Rolling Stock Public Private Partnership ("PPP") between Railcorp
and Reliance Rail is unique. It is the first time that Government has
procured rolling stock for an existing railway under a PPP delivery model
takes demand risk, retains responsibility for operating the trains, sets
and collects fares, and maintains the track; and
private sector finances, designs, manufactures and maintains the trains,
and makes them available for use by RailCorp in return for a
performance-based availability payment.
tollroad, hospital or school PPP, there was no existing market precedent
which RailCorp could use as a basis for its contract. Accordingly, RailCorp
started with a blank piece of paper and worked up a Commercial Terms Sheet
which, once settled, became the basis of the PPP contract.
in getting the contract right
its credit, invested significantly in getting the contract right before
issuing it to the market as part of its request for detailed proposals
("RDP"). RailCorp engaged extensively with the market on the
proposed payment regime and other risk allocation issues and, most
importantly, made the tough decisions upfront – there was no "let’s just
run with this (probably) unrealistic risk allocation and see how the market
responds". This investment translated into:
which could be readily compared from a risk allocation perspective (for
example, all bidders basically accepted most aspects of the proposed
relatively limited number of commercial issues requiring further
negotiations, which enabled a short negotiation phase with the two short
listed bidders and very swift deal closure following receipt of final
committed proposals; and
final risk allocation which is fundamentally the same as that contained
in the RDP.
approach to risk allocation
involved many complex operational interfaces which required a sophisticated
approach to the allocation of risks.
Reliance Rail’s revenue stream depends on the availability and reliability of
the trains. The reliability of the trains, however, is also affected by how
well RailCorp’s crews operate the trains and respond to problems with the
trains. RailCorp would not provide any warranties in relation to the
operation of trains, so a more sophisticated approach was required.
incurs abatements to its availability payment – called reliability and
disruption adjustments or RDAs – if a train runs more than three or 10
minutes late, or is cancelled and taken out of service, because of a Reliance
Rail-related problem. If the delay is attributable to both Reliance Rail and
RailCorp, the RDA will be calculated by reference to only that part of the
delay caused by Reliance Rail.
This all seems
simple enough, however it can become much more complex. A train may become
late because of a Reliance Rail-related problem, for example if the train’s
doors won’t shut due to a train malfunction after letting passengers on and
off at a station. But then RailCorp’s crew may fail to press the reset button
to fix the problem, or may press the wrong button making the problem worse,
and cause further delay. Should the crew be contractually obliged to take
action to address the problem? And if it fails to take such action, or takes
the wrong action, should the additional delay so caused be ignored when
calculating the RDA?
addresses these issues by providing that RailCorp’s crew may take
steps to mitigate the effects of a Reliance Rail related problem but is not obliged
to. Obviously, however, it is in RailCorp’s interest to do what it can to
minimise delays and interferences to timetabled services. The contract also
states that the failure by RailCorp to take mitigating steps, or the taking
of steps which make a problem worse, will not count as a separate cause of
delay for which RailCorp bears responsibility.
is subject to the deemed action regime. Under this regime, there are a
number of deemed actions (such as pressing the reset button when the doors
won’t shut) for which deemed action times are to be agreed by the time the
seventh train enters into operational service. Where a delay to a train is
due to a problem which can be fixed by a deemed action, the delay time will
be recorded as the lesser of the actual delay time and the deemed action
time. Therefore, if RailCorp’s crew takes longer than it should to take the
deemed action, Reliance Rail will only be penalised for the time it should
The above is
just one of many examples of the sophisticated approach which has been taken
to risk allocation on this project to ensure a workable solution that
delivers a value-for-money outcome to the State’s taxpayers.
Jennifer Ingram for her help in writing this article.
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