Risk | Partnerships Victoria guidance | Business case | Commercial framework summary | Services and development agreement |
Site risks: • the risk that the project land will be unavailable or unable to be used at the required time, in the manner or at the cost anticipated, or that the site will generate unanticipated liabilities, with the result that the contracted service delivery and/or projected revenues are adversely affected. | Private party except in certain circumstances, such as when: • the site is an existing Government site, perhaps with existing asset defects or environmental liabilities • Government retains ownership of the underlying land asset or is to acquire it at the end of the contract term • site approvals are likely to be particularly complex, as in the case of linear infrastructure involving an environmental impact assessment • native title issues arise over the project land. | Private party as far as possible, including: • contamination risk and liability for clean up • discovery of latent conditions • risk that precinct proves an inefficient/unsuitable location for retail and commercial development. For signalling and rail infrastructure, similar risk allocation during design and construction; risk revert to rail stakeholder upon completion. State may retain share of risk relating to planning approval, could be treated as a condition precedent. | Most risks to be allocated to concessionaire including: • existing structure • site conditions (excluding pre-existing environmental contamination • obtaining necessary planning approvals • cultural heritage • site access. Risks retained by the State: • pre-existing environmental contamination that is subject of clean-up notice • planning scheme amendment • native title. | Concessionaire allocated all risks except where otherwise expressly stated, including responsibility for gaining all necessary planning approvals. Risks retained by the State: • "non-identified, pre-existing environmental contamination" shared 50/50 • native title application and compensation • while no risk relating to planning approvals, the State will provide reasonable assistance to concessionaire to obtain. |
Design: • the risk that the design of the facility is incapable of delivering the services at anticipated cost. | Private party. | Private party except: • where an express Government mandated change has caused the design defect • the Government may take back some design risk if the specification of the design is highly detailed or prescriptive. | Concessionaire. | Concessionaire, including State-initiated changes. |
Construction: • the risk that events occur during construction which prevent the facility being delivered on time and on cost. | Private party, only exceptions being risks of additional costs caused by government or force majeure. | Private party, except if the event is one for which relief as to time or cost or both is specifically granted under the contract, such as: • force majeure or • Government intervention. | Concessionaire's risks: • construction delay, unless caused by force majeure of defined extension events • construction costs, except in relation to defined extension events attributable to the State • disruption costs to operators during construction phase. State's risks: • construction costs relating to defined extension events attributable to the State • State-initiated variations in output specification. Shared risks: • construction delay due to force majeure or defined extension events. | Concessionaire, except for limited extension events. State's risks: • construction costs for defined government extension events. Shared risks: • construction costs/delay due to force majeure. |
Disruption: • the risk of disruptions to train timetables and rail patronage during construction. | Private party, except where risk relates to effect of core services on the contracted services. | Government for the agreed scope of disruptions, and the private party for any disruption in excess of that agreed. | Encompassed within construction risk - borne by concessionaire. | Encompassed within construction risk - borne by concessionaire. |
Commissioning: • 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. | Private party. | Private party, although Government will assume an obligation to cooperate and facilitate prompt public sector attendance on commissioning tests. | Concessionaire. | Concessionaire. |
Force majeure: • the risk that a specified event entirely outside the control of either party will occur and will result in a delay or default by the private party in the performance of its contractual obligations. | Shared. | Per Partnerships Victoria policy. | Shared. | Shared. |
Industrial relations: • the 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. | Per Partnerships Victoria policy. | Concessionaire, except where action resulting from certain acts of State targeted directly against the project (borne by State). | Concessionaire, except where arising from picket, blockade or strike, or other industrial action at the site which directly affects the interchange facility works where the concessionaire can demonstrate that the industrial action results from an act or omission of the SCSA or any government agency of the State. |
Legislative and government policy risk: • the risk that government will exercise its powers and immunities in a way which negatively impacts on or disadvantages the project. | Private party, unless government agrees to take back some part of risk. | Not discussed in business case. | Concessionaire holds risk for changes in government policies or laws, except if State policy/law directed specifically and exclusively at the facility(borne by State). | Concessionaire, except for "excluded changes in law" being a change in State policy/law directed specifically and exclusively at the facility (borne by State). |
Network: • the risk that support for the transport system which underpins the use of the station is withdrawn or varied adversely affecting the project. | State, to the extent that the Government controls and manages the network. | Private party - no undertakings from the Government. | Not identified as key risk. | State. |
Financial risks. | Risk of financial uncertainty - allocated as far as possible to private party. Taxation risk - allocated to private party. Financial parameter risk - often most appropriate to share this risk. The largest risk is that interest rates may change. Risk of robustness of financial structure - allocated to private sector, but usually results in risk to Government also. Refinancing - costs allocated to private party. | Per Partnership Victoria policy. | Concessionaire bears most risks, including: • financing risk • interest rate risk after financial close • Commonwealth and State tax changes • tax rulings • change in control of concessionaire • shared interest rate risk before financial close • may bear indexation depending on structure of bid. State's risks: • shared interest rate risk before financial close • may bear indexation risk depending on structure of bid. | Concessionaire bears most financial risks. |
Integration - (ties in with network/interface risk): • risk of discontinuity between components of the project. | Private party. | Shared risk - the Government and private party must each accept consequences. | Not identified as key risk. | Concessionaire - accepts risk consequences relating to revenue and demand. |
Operation of transport interchange, commercial development, rail and signaling infrastructure: • risk that the process for delivering the contracted services will be adversely affected. | Private party, however, some risk usually remains with the Government due to policy, statutory obligation or practical necessity. | For the rail and signaling infrastructure - the rail franchisees then the Government at the end of the franchise period. For the transport interchange and commercial development - private party. | Concessionaire holds risk, except shared risk of force majeure. | Concessionaire holds risk except shared risk of force majeure. |
Changes in output specifications: • (falls under operating risk mainly) the risk that the scope of services is misdescribed/output specifications do not meet the State's requirements. | State. | Private party. Government retains risk of misdescription of scope. | State. | State. |
Market risk - demand for rail services by passengers: • risk that passengers' demand for rail services will vary from that initially projected. | Maximise allocation of demand risk to private party where this can improve value-for-money. | Government bears risk in relation to demand over and above the capacity output level (private party not in best position to fully manage this risk). | Concessionaire - if demand less than capacity levels specified by the State. State - if demand exceeds capacity levels specified by the State. | Concessionaire - if demand less than capacity levels specified by the State. State - if demand exceeds capacity levels specified by the State. |
Market risk - demand for commercial sites: • demand and price for commercial land may vary from that initially projected. | Maximise allocation of demand risk to private party where this can improve value-for-money. | Private party. | Concessionaire. | Concessionaire. |
Asset risk: • asset condition at the end of the contract term. | Private party during the contract term, the Government may be exposed to residual value risk if asset transferred at end of contract term. | No discussion in business case. | Concessionaire. | Private party during the contract term. Government may be exposed to residual value risk if asset transferred at end of contract term. |