doing business in australia seminar (infrastructure & construction)
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Doing Business in Australia (Infrastructure & Construction)
Joint presentation with VGBO Tokyo
Celeste Koravos, Finance & Projects, Melbourne
4 August 2016
Email: celeste.koravos@dlapiper.com
Phone: +61 3 9274 5860 (office), +61 409 934 200 (cell)
Agenda
1. Victorian infrastructure market
2. Key participants
3. Competitive landscape
4. Procurement (overview, framework, TPP, probity, access)
5. Project entities and delivery structures (overview, alliances, risk transfer)
6. Forms of contract
7. Statutory regulation
8. Insurance
9. Disputes
10. Key success factors
24 August 2016Doing Business in Australia (Infrastructure & Construction)
Victorian infrastructure market
First ever "Infrastructure Plan" (February 2016) sets out challenges, opportunities and solutions for infrastructure in Australia
Population will reach 30 million by 2031
Infrastructure services will be increasingly automated
Greater risks of extreme weather
"Inspirations" are
Productive cities, productive regions
Efficient infrastructure markets
Sustainable and equitable infrastructure
Better decisions and better delivery34 August 2016Doing Business in Australia (Infrastructure & Construction)
Victorian infrastructure market
First ever "Infrastructure Priority List" (February 2016) based on "top-down" audit of our infrastructure gaps and requirements and "bottom-up" consultations with govs, industry and communities
Victorian high priority initiatives (not static):
Melbourne urban road network congestion
Access to Melbourne airport
Melbourne outer western suburbs access to CBD
Connectivity between M80 and Eastlink in outer NE Melbourne
Melbourne outer northern suburbs access to CBD
Freight rail connection Murray Basin to Ports of Geelong and Portland
Melbourne aviation capacity
Melbourne container terminal capacity
44 August 2016Doing Business in Australia (Infrastructure & Construction)
Victorian infrastructure market
Our appointments include:
$5.5 billion Regional Rail Link
$5 billion Level Crossing Removal Project
Advising Melbourne Water on Vic Desalination Project take-offs
Advising Melbourne Water on $2.2 billion capital investment program 2013 -2017
Advising VicRoads on M1 and M80 Upgrade Projects
Advising VicRoads on West Gate Bridge Strengthening Project
Advising bidding consortium on Melbourne Metro Project
Advising Vic Gov water authorities on network operations and maintenance issues
*Further resources: DLAP "National Infrastructure Construction Schedule" (please see Victoria hand-out or request copies for other States)
54 August 2016Doing Business in Australia (Infrastructure & Construction)
Key participants in Victoria
Government
State (VicRoads / Public Transport Victoria → "Transport for Victoria", Port of Melbourne, Department of Health & Human Services, Department of Justice, DEDJTR)
Federal (for cross-jurisdictional e.g. National Broadband Network)
Infrastructure Australia, Infrastructure Victoria
Industry Bodies
Infrastructure Partnerships Australia
International Project Finance Association
Financiers
Equity
"Big 4" Banks (ANZ, CBA, NAB, Westpac)
Foreign lenders
Export credit agencies
64 August 2016Doing Business in Australia (Infrastructure & Construction)
Competitive landscape
Low degree of market share concentration
Many small-scale businesses in narrow markets
Top players command <10 % revenue
Largest firms are multidisciplinary
Globalisation is low (CIMIC, Bechtel), with room for more
74 August 2016Doing Business in Australia (Infrastructure & Construction)
Procurement - overview
Procurement of infrastructure usually on contestable tender basis
Like Japan, may be publicly advertised, from formal pre-qualified list or informally sought from private list
Government procurement is usually publicly advertised
Tender processes range from simple to complicated (e.g. IT, Defence)
No body of public procurement law like EU; mixture of policies (guides, codes of practice), statute, regulations and common law
Like Japan, no specialised procurement bodies, and each government procures its own projects
*Further resources: DLAP "Doing Business in Australia (Infrastructure & Construction)" (please see hand-out)
84 August 2016Doing Business in Australia (Infrastructure & Construction)
Procurement - Victorian framework
Ministerial Direction No 1 - Tendering Provisions for Public Construction
Specialised policies for particular procurements, e.g. health infrastructure and PPPs
Victorian Industry Participation Policy. Tenderers need to show commitment to using local goods and services for public procurements over:
Melbourne metropolitan or statewide > AUD 3 million
Regional > AUD 1 million
Major Projects Skills Guarantee (new). Tenderers need to maximise use (10%) of local apprentices, trainees or engineering cadets for public procurements > AUD 20 million
94 August 2016Doing Business in Australia (Infrastructure & Construction)
Procurement - Victorian framework
Australian Consumer Law prohibits certain conduct, e.g. bid rigging.
