Risk-explanation

Partnerships Victoria guidance-preferred allocation

Project agreement

In-line with PV policy

Assigned in project brief

Aligns with project brief

Site conditions

Private Party

RWHP

Risk that unanticipated adverse ground conditions are discovered which cause construction costs to increase and/or cause delay in the progress of the works.

Site risks have been effectively transferred to RWHP.

Yes

Project Co.

Yes-Project Co.

Approvals

Private Party

RWHP

Risk that necessary approvals cannot be obtained or may be obtained subject to unanticipated conditions that have adverse cost consequences or cause delay in the progress of the works.

Clause 18 of Project Agreement gives RWHP explicit obligation to obtain all approvals.

Yes

Project Co.

Yes-Project Co.

Environmental

Private Party

RWHP

Risk that the project site is contaminated requiring significant expense to remediate.

Private party will generally assume the risk although because of time and cost implication risk sharing may be a cost effective option.

RWHP has taken most contamination risk within the site.

Yes

Project Co.

Yes-Project Co.

Native Title

State

State

Risks of costs and delays in negotiating indigenous land use agreements where project site may be subject to native title.

Government will usually take risk on government preferred sites as it generally has a better understanding of the procedures and has special powers of acquisition and use of native title land for infrastructure.

The State bears the risks should a native title claim force RWH Partnership to cease the provision of services.

Yes

State

Yes-State

Cultural Heritage

State

State

Risk of cultural heritage discoveries that delay the Works and/or increases the construction costs.

Government will generally take risk on government preferred site as it generally has a better understanding of procedures, and is usually in best position to manage this risk otherwise private party takes responsibility.

Clause 64.2 of the Agreement deals with artefacts. At the request of the State and the State's cost and expense, provide all reasonable assistance in connection with dealing with the discovery of an Artefact.

Yes

Shared

Shared

Site access

Private Party

RWHP

Risk that some, or the entire Site is not accessible as expected by the Project Co.

Private party, as it makes the decision to bid on a non preferred site.

Site risks have been effectively transferred to RWHP.

Yes

Shared

No-risks effectively transferred to Project Co.

Design, construction and commissioning risks

Design

Private Party

RWHP

The risk that the design of the facility is incapable of delivering the services at anticipated cost.

Private party will be responsible except where an express government mandated change has caused the design defect.

Assumes the demolition, design, construction and finance risks (including cost overruns, permit delays, site demolition and construction delays, and design or construction flaws).

Meets the costs of any modification not explicitly requested by the state during construction.

(The State-Meets the costs of any state-initiated changes requested before construction is completed)

Yes

Project Co.

Yes-Project Co.

Construction

Private Party

RWHP

The risk that events occur during construction which prevent the facility being delivered on time and on cost.

Only exceptions being risks of additional costs caused by government.

Assumes the demolition, design, construction and finance risks (including cost overruns, permit delays, site demolition and construction delays, and design or construction flaws).

Meets the costs of any modification not explicitly requested by the state during construction.

Pays liquidated damages if final completion does not occur by the required date.

Yes

Project Co.

Yes-Project Co.

State initiated variations

State

The risk that DHS changes the design, construction, commissioning requirements or output specifications.

The State meets the costs of any state initiated changes requested before construction is complete.

Yes

The State

Yes-State

Industrial Relations

Private Party

RWHP will have a commercial incentive to accelerate the construction program to avoid a delay in the Commissioning.

Yes

Shared

Shared

Risks of strikes, industrial action or civil commotion during the Construction Phase or Operating Phase.

Government's preferred position is for all industrial relations risk to be held by the private party.

The State

Industrial Action initiated by State health sector employees delays construction.

Yes

Shared

Shared

Design, construction and commissioning risks - Continued

Commissioning/Completion

Private Party

RWHP

The risk that either the physical or the operational commissioning tests which are required to be completed for the provision of services to commence, cannot be successfully completed.

The State will be intimately involved in the Commissioning Procedure and clause 30 outlines a range of issues that need to be satisfied by RWHP.

• The PA contains a detailed Completion Guide that identifies detailed tests that need to be satisfied prior to Completion.

• Six months prior to completion, RWHP must prepare a completion manual.

• RWHP's QSP do not commence until Completion is verified. This is a powerful commercial incentive.

In any event, RWHP remains responsible for undetected defects and latent defects.

Yes

Project Co.

Yes-Project Co.

Sponsor and finance risks

Sponsor risk

State

RWHP

Risk that Project Co (or its sponsors) is unable to provide the required Services or becomes insolvent, is later found to be an improper person for involvement in the provision of these Services or financial demands on the Project Co or its sponsors exceed its or their financial capacity causing corporate failure.

RWHP Financiers will appoint a controller in the first instance. Financiers will have an interest in ensuring the ongoing provision of services (thus protecting their investment). The obligations to deliver Project outputs are not diminished.

If services are not delivered, or the Project sponsors abandon, the Default Termination Regime would apply.

No-Project Co.

Project Co.

Yes-Project Co.

Interest rate risk prior to Financial Close

State

State

Risk that interest rates will change from Proposal submission to Financial Close.

The State retains the risk associated with interest rate movements prior to financial close.

Yes

State

Yes-State

Interest rate risk after Financial Close.

Private Party

RWHP

Risk that interest rates during the Project Term differ from those expected.

RWHP faces the risk of interest rate movements once financial close is completed.

Yes

Project Co.

Yes-Project Co.

Sponsor and finance risks - Continued

Financing risk

Private Party

RWHP

Risk that when debt and/or equity is required by Project Co, it is not available at that time and in the amounts and on the conditions anticipated.

Financing risk is transferred to RWHP.

Yes

Project Co.

