Australia: Outer Suburban Arterial Roads (OSARs Program) industry briefing - Project news update 21 October 2016

Construction Market Update
Last Updated: 17 November 2016

Project overview

On 21 October 2016, Partnerships Victoria and VicRoads presented the second industry briefing on the Outer Suburban Arterial Roads (OSAR) project.

In a move away from the traditional design and construct procurement method for delivering suburban road infrastructure and to encourage innovation and long-term thinking, an availability PPP model will be adopted to procure the delivery of road upgrades and maintenance for separate packages across Melbourne's suburbs.

A dedicated business unit within VicRoads, the OSARs Program Office, will be established to manage the project. Partnerships Victoria will also play a key role in managing the procurement and in monitoring delivery of the project.

The first package to be implemented will be the Western Package, with a South Eastern and possibly a Northern Package to follow. Construction for the Western Package is set to commence in late 2017 or early 2018.

Key facts:

  • The Western Package will be procured as an availability-based PPP delivered under the Partnerships Victoria Framework and in accordance with National PPP Policy and Guidelines and Partnership Victoria requirements.
  • The structure of the PPP will reflect other availability-based PPPs in Victoria under the Partnerships Victoria Framework such as Peninsula Link. Project Co will likely be required to enter into interface agreements with other parties, including utilities.
  • Partnerships Victoria is currently developing a new availability-based PPP Project Agreement which it hopes to use for the Western Package. Standard commercial principles in the Project Agreement will be tailored to reflect the brownfields nature of the project.
  • There will be a Development Phase (D&C) of approximately 3-4 years, during which the successful bidder will be required to complete the design and construction of the capital projects and undertake rehabilitation works across the broader maintenance area to bring the roads to a specified standard.
  • There will be a 20 year Full Maintenance Phase. This will involve the routine and periodic maintenance of arterial road pavement, structures, road-side assets and drainage assets, rehabilitation of roads, road-side assets, structures and drainage assets and the achievement of hand-back requirements on completion of the 20 year term.
  • To address the dynamic nature of the road network, the Project Agreement will include an augmentation mechanism, which will be built on the traditional modification mechanism found in project agreements. The State and Project Co will propose additional capital works and maintenance for consideration in a structured manner every 5 years during the maintenance phase. The State will retain complete discretion and control over directing augmentation. Payment for Major Augmentation may be valued having regard to capped bid values. Alternatively, Augmentation Work may be put to the market.
  • Project Co may be required to finance the design and construction of the capital projects and rehabilitation works. Partial service payments (for SPV costs and tranche 1 capital works) will be payable during the Development Phase (D&C) following the achievement of commercial acceptance for tranche 1 capital works. Full service payments will be paid on and from the commencement of the Full Maintenance Phase.
  • The State will pay Project Co for arterial road availability and ongoing performance, measured against KPIs and subject to abatement for failure to attain the KPIs. Payment for Major Augmentation may be via a new service payment, up-front payment or combination of both.
  • The Western Package will be comprised of:
    • 8 capital projects with a total cost range of between $600-$700 million. They include road upgrades involving lane duplication and, in some instances, bridge widening and other realignment works at:
      • Dunnings Road, Palmers Road;
      • Leakes Road;
      • Dohertys Road;
      • Palmers Road;
      • Derrimut Road; and
      • Duncans Road Interchange.
    • maintenance of approximately 700 km of roads (including commuter roads and heavy freight routes). Currently, 25% of these roads are distressed and 15% are in poor condition.
  • Partnerships Victoria is looking for innovation in design, construction and asset maintenance solutions from bidders.
  • Bidders will need to assess the road assets and develop a rehabilitation strategy for improving the pavement condition and to lower costs over the contract term. Sequencing must ensure that key projects are prioritised and that disruption to the road network is minimised.
  • Partnerships Victoria will seek bidders' input on various topics in the EOI, including re-financing and the augmentation regime. These responses will be used to assist with project development but will not be subject to evaluation.
  • It will not be possible for a single entity to be awarded both the Western Package and South East Package. This is to enhance competition (particularly for the purposes of the augmentation regime) and to encourage competition by comparison between the two packages.
  • Key dates for the Western Package are:

Activity Timing
Registration of Interest (ROI) and opening of data room to registered parties Late October 2016
EOI will be released to the market November 2016
EOI submissions due December 2016
Shortlist announced (aiming for 2 bidders) Q1 2017
RFP will be released Q1 2017
RFP response period 20 weeks
Preferred Respondent announced Late 2017
Construction to commence Late 2017 / Early 2018

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