Working towards standardised PPP contracts

By Owen Hayford.

Key Points:
The great challenge is getting broad stakeholder consensus without getting bogged down in the process of obtaining it. One of the States needs to adopt a leadership role.

Apart from the documentation issued by the NSW Roads and Traffic Authority (RTA) for its recent Sydney toll road projects, the non-standard nature of contractual documentation for most Australian Public Private Partnerships (PPPs) is one of the factors which contributes to the high costs of bidding for PPP projects in Australia. The shorter tender processes and lower transaction establishment costs seen on the RTA's Lane Cove Tunnel and Western Sydney Orbital (now known as the Westlink M7) projects, which used the same documentation issued on the earlier Cross City Tunnel project, provide clear evidence of the benefits of a more standardised approach to PPP documentation. Lower bid costs will also lead to greater willingness to participate in bids and hence more competition for projects, resulting in better value for money outcomes for Government.

Accordingly, the standardisation of contractual documentation is clearly a desirable objective.

That said, every project is different and has its own unique issues and requirements. Accordingly, there will almost always be a need to tailor the contractual documentation to address project specific requirements (as occurred on the recent Sydney tollroad projects). Further, the commercial dynamics of a social infrastructure PPP, where there is a Government-sourced revenue stream, are quite different from those of an economic, user-pays, PPP project, which requires (or allows) different approaches to the allocation of certain risks. This is particularly pertinent with respect to the interface (and risk allocation therefore required) between the services being provided by the private sector and the core services being retained by the State. Even so, there is still considerable scope for greater consistency in:

• boilerplate and non project-specific clauses (eg. termination, force majeure, uninsurable events, representations and warranties); and
• ancillary documents, such as charges, novation deeds and the like.

The objective of more standardised documentation must also be balanced against the desirability of continuous improvement in contractual documentation. There must be a recognition and acceptance that the documentation will evolve over time:

• to capture the lessons learned on previous projects (such as issues which weren't addressed in the documentation at all, or which could have been avoided if the drafting had been clearer); and
• in light of changed circumstances, such as the respective capacity of the private sector and Government to manage certain risks.

Given the obvious benefits of more standardised documentation, and the stated commitments of the various Governments to achieving consistency in contractual documentation, we need to ask ourselves why it hasn't occurred and what can be done to improve the situation. No doubt each Government thinks consistency is a desirable outcome, so long as the other jurisdictions adopt its preferred documentation.

One obvious reason is the personal views and preferences of the individuals involved in the drafting of the contractual documentation. Each Government agency, and the individuals within each agency, bring to the contract drafting task their own preferences as to how provisions should be drafted, based on their own unique experiences. The different advisers used by Government agencies to assist with the preparation of contractual documentation also bring their own views and preferences to the contract drafting task. There will also always be a desire on the part of some individuals to put their own stamp on the contractual documentation, and not simply adopt without question the work of others.

In order to gain widespread acceptance of "standard" PPP contract documents, a set of documents needs to be developed with wide stakeholder involvement, so that those who will need to use and live with the documents are comfortable with their terms. And here lies the great challenge - how to get broad stakeholder consensus without getting bogged down in the process of obtaining it. One of the States needs to adopt a leadership role here. The take up of the Partnerships Victoria policy and guidance materials by the other jurisdictions suggests that the publication by, perhaps, the Victorian or New South Wales Government of a set of standardised provisions incorporating appropriate input from the different Government agency stakeholders would provide a strong lead which would encourage other jurisdictions to follow suit.

Perhaps the establishment of the proposed National PPP Council will assist the States and Territories to meet the challenges involved in moving towards more standardised contractual documentation.

Another possibility is to follow the Victorian policy of placing all major contracts (and not just a summary) on the internet - it certainly makes unrealistic positions taken by parties less sustainable if a negotiated outcome in respect of a broadly similar concept is there for all to see on the web!

For further information, please contact Owen Hayford.