Following the footsteps of its New South Wales counterpart, the Victorian Government has released a new Unsolicited Proposal Guideline for infrastructure projects and services from the private sector.
The new guideline provides a process for private parties to directly approach Government seeking support and approval to provide a project or service. The Victorian Government can also use the process to directly approach a private party to deliver a project.
A glance at the new Victorian Guideline: Private party approaches Government
The guideline implements a five stage process that will guide the assessment of unsolicited proposals (further detailed in the Victorian Guideline):
Stage One: A private party submits an unsolicited proposal for Government consideration, adhering to prescribed information requirements such as:
how the proposal meets a State service need;
proposed benefits to the State and public;
unique aspects of the proposal;
required government support and cost;
financial capacity of the provider; and
areas considered to be unique intellectual property.
Stage Two: The Government (via a working group comprised of relevant portfolio agencies, as well as representatives from the Departments of Premier and Cabinet, State Development, Business and Innovation, and Treasury and Finance) conducts a preliminary assessment of the proposal's merits and decides whether to enter into an exclusive negotiation. The working group will consider whether:
there is a service need and whether it is consistent with Government policy objectives and priorities;
it has significant financial, technical and economic merits;
there are direct or indirect costs and risks;
it has a degree of uniqueness that justifies exclusive negotiation;
there is a competitive market for the solution; and
the provider has the capacity to deliver the solution.
Following the evaluation process, the working group can then recommend to Government that it enter into exclusive negotiations with the private party to further develop the proposal, or that it develop the proposal further and award it through a competitive process, or that the proposal not proceed.
Stage Three: The Government and the private party enter into an exclusive negotiation to develop a full proposal for Government consideration. There is no presumption at the end of negotiations that a proposal will be agreed unless it is confirmed that the proposal represents value for money for Government and that introducing competition will not result in a better value outcome for Government.
A Steering Committee is established to oversee the assessment process. A formal agreement is to be made to guide the negotiation process, addressing key issues such as:
- the assessment criteria;
- the process for identifying and treating intellectual property;
- timeframes for completion of the negotiation;
- rights and obligations of each party;
- information requirements;
- compensation arrangements;
- confidentiality and approval requirements; and
- management of conflicts of interest.
The Steering Committee can decide to negotiate a final offer with the private party, not proceed with the proposal or contemplate another approach, including a competitive process.
Where Government does not proceed with the private party, but wishes to use its intellectual property, appropriate compensation will be considered by Government. Similarly, partial reimbursement of costs incurred by the private party in developing the proposal beyond Stage Two will also be considered by Government.
Stage Four: The Government enters into final negotiations to finalise the outstanding issues with an intention to enter into a final and binding offer. Issues considered could include whether:
- the final proposal represents value for money;
- the final price is within the approved budget;
- the final risk allocation is acceptable; and
- there are material deviations in the proposal that change its desirability.
Stage Five: The Government awards the contract, which will include a governance structure that determines the delivery phases of the project. The contract may be subject to obtaining final funding.
A glance at the new Victorian Guideline: Government approaches private party
Under the framework, Government may also choose to approach an organisation directly to deliver a significant project or service. The approach may be made because the private party has a unique idea or intellectual property, or the project could not be delivered or achieve the same value for money through a competitive process within acceptable timeframes.
For significant proposals, the Victorian Guideline recommends that the process of negotiation and award follow the same requirements detailed in the last four stages of the above process.
How does it measure up against the NSW guideline?
The NSW Government's current process for dealing with unsolicited proposals has been in place since August 2012. Of note, Transurban's proposal to construct an 8km toll road to connect Sydney's M2 motorway to the F3 freeway is currently being assessed at Stage Three of the framework. Crown Limited's proposal to build and operate a six-star hotel and VIP casino at Barangaroo was approved by the NSW Government under the current guideline.
However, the NSW Government's process for dealing with unsolicited proposals was the subject of much debate during Crown Limited's unsolicited proposal. A key issue in the debate was the lack of a competitive tender process in the NSW Guideline. The argument is that without a competitive tender process, the public is kept in the dark as to whether the State is getting the best value from a deal. Another issue was the lack of transparency and the leeway for the NSW Government not to make documents public until the very late stages of the process.
Fortunately, it appears that the Victorian Government has taken note of these criticisms, and produced a Guideline which addresses some of them.
One of the main objectives is for the process to "incorporate open competition wherever possible". The guideline allows for the Victorian Government to open a proposal up to a competitive process at the conclusion of Stages Two and Three. In the absence of competition, the guideline also outlines a "value for money evaluation", whereby the Victorian Government will be required to consider appropriate costing mechanisms, such as building a cost comparator, seeking independent assessment of a proposal or using benchmarking data.
Transparency has also been enhanced in the Victorian Guideline. Once a proposal is approved for Stage Three and Government enters into an exclusive negotiation with the private party, the Government is required to disclose headline details of the proposal on the Department of Treasury and Finance website. The Government must then update details of the proposal at the end of each assessment stage as appropriate. A Project Summary is also to be released by Government within 90 days of contractual or financial close, summarising key aspects of the proposal.
On paper, it appears that the Victorian Guideline strike a good balance between providing confidence and certainty of process to the private sector. While it has yet to be tried and tested, hopefully it will give Victorians the benefit of innovative ideas and unique options that offer value for money.
There have been a number of false starts on unsolicited proposals in Victoria over the early years of this century, which have suffered from a lack of clear policy guidance, in effect requiring that both sides improvise during the process, and this has led to unsatisfactory outcomes.
It is abundantly clear that the private sector has much to contribute through innovation and efficiency, driven as it is by the need to be competitive and make a profit. Given the more constricted budgets that all governments are managing, providing clear guidance as to how projects can be pitched to government is a good way to maximise opportunities for the private sector to pitch, and for government (and ultimately the public) to benefit.
Private sector parties wishing to make an unsolicited proposal should provide key information about the proposal to the Deputy Secretary, Commercial in the Department of Treasury and Finance.
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