Australia: High Vis: Episode 7 – What is next for market-led proposals In Australia?

Market-led proposals (MLPs) are gaining momentum in Australia, creating both challenges and opportunities for governments around the country. In our latest podcast, Corrs Graduate Georgia Westbrook talks to Partner Jane Hider. What can the construction industry expect next from MLPs?

Corrs High Vis tackles the issues that matter in the construction industry. The podcast series, brought to you by Corrs Construction team, offers analysis and insights to help you make smarter decisions.

These podcasts do not provide legal or other advice. Obtain legal or other professional advice as required.

TEXT VERSION

Georgia Westbrook: Graduate – Construction

Jane Hider: Corrs Chamber Westgarth - Interviewee

GEORGIA: Hello and welcome to High Vis the Corrs Chambers Westgarth Construction podcast. My name is Georgia Westbrook and I am a graduate in the Construction team. Within an increased appetite for market-led proposals across Australia there are some key challenges facing government to ensure that their policies around these are accountable and transparent and that they deliver value for money to tax payers.

But what is involved in the market-led proposal process? And what are some of the future trends to look out for in Australia? I am joined today by Jane Hider to share her insights into the market-led proposal landscape in Australia.

Jane is a partner in the Corrs Construction team with an expertise in conventionally funded Victorian State Government major project, Commonwealth major projects and procurement, major private sector real estate development, transport and energy.

Welcome Jane.

To start, what is a market-led proposal and what can they help to achieve?

JANE: Thanks Georgia and thank you for having me. A market-led proposal or unsolicited bid is where the private sector submits a proposal for the delivery of a project or service. If approved the result is delivery by the private sector with limited or minimal involvement by the public sector. A market-led proposal has a number of benefits. First it can enable the delivery of infrastructure more quickly than other forms of government procurement. It can also enable the delivery of projects that the government has no funds to deliver and finally it can enable access to innovation or technology which is otherwise out of the government's reach. There are of course many policy challenges for governments including the need to balance flexibility against policy certainty, the important need to manage probity particularly if a proponent has a structural or regulatory advantage providing unequivocal guidance to the private sector and finally of course achieving transparency and demonstrating value for money.

GEORGIA: Thank you for that. And how have the policies developed in Australia in recent times and perhaps what are some recent project examples?

JANE: To date the policies have developed on a State by State and Territory by Territory basis. Some States have in fact had policies for many years. For example, Queensland has had a form of market-led proposal policy in some form since 2001. Today each State and Territory has a policy and most have been introduced in the last five or so years. Most policies cover similar ground although there are of course, as always seems to be the case, differences from State to State. Western Australia for example has a policy which only applies to land sales. In Victoria the policy permits reversion to a competitive process in some circumstances which other states do not expressly allow for. Two prominent and very recent examples of market-led proposals are the $5.5 billion Western Distributor Road and Tunnel Project in inner western Melbourne which is to be delivered by the City Link Operator Trans Urban. This project was announced just this month. The second example is an unsolicited proposal which was submitted by Macquarie Group Limited for the development of the Sydney Metro Martin Place Precinct which was announced in March of this year as having progressed to Stage III. This is the last Stage and means that the Proponent will now develop a final and binding proposal which is subject only to New South Wales cabinet approval. Most market-led proposals to date have been in land or property development or in the road or rail space. Other examples which are progressing or have reached completion include a micro-brewery, tourism centres, the implementation of 4G across the train system, a driver training centre, a hospital carpark, a cruise terminal, a ferry line and a new police headquarters.

GEORGIA: And under the policy how is uniqueness tested and assessed?

JANE: A market-led proposal must be unique. This is of course bound to be a very subjective assessment which has in turn proved to be challenging to some Proponents. Each market-led proposal policy in Australia provides guidance in difference forms as to what will and will not be considered unique including an innovative or unique idea, exclusive access to or ownership of strategic assets, ownership of land, intellectual property or other legal rights and finally where there are no competitors or where those competitors would not be able to deliver the same outcome that will convey the relevant level of uniqueness. These examples show why many market-led proposals involve property development as landownership can be objectively assessed and is by its very nature unique in the sense that only one person or company or joint venture can own a land asset. Questions remain though. For example, is innovation a necessary component of uniqueness? Some policies such as the Australian Capital Territory's policy say yes, others are silent on this point. Another question is, does a market-led proposal using value-capture meet the uniqueness test? And finally uniqueness should arguably just be one of the tests as to whether the proposal obtains an exclusive mandate or is put to market.

GEORGIA: When does a market-led proposal revert to a competitive process?