Yes-Project Co.

State and Federal tax changes (excluding GST).

Private Party

RWHP

Risk of changes in State or Federal tax legislation.

Clause 47 of the Agreement limits the States obligation in regards to changes of law including state and federal tax changes

Yes

Project Co.

Project Co.

Operating risks

Maintenance and refurbishment

Private Party

RWHP

The risk that the design and/or construction quality is inadequate resulting in higher than anticipated maintenance and refurbishment costs.

Undertakes all refurbishment works and maintenance in accordance with the agreement and asset management plan.

Yes

Project Co.

Yes-Project Co.

Obsolescence

Shared

RWHP

Ensures facility has a design life of 50 years.

Yes

Shared

Yes-Shared

Procures, installs, commissions and maintains a variety of equipment.

Undertakes all refurbishment works and maintenance in accordance with the agreement and asset management plan.

Maintains the facility to achieve a design life of 50 years Maintains plant and equipment to achieve operational objectives.

Risk of the contracted service and its method of delivery not keeping pace, from a technological perspective, with competition and/or public requirements.

Private party except where contingency is anticipated and government agrees to share risk possibly by funding a reserve.

State

Significant portion of the capital cost for the project relates to the construction of the facility, which has a design life longer than the 25-year agreement.

Bears the risk of technical obsolescence of the plant and equipment after the 25-year period.

Yes

Shared

Yes-Shared

Changes in public hospital patient demand

State

Variations in the demand for services and hence impacting expected revenues and cost estimates.

The State

Yes

State

Yes-State

Network and interface risks

Interface risk (1)

Private Party except

State

Risk that the core clinical and medical support services provided by the State are delivered adversely.

To the extent that government provides redress for appropriate, discriminatory changes.

The State remains responsible for the delivery of core clinical and medical support services and the risks associated with these activities.

Yes

State

Yes-State

Interface risk (2)

Private Party

RWHP

Risk that the delivery of Services by Project Co in a way, which is not specified/anticipated in the Project Agreement, which adversely affects the delivery of core services by the State.

Clause 34 of the Agreement stipulates the project company's obligations.

Yes

Project Co.

Yes-Project Co.

Changes in Law or Policy

Changes in law or policy (1)

Shared

RWHP

Discriminatory Changes in Law/Policy which are reasonably foreseeable at the date of execution of the Contractual Documents.

Government: although the parties may share the financial consequences of capital cost increases in an agreed way for example by the private party meeting a percentage of the cost up to a specific limit and government meeting any excess.

Clause 47 of the Agreement, which deals with changes in law excludes foreseeable changes.

Yes

Project Co.

Yes-Project Co.

Changes in law or policy (2)

Shared

Shared

Discriminatory changes in Law/Policy which were not reasonably foreseeable at the date of execution of the Contractual Documents.

Government: although the parties may share the financial consequences of capital cost increases in an agreed way for example by the private party meeting a percentage of the cost up to a specific limit and government meeting any excess.

Clause 47 of the Agreement deals with changes in law. Changes in law are required to be notified to the State by RWHP and negotiated to reach agreement.

Yes

Shared

Yes-Shared

Changes in law or policy (3)

Shared

Shared

All other Changes in Law which do not fall within the Change in Law/Policy (1) or (2).

Government: although the parties may share the financial consequences of capital cost increases in an agreed way for example by the private party meeting a percentage of the cost up to a specific limit and government meeting any excess.

Clause 47 of the Agreement deals with changes in law. Changes in law are required to be notified to the State by RWHP and negotiated to reach agreement.

Yes

Project Co.

Yes-Project Co.

Asset risks

Technical obsolescence

Private party during the contract term, Government may be exposed to residual value risk if asset transferred at end of contract term.

RWHP

Risk that the design life of the Facility infrastructure proves to be shorter than anticipated, accelerating refurbishment costs.

If the facility does not meet the agreed condition at the end of the contract, the developer is liable for any costs to make good.

Yes

Project Co.

Yes-Project Co.

Condition of the facility upon expiry of the Project Agreement.

Private party during the contract term, Government may be exposed to residual value risk if asset transferred at end of contract term

RWHP

The condition of the facility upon expiry of the Project Agreement is lower than that anticipated.

If the facility does not meet the agreed condition at the end of the, the developer is liable for any costs to make good.

Yes

Project Co.

Yes-Project Co.

Residual value of the facility

State

Value of the facility upon expiry of the Project Term is either higher or lower than the written down value.

Private party during the contract term, Government may be exposed to residual value risk if asset transferred at end of contract term.

At the end of the term, the state assumes the risks and costs associated with the remaining economic life of the facility (estimated at 25 years) and the remaining life of the plant and equipment

Yes

State

Yes-State

Force Majeure

Force Majeure

Shared

RWHP

Must keep the state informed when such event has occurred.

Yes

Yes

Yes-Shared

The risk that inability to meet contracted service delivery (pre- or post-completion) is caused by reason of force majeure events.

Private party takes the risk of loss or damage to the asset and loss of revenue, government takes some risk of service discontinuity both as to contracted service and core service subject to insurance availability and will need to arrange alternative service provision the cost of which will be met from redirected service payments and (if insurable) any shortfall made up from insurance proceeds.

The State

A Force Majeure event occurs during operations. The State is required to make payments to debt despite the non-delivery of services.

Industrial relations

Risk of any form of industrial action occurring in a way that adversely affects commissioning, service delivery or viability of the project.

Private party, may be appropriate for government to take back specific categories of risk

RWHP

The Project Company accepts all risks relating to the Project including the risk of industrial action.

The State

Industrial action in relation to sharing of services such as pathology and pharmacy remain with the State.

Yes

Shared

Yes-Shared