Victoria revisits PPP plans after prison failure
THE VICTORIAN Government is going back to the drawing board to rewrite the rules for future public private partnerships after the failure of the Ararat Prison project.
The state government has released a consultation paper on the future direction for Victorian public private partnerships and is requesting public input.
The Ararat prison was being built by a joint venture between New Zealand’s Hawkins Construction and New South Wales firm St Hilliers Construction. The A$400m (NZ$565m) project collapsed after St Hilliers Construction went into administration in May as the project fell progressively behind schedule and costs escalated to around A$150 million over budget.
Hawkins placed its Ararat Prison vehicle, Hawkins Ararat, into administration two months later.
While contracts indicated the joint venture partners were jointly and severally liable, meaning any or all could be held to account for delivery of the contract, it appears there were no cross guarantees required from the parent companies of the two builders to allow that provision to be effectively enforced.
While the Ararat project was the first undertaken under new Victorian Government guidelines for public private partnerships, the government is now looking at those again.
A section of the consultation document refers to the Ararat experience and seeks to ‘‘build on recent project experiences’’.
‘‘Experience with the Ararat Prison Project has identified that risk transfer to the private sector in PPPs is real. A number of lessons have been identified and can be applied to future projects to further strengthen project outcomes,’’ it says.
Possible changes in response to Ararat include the consideration of the liquidated damages payable to the state where appropriate and when it represents value for money.
Stronger evaluation may be required of a consortium’s financial strength and the requirements for guarantees, ensuring that the ultimate parent company is accountable and has sufficient capacity to stand behind the performance guarantees of the building contractor.
In addition, stronger contractual protections for subcontractor payments may be required.
‘‘The state will also have greater capacity to liaise directly with financiers about constructor performance issues,’’ it says.
In addition, more active state contract management may be required to ensure that government is not inadvertently taking back risks in the project.
Ararat Prison was scheduled to be operational this year but is now expected to open in 2014.