The Victorian Department of Treasury & Finance has
recently updated the Standard Commercial Principles last issued
in 2005. These principles provide detailed guidance on the risk
allocation government will seek to apply in all future
Partnerships Victoria projects. The updated principles appear
to incorporate provisions negotiated with government in major
recent Partnerships Victoria projects.
In relation to site conditions and environmental issues, key
areas revised include guidance around relief for latent
geotechnical conditions, site conditions, unidentified
pre-existing contamination and the treatment of contamination
Key construction issues revised include, in relation to the
fitness for purpose warranty, a look forward test for
completion, liability for defects, ownership of the
builder's 'float', EOTs and
compensation events, treatment of concurrent delays and
determination of compensation.
During operations, key areas revised include in relation to
service failures and abatement, the treatment of price and
volume risk for all utilities, intervening events (including a
new, limited, category of 'Compensable Intervening
Events') and review and market testing of 'soft
While abatement is now recognised as the sole remedy,
exceptions to this principle include government's
reasonably foreseeable economic loss.
The process for 'Modifications' has been
revised, including introducing the requirement for bidders to
bid maximum margins and other on-costs and an allowance for a
minor works regime within the services delivery
Further guidance has been provided regarding when government
may withhold its consent to a change in control (although the
public interest test has been retained) of the project vehicle
(which may lead to a 'Default Termination
Event') and key subcontractors (which may lead to an
'Event of Default').
The updated principles also propose sharing of the costs of
general changes in law (other than in respect of soft operating
costs where the review and market-testing mechanism is intended
For multi-site projects, partial termination for Force
Majeure is contemplated. New 'Force Majeure
Events' have also been introduced but servicing of
senior debt by government will not be available where the risk
is insurable. Unanticipated insurance cost increases are now
proposed to be shared on a 'look-forward
basis'. The test for insurance unavailability has also
Further guidance as to 'Events of Default'
and 'Default Termination Events' has been given
and the process for dealing with Events of Default not capable
of cure has been clarified.
The principles regarding payment by government on
termination have been extensively revised and are now similar
to UK guidance, particularly around limitations on
government's rights to re-tender the project where
there is no liquid market or where the financiers have
previously stepped in. A new mechanism for determining
termination payments (particularly on voluntary termination)
has also been introduced for capital markets financed
Changes are also proposed regarding reductions in the
service fee during step in by government.
The Council announced planning policies to encourage more inner suburban retirement village and aged care development.
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