The need for a clear PPP contract structure is determined by the requirement for delegation of responsibility between the parties in non-compliance with crucial contract clauses. At the same time, the PPP structure, formed as a result of optimized acceptance and commissioning tests and an improved risk accounting model, aims to achieve the best operating efficiency in terms of costs. Thus, requiring compliance with all key contract parameters is essential for PPP SPVs to be paid in full for work performed. On the other hand, the government is not liable in any material way to the service provider if the latter fails to meet its part of the obligations within the stipulated time.
In such a case, the PPP SPV is only entitled to rely on the payment of liquidated damages, which can go towards covering the debt obligations, but the PPP SPV must initiate this possibility. Thus, the government is exempt from liability to the PPP SPV in all cases except those where the delays and stoppages in the performance of the contract were caused by the government party: in this case, the fault for not meeting the original deadlines falls on the contractor and, consequently, liability to the PPP SPV is incurred. In addition, if the delay in fulfilling the contractual obligations proves to be too great, or if there is no implementation of key points, the government has the right to terminate the PPP contract unilaterally. In this case, the government is not responsible for paying a portion of the debt, but the calculation of severance payments for employees is based on the facility’s market value.
Contribution Claim
Due to the extensive development of the Australian real estate market, the Sydney Metro must keep up with urban line expansion. Consequently, it is in the interest of Metro management to create an environment in which the development of new stations and transfer hubs is realized in those areas of the city where new development is most active. To this end, Sydney Metropolitan has developed and introduced an initiative to collect financial investment contributions from the directorate of developers: this program aims to promote more intensive construction of new stations in the built-up areas of the city.
The implementation of this initiative is most visible in the case of the collaboration between Sydney Metro City & Southwest and Integrated Station Developments for four new Metro stations. These included Victoria Cross (USD 200m), Martin Place (USD 355m), Waterloo (USD 106m), and Pitt Street (USD 369m) stations. The need to raise funds from the developer is closely linked to the emerging agenda, which has resulted in demand for properties from investors exceeding the territorial capacity of the city. That being said, this fee must be fair to all parties to the contract, so its designation is initiated if the developer could make an excessive profit in the absence of the need to pay the fee.
Procurement
The Sydney Metro City & Southwest SPV is an innovative project that seeks to qualitatively improve the urban environment by managing operational efficiencies and reducing operating costs. Such improvements are realized through the integrated use of innovative technologies to design and construct new Sydney Metro stations and destinations. The Contractor party is committed to participating in discussions with the contractor regarding timing, configurations, and operational requirements throughout the contract, with payments made following the prescribed provisions of the PPP SPV contract. The key requirements of the contract are to focus on collaboration with the private sector, leveraging its capabilities, bringing public attention to the Sydney Metro brand, catalyzing domestic competition, and contributing risk capital.
DBOM Benefits
DBOM’s no-private finance systems have several key benefits, including even distribution of risk between the contracting parties, no additional costs, an optimal structure for ongoing government costs, direct government interaction with the contractor side, and operational efficiency controls. In addition, the government can respond quickly to delays and changes, and contractors have the opportunity to save time and money by contracting directly.
DBOM Shortcomings
There is an increased likelihood of total loss of private financing along with increased contract risk. Thus, private capital is not raised to absorb potential losses. It also results in a lack of financial discipline. Finally, from the government’s point of view, the risks of interaction with the performer increase.
The Case of Melbourne Metro
There is no doubt that the dispute between IS and Melbourne Metro could have been inhibited in advance, as in this case, the contractor significantly breached the pre-established provisions of the contract and went beyond the deadlines. Going forward, such critical situations can be managed by extending contracts to include the need for a dispute resolution committee.