The Responsible Agency must identify public infrastructure needs to achieve its service delivery objectives in line with the Total Asset Management (TAM) Framework7. Cabinet approval to fund the infrastructure project and associated services should be requested after the project has a well-developed Final Business Case. Prior to Cabinet approving the investment (funding) decision, an IIAF Gateway Review (depending on the Tier) must have been conducted on the Final Business Case. Gateway Reviews should also be undertaken at Gate 1 Strategic Business Case and Gate 0 Project Justification.
Business cases should be prepared consistent with:
■ TC 12/19: Submission of Business Cases
■ TPP 08-05: Guidelines for Capital Business Cases
■ Infrastructure Investor Assurance Framework
■ Appendix 2 (Fiscal Impact Tables and Negotiation Parameters) of the NSW PPP Guidelines for likely PPPs.
During the development of a business case and irrespective of the procurement method, a successful and low cost procurement will be facilitated by:
■ establishing project objectives and outcomes: this involves determining what key issues the Responsible Agency and Government are trying to address, for example, greater use of public transport, reducing pressure on the health or justice system, improving quality of service, introducing innovation, urban renewal, improving commuter times/information, removing trucks from surface streets
■ desired risk allocation for project specific risks
■ the Responsible Agency committing to a realistic project and procurement timetable. The timetable should take into account: any constraints for construction start/end dates, land acquisition process, Planning Approvals process, establishing project team and advisers, market soundings and interactions with potential and short-listed bidders (particularly for complex projects), resolving any unique project specific risk allocation issues and preparation and evaluation of tenders. The timetable should also take into account the number and timetable of other Australian infrastructure projects that may impact bidder capacity.
In NSW, a public infrastructure project with a total estimated capital value exceeding $100 million, must be assessed for possible PPP procurement having regard to value for money drivers. This threshold also applies to smaller projects that may be bundled together, for example, a number of new and/or brownfield school projects.
A Responsible Agency should consult NSW Treasury as early as possible when developing a business case and/or procurement strategy for a potential PPP. This consultation should occur prior to engaging external consultants or conducting market soundings. NSW Treasury maintains pre-qualified lists of consultants with PPP, financial, legal, accounting and probity expertise.
The Business Case and Procurement Strategy may be informed by an informal/formal market sounding process to help determine infrastructure and service scope, project and procurement timetable, risk allocation, financing structure, site selection and project objectives.
Where a PPP procurement strategy is elected, the private sector will be the employer of the staff within the PPP, unless otherwise approved by Cabinet.
The Responsible Agency should take care to prepare realistic cost estimates that include land acquisition costs, likely development approval condition costs, procurement costs and an appropriate separately identifiable amount for contingencies or the realisation of risks, including any interest rate or foreign exchange risk.
It is important to identify the extent to which the project will be exposed to foreign exchange risk. If a material amount of goods or services are likely to be sourced from foreign jurisdictions, variations in the exchange rate between Australian dollars and the foreign currency in which these goods and services are denominated could lead to fluctuations in the project cost and, in extreme cases, jeopardise the affordability of the project. Material foreign exchange risks should be highlighted in the business case as early as possible, provided for through the project's contingency provision, and continually monitored throughout project procurement.
Table 1 of Appendix 2 should be submitted to NSW Treasury to summarise all cost information for likely PPPs.
In some cases, the Business Case and a detailed Procurement Strategy may be submitted to Cabinet concurrently. This may be the case for likely PPPs where the funding is user fee-based or if the project and proposed procurement method are similar to a previous project.
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7 More details on the Government's Total Asset Management Policy and Guidelines are available at Treasury's Website: https://www.treasury.nsw.gov.au/. Whilst SOCs are not bound by TAM policy, their assets strategies should, as far as practicable, be consistent with the principles of TAM.