JANE: Every market-led proposal process will commence on an exclusive basis and this is of course a key advantage for any proponent. Some States will permit reversion to competition and others do not expressly permit this reversion. Under the South Australian Policy exclusivity is granted for a specified period but if the government has received multiple proposals on the same subject matter then it may proceed to negotiate with all Proponents. The New South Wales Policy provides that projects which do not meet the policy requirements may be offered to the market but not under the MLP Policy framework. In Queensland it is different again. The Policy provides for a proposal to be accepted on an exclusive basis the government must be satisfied that a proposal addressing a similar need is not already been considered by government and that there are no competing proposals addressing the same or similar already under active or advanced consideration. Once this has been assessed the negotiation may be proceed on an exclusive basis. Victoria is the only State with a policy framework which expressly enables a market-led proposal to revert to a competitive process. Stage II of the Victorian policy permits the proposal to proceed to one of the following: First a tailored competitive process which may involve a Swiss Challenge or a Development Manager model. A Swiss Challenge is where a competitor process is conducted and if the original proponent is unsuccessful it is given an option to match the winning bid. Under the Development Manager Model a competitive process is conducted by the Proponent who is paid a fee from the successful bidder. The second option available under Victorian policy is exclusive negotiation and the final option is a standard competitive process which is run in accordance with the relevant agencies procurement rule.

GEORGIA: Great thanks for that Jane. Can you talk us through the arguments in favour of enabling this kind of approach?

JANE: The arguments in favour of expressly permitting reversion to competition are that it will stimulate the market and good ideas will be market tested rather than just abandoned if they do not meet the relevant threshold requirements. It also means that the time spent by both government and the private sector in the preliminary assessment in preparation of a proposal is put to some good use. Achieving a level playing field if the competitive option is selected remains a significant challenge which is apparent when one considers the potential imbalance between a proponent who may have spent years developing a proposal and parties who will be given just a few months to develop a competing bid. Many other countries have policies which support a reversion from exclusivity in certain circumstances. In most cases these policies also recognise the value provided by the original proponent. To give just one example in Chilli the original Proponent is entitled to participate in an open tender process and given a bonus in a specified form for example a value is applied to its offer for a valuation purposes only. The original Proponent is automatically short listed but given no other advantage.

GEORGIA: What is the relationship between a market-led proposal which might be submitted and an existing government policy for delivery of a project or services?

JANE: Most market-led proposal policies in Australia require any proposal submitted to be in some way aligned with existing government policy. This can get quite complicated when a project has progressed past description in a plan or policy and is the subject of business planning, feasibility study or which may be about to be issued to the market. Several policies such as those in New South Wales and Victoria make it clear that projects where the market process has commenced will not be able to be the subject of a market-led proposal. This is logical because otherwise the government would be running parallel processes for the same project. However it may be worth providing potential Proponents with more structure and guidance as to what projects meet the relevant test of policy alignment. In Australia some have suggested an approach similar to that used in Italy where a standalone market-led proposal strategic plan is prepared. Such a plan identifies investment opportunities in respect of which a market-led proposal will be considered. For example, a road from A to B. This will avoid a market-led proposal intruding on a process which may be in its preliminary stages.

GEORGIA: What refinements might be made to the actual process for assessment and evaluation of a market-led proposal?

JANE: As with any process it is possible to identify small changes which might smooth the way for those applying the policy. Based on our experiences with market-led proposals acting for both the private and public sector some suggestions are:

  • putting more structure around the pre-submission meeting;
  • preparing a more detailed template for proposal submission;
  • imposing a value threshold on market-led proposals as is currently done in South Australia;
  • requiring a proponent to submit a bid bond to cover part of the assessment;
  • paying a proponent some of its costs associated with proposal development; and finally
  • specifying timeframes for assessment. Timeframes should be broad and non-binding but they would provide good guidance to the market.

GEORGIA: And to conclude, what are some of the future trends we can expect to see in Australia in relation to market-led proposals?

JANE: We understand that a number of policies in the various states are currently under review. It would certainly be nice to see some harmonisation across the States and we live in hope. But absent that some of the developments we are likely to see include:

  • Development of standard documentation tools to support the process and guide proponents. For example a Process Deed which can govern confidentiality, probity and reimbursement of costs.
  • Secondly, more detailed public reporting. There are three types which have been proposed: Annual aggregated data; information about the nature and scope of market-led proposals which are submitted and a proposals progress through each stage; and once the proposal is closed the PPP style contract summary.
  • The other trend we see is that it is likely that the PPP and market-led proposal frameworks will become more closely aligned. Some Australian policies for example New South Wales and ACT require a market-led proposal which seeks to enter into a PPP to comply with the applicable PPP guidelines. This broadly mirrors what occurs in other jurisdictions in the US and in South Africa.

GEORGIA: Thank you Jane for sharing those helpful insights into the market-led proposals and where they are heading in Australia.

To our listeners we hope you will join us again for the next episode of Corrs High Vis.

This Podcast is for reference purposes only. It does not constitute legal advice and should not be relied on as such. You should always obtain legal advice about your specific circumstances.

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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