Background

In July 2002, the then Spencer Street (now Southern Cross) Station Authority (SCSA) entered into a services and development agreement (SDA) with a private consortium (Civic Nexus Pty Ltd) under a public-private partnership (PPP) for the redevelopment of the station. Under the SDA, Civic Nexus Pty Ltd (the concessionaire) was assigned responsibility to redevelop the station and, upon completion, manage the operations of the station for 30 years.

Construction of the station was contracted to be complete on 27 April 2005. The concessionaire subcontracted the design and construction of the station to a developer (Leightons Contractors). Delays were encountered by the developer and the agreed construction milestones were not met. This resulted in a global settlement agreement worth $32.25 million between the State, the concessionaire and the developer.

Key findings

Design and construction phase

• The construction phase risks of the redevelopment project were appropriately allocated between the State and the private sector parties in accordance with Partnership Victoria policy and guidance, and the approved project business case.

•  The final global settlement agreement between the State and private sector parties was negotiated to minimise any adverse impact and effectively conclude all remaining disputes and claims arising from the construction phase.

Operations and service delivery phase

•  Expected service standards are clearly defined, however, there is a lack of clarity in key performance indicator (KPI) measurement.

•  Operational risks have been transferred to the concessionaire, however, the SCSA retains some residual operational risks resulting from the potential for the concessionaire to under-perform.

•  The reward and sanction regime is adequately aligned to the service delivery requirements and the penalty weightings are an appropriate mechanism to direct attention to critical service areas.

•  The SCSA has enforced an abatement on one occasion under the SDA, but is also trying to establish improved performance and a good working relationship with the concessionaire and other key stakeholders, so has refrained from applying other possible abatements in exchange for a commitment to performance monitoring system improvements. For the previous quarter (April to June 2007) these abatements are able to be applied retrospectively if the concessionaire fails to achieve the agreed improvements.

•  The SCSA has put in place a rigorous risk identification and management process, and has been able to work effectively with the concessionaire on a number of potential and emerging issues with precinct stakeholders.

Recommendation

3.1  To enforce the SDA performance specifications, the SCSA should make demonstrable progress in addressing the recognised inadequacies of the current KPI measurement and assessment regime.