*Further resources: DLAP animation "Bid Rigging" https://www.dlapiper.com/en/australia/focus/competition-law-compliance-bid-rigging/
*Further resources: DLAP and ACCC seminar on "Australian cartel law for Japanese businesses" (please ask for copy)
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Procurement - impact of TPP
Government Procurement provisions set out in Chapter 15
Ensures Australian government (State and Federal) does not discriminate against foreign suppliers when assessing tenders and awarding contracts
Achieved through increased transparency & certainty
Applies to Victorian procurements for:
AUD 692,946 (goods & services)
AUD 9,759,072 (construction services)
One key change: Like Japan's Government Procurement Review Board, complaints should be handled by an impartial administrative or judicial authority that is independent of the procurement entity
No big impact on Japanese bidders
*Further resources: DLAP "Navigating a new era of trade in the Pacific-Rim" (please see hand-out)
114 August 2016Doing Business in Australia (Infrastructure & Construction)
Procurement - probity
Probity = integrity, fairness & honesty
Government refers to probity in general sense to mean good process demonstrated by transparency of actions, equity, confidentiality and managing conflicts of interest
In procurement, probity relates to proper and ethical conduct, and propriety in dealings with market
Probity is integral to the goal of achieving value-for-money outcomes
Examples of how Vic Gov does this:
Manage conflicts of interest
Make decisions based on merit only
Provide same information to all suppliers
Ensure supplier IP remains confidential
124 August 2016Doing Business in Australia (Infrastructure & Construction)
Procurement – access to Victorian
opportunities
Ministerial Direction No. 1: Tendering Provisions for Public Construction requires three pre-qualified tenderers OR public advertisement for:
Building & construction works > AUD 200,000
Related consultancy services > AUD 150,000
February 2016 update requires mandatory OH&S and IR criteria
Current tenders: https://www.tenders.vic.gov.au/tenders/tender/search/tender-search.do?action=advanced-tender-search-open-tender
Awarded contracts: https://www.tenders.vic.gov.au/tenders/contract/list.do?action=contract-view
National Infrastructure and Construction Schedule: https://www.nics.gov.au/
*Further resources: see hand-out DLAP National Infrastructure and Construction Schedule (Vic), or ask us for same for other states
134 August 2016Doing Business in Australia (Infrastructure & Construction)
Project entities
Selection depends on type of project and business strategy
Most project delivery businesses are incorporated (private or public co.). PPPs delivered by special purpose vehicles
However project alliances often involve unincorporated JV
Foreign participants need to consider tax issues (transfer pricing hot topic in Japan now) including GST and stamp duty
*Further resources: DLAP "Key issues for entry of Japanese businesses into the Australian market" (please ask for copy)
144 August 2016Doing Business in Australia (Infrastructure & Construction)
Project delivery structures - overview
154 August 2016Doing Business in Australia (Infrastructure & Construction)
Structure Details
• Construct only • Usually procured on lump-sum basis• Other pricing mechanisms include bill of
quantities or schedule of rates
• Design & construct• Design & build • Document & construct
• Used where there may be preliminary design (and at times when designer must be novated to design and construct contractor)
• Contractor responsible for design and construction
• Engineer, procure,construct
• Engineer, design, construct, maintain
• Common in greenfield projects with large procurements (e.g. plant and equipment)
• Contractor delivers project for fixed price based on fixed scope / schedule of scope
• Construction management• Managing contractor
• Contractor paid fee for managing delivery of the works
• Trades and subcontractors progressively procured and engaged by either party
Project delivery structures - overview
164 August 2016Doing Business in Australia (Infrastructure & Construction)
Structure Details
• Operate and maintain • Used for facility management services• Outsourcing arrangement
Models incorporating a finance or operate component:• Build, own, operate• Build, own, operate, transfer• Design, build, operate, maintain• Design, build, operate transfer
