Part of the CHP offer included a proposal to secure donations of $35 million to the RCH Foundation from investors in the project. This commitment was underwritten by Babcock & Brown International Pty Ltd (BBIPL), a member of the CHP consortium.
This commitment was not factored into the calculation of the net present cost of the CHP offer for comparison with other offers and the PSC and DHS advised that it was not a decisive factor in the selection of the CHP proposal as the preferred offer.
Advice to government in early November 2007 on the outcome of the exclusive negotiations with CHP made reference to the $35 million in underwritten donations as an additional benefit of the CHP offer. The government was advised that the $35 million in donations would greatly assist the RCH in meeting its commitment to government to contribute $50 million towards the cost of the project.
A deed poll was executed by BBIPL on 26 November 2007 in favour of the Minister for Health on behalf of the state, and the RCH Foundation, in an effort to provide the state with certainty that the $35 million in underwritten donations would be paid. The primary obligation of BBIPL as stated in the deed poll was to 'undertake to procure' the payment of the donations to the RCH Foundation over a four year period, with the full amount to be paid by June 2011, subject to the terms of the deed poll.
Due to the downturn in global financial markets, issues have subsequently emerged around the timing and certainty of receipt of the $35 million, as well as the practical enforceability of the commitment.
Legal advice obtained by the state in January 2009 indicated that BBIPL's obligation to underwrite third party donations to the RCH Foundation are unsecured and that in the event BBIPL became insolvent the state and the RCH Foundation would be entitled to lodge claims as unsecured creditors of BBIPL.
BBIPL did not pay the first instalment of the $35 million due on 30 June 2008 and sought permission to delay payment. This is allowable under the terms of the deed poll. Given the downturn in global financial markets in 2008, and the detrimental impact this has had on the financial position of BBIPL the $35 million in donations expected to be paid to the RCH Foundation is now far less certain.
The state is monitoring BBIPL's financial position and considering its options if the expected donations do not eventuate.
Failure by BBIPL to procure the $35 million in donations may result in RCH having to fund the entire $50 million contribution which was expected by government to be generated from fund-raising activities. Ultimately, however, if RCH is unable to raise these funds, the state will have to meet any shortfall.