managed during the construction phase. Though traditionally a creature of the construction industry, there is obvious application for major infrastructure projects in the transport sector.

A DRB is established by the parties to a contract to assist in the avoidance and resolution of issues that arise in connection with the performance of work under that contract. It resolves – or prevents - disputes by requiring the participation of the most relevant party representatives at an early stage and encouraging a collaborative "best for project" approach. DRBs are particularly useful for projects which are complex, high risk, high profile or have many parties and stakeholders, such as large PPP projects.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Ben Allen
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