The ´Richmond Review´ - Implications for Government Policies and Processes on PPPs Generally

• While the focus of the Review was on toll road projects, it recommends changes to disclosure, market engagement processes, financing, procurement, governance and consultation which are of broader relevance to other PPPs.

Following the opening of the Cross City Tunnel toll road in Sydney in August 2005, the Hon Morris Iemma MP, Premier of NSW, appointed Professor David Richmond AO and the Infrastructure Implementation Group to produce for Cabinet a "Review of Future Provision of Motorways in NSW". This Review was issued in early December 2005, and its recommendations were accepted by the Premier. While its report focused on the policies, processes and methods of procurement of motorways, several aspects of the Review are likely to have broader application for the use of public private partnerships ("PPPs"), and particularly privately financed projects ("PFPs"), for other forms of infrastructure both in NSW and elsewhere. This article looks at those aspects of the Review which are likely to have an application beyond toll road projects.

Prior to the Review, the NSW Government's policy on disclosure of PPP contracts was to publish a detailed contract summary which had been checked by the Auditor-General for accuracy. This is to be contrasted with the recent policy of the Victorian Government, which has been to publish the contracts themselves, except for those parts of the contracts which contain genuinely commercially confidential information, such as trade secrets.

In generally supporting the draft NSW Treasury guidelines for disclosure of high-value contracts, the Review essentially recommends that the NSW Government's policy be aligned with that of the Victorian Government, and that all project contracts signed on behalf of Government with private consortia be released, less any commercial-in-confidence information such as the consortium's financing arrangements, cost structure, profit margins and base case financial model, as well as items of intellectual property and other matters which if disclosed would place the consortium members at a substantial commercial disadvantage to their competitors.

The Cross City Tunnel experience will no doubt cause other governments to also move towards policies of greater disclosure of high-value government contracts. One can also expect, going forward, greater clarity in government policies on the disclosure of amendments to such contracts.

The Review notes that the RTA's approved project assessment processes currently provide for limited face-to-face dialogue with proponents during the tender process, and recommends that greater opportunities be provided in this regard to enable proponents to better understand the issues and submit more informed proposals. There is of course tension between the need for frequent and effective communication between the procuring agency and bidders on one hand, and on the other the requirements of probity and fairness in the tendering process. The Review suggests that, in striking a balance between these competing considerations, government agencies should seek the benefits of increased face-to-face dialogue while managing the probity risks by implementing formal probity frameworks set up in advance. Recent PPP projects, such as the NSW Rolling Stock PPP and the Brisbane North-South Bypass Tunnel project, have seen higher levels of dialogue during the tender process, and one would expect this trend to continue as agencies develop their probity frameworks for managing such dialogue.

One of the Review's recommendations is that the NSW Government's policy of procuring motorways on a "no cost to government basis" be abandoned. Instead, it advocates an approach that takes into account the value for money for users. The Review's suggestion is that where a "fair value" toll would be insufficient to fully fund a project, it may be appropriate for a government contribution to be used to make up the difference, so as to avoid having the full cost of the project financed by private parties and borne by the users via a toll. While this aspect of the review is unlikely to have any effect on social infrastructure PPPs, to which the "no cost to government approach" has never been applied and for which government contributes some or all of the project funding, it may well be expected to apply to other transport projects (such as new rail links) that may be funded on a user-pays basis.

The Review recommends that the NSW Government's internal policies and processes for decision-making on planning and procurement of infrastructure projects be "strengthened". Amongst other measures, it proposes that: the Budget Committee of Cabinet (BCC) and the Infrastructure and Planning Committee of Cabinet (IPCC) be given the responsibility of ensuring at the outset that the project has been assessed against clear objectives and that it fits within broader government policies and strategies such as the State Infrastructure Strategic Plan; that Cabinet review planning approval conditions before they are accepted by the procuring agency or private sector participants; and that Treasury have the task of ensuring (prior to execution of the relevant contracts) that the procuring government agency has met all conditions for Cabinet approval. The Review concedes that the addition of the final Treasury review phase will necessitate that the tender documentation provide for adequate time for it to be undertaken.

The Review also states that there is a need, during the phases leading up to project construction, for closer alignment between the planning processes required for approval of a project under the Environmental Planning and Assessment Act 1979 (NSW) and the NSW Government's own decision-making processes. It suggests, for example, that the Government closely monitor the effects of any planning approval conditions for a project on the likelihood of that project meeting its previously determined objectives, including anticipated costs. This is likely to mean that the Government will place an increased emphasis, for future infrastructure PPPs, on reserving the ability to modify projects in response to conditions attached to the planning approval.

The Review recommends the increased involvement in RTA motorways project assessment and review processes of appropriate high-level non-government people with specialist skills, to provide independent points of view in relation to the assessment and decision-making processes, supplementing the agency's own legal and technical advisers. While such people would be committed to the project outcome, their role would be to raise wider community issues, promote the "eye of doubt" and ask the difficult questions. This recommendation seems equally applicable to agencies involved in the provision of other types of infrastructure, and as such there is likely to be pressure on those agencies to increase the involvement of non-government experts in their project assessments.

Another strong recommendation of the Review was that the Government not fetter its control of road and transport networks in PPP contracts. This may have implications not only for transport projects but also PPP contracts for infrastructure projects more generally. The Government is likely to be significantly less willing, for example, to accept compensation clauses that might have the effect of constraining its flexibility to make changes affecting public domain assets.

A further area in which the Review makes recommendations of relevance to the range of major infrastructure project PPPs is the allocation of responsibility for public communication and consultation about the project, including the environmental assessment process. The essence of the Review's observations is that this role (and the associated risk) should increasingly be allocated to the private sector entity that owns and operates the infrastructure. As a result, for future PPPs it seems likely that private owner/operators will be expected to have stronger customer relations and public communication skills.

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.