• These models (excluding transfer) are essentially form used for PPPs but without obligation to return asset to state at end of term of operation
• Hybrids e.g. Alliances • May incorporate a relationship, collaborative or risk sharing element
• May incorporate forms of payment incentives e.g. shared savings, cost controls (Guaranteed Maximum Price)
Project delivery structures - alliances
174 August 2016Doing Business in Australia (Infrastructure & Construction)
Movement away from adversarial 'hard money' form of contracting and consequential disputes
Used in Australia for over 15-20 years, including by Japanese companies
Characteristics:
Collective responsibility
No dispute
Integrated team
Best for Project
Meaningful principles
Reward based on performance
Clear governance
Project delivery structures - alliances
184 August 2016Doing Business in Australia (Infrastructure & Construction)
May be appropriate where risks include:
Challenging delivery schedule or environment
Excessive external stakeholder demands and expectations (e.g. public profile)
Need for innovative solutions (e.g. brownfield environments with limited space)
Need to capture and explore emerging technology (e.g. toll, defence and transport integration)
Requirement for scope flexibility (e.g. owner has not finished cost/benefit analysis, political pressure to start)
Project delivery structures – risk transfer
194 August 2016Doing Business in Australia (Infrastructure & Construction)
Alliancing
Managing Contractor
PPP Availability Payment
PPP Transfer of Revenue Risk
Government Financing Private
Financing
Procurement Model
Liability remains on Government’s Balance Sheet
Off (Government) Balance Sheet
D & C
(DBFO)
(BOOT)
Forms of project contracts
Standard forms include:
Australian Standards (Standards Australia)
PC-1 1998 (Property Council of Australia)
Australian Building Industry Contract (Master Builders' Association and Royal Australian Institute of Architects)
FIDIC (International Federation of Consulting Engineers)
NEC3 (Institution of Civil Engineers)
Standard forms are heavily amended
Bespoke contracts used for alliances, PPPs and hybrid models
204 August 2016Doing Business in Australia (Infrastructure & Construction)
Statutory regulation of infrastructure
Level of regulation is "medium"
Regulated by federal, state and local governments
Includes:
Security of Payment
Occupational Health & Safety
Regulation of building contractors
Future will see growth of environmental regulation
*Further resources: DLAP "Changes to the resolution of domestic building disputes in Victoria" (please ask us for a copy)
214 August 2016Doing Business in Australia (Infrastructure & Construction)
Workers' comp #
Domestic building #
Third party motor
vehicle #
Contract works
Marine cargo
Profess/al indemnity
Property damage
Public liability
Insurance
224 August 2016Doing Business in Australia (Infrastructure & Construction)
# Required by statute
Project disputes
Disputes can be costly and time consuming
Lawyers are trained to avoid court proceedings
Infrastructure contracts contain dispute resolution clauses which must be followed before court proceedings, e.g:
Notice of dispute
Good faith negotiations between senior executives
Mediation or other informal dispute mechanism e.g. hearing by technical or legal expert
Expert determination (usually for technical matters)
Completion of steps prior to any court proceedings
Simple options available for building disputes under Security of Payment Act
234 August 2016Doing Business in Australia (Infrastructure & Construction)
Key success factors
244 August 2016Doing Business in Australia (Infrastructure & Construction)
Factor How?
Compete on tender • Secure contacts while maintaining adequate profitability & cash flow
Expand & curtail operations rapidly in line w market demand
• Quickly alter size of labour force to match short-term cycle
• Hire high-quality, productive workers, in times of low availability
Contacts in key markets • Form strategic alliances and relationships with building & construction companies
Business expertise (operators) • Excellent project management skills• Time, financial, labour and consortium
management skills
Good reputation • Be known to meet time, quality and cost specifications
ご清聴ありがとうございました。
254 August 2016Doing Business in Australia (Infrastructure & Construction)
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