Developing and refining design documents in accordance with the design review process set out in the project deed will not themselves constitute a modification or design departure. However, as design and construction progresses, stakeholders may raise ideas for additional project assets to be constructed, or for changes to be made to the design brief included in the project deed. In general terms, modifications refer to changes to the project's requirements. For example, a hospital PPP project design which included a requirement to install a magnetic resonance imaging machine were adjusted to align the operators desk with the equipment, after feedback from hospital staff indicated a more efficient way to operate the equipment in accordance with their standard operating procedures. This design departure did not involve a change to the project's requirements, but rather a change in the means by which requirements are met.
In Victoria, typically the government party will compensate the private party for modifications or design departures initiated by the government party, where there is a resultant cost increase. If such a modification or design departure results in a cost reduction or saving, the government party will reduce its payment to the private party. Conversely, modifications or design departures initiated by the private party that increase costs will not usually be covered by the government party. However, if the private party initiates a modification or design departure that offers cost savings for the project, while still meeting the project requirements, the two parties will generally share the cost saving resulting from a modification or design departure in the percentages set out in the project deed.
Introducing modifications and design departures during the construction phase can introduce new risks to the project, for example:
• Making changes to the project assets detailed in the project deed may have consequences for other elements of the project deed (or other project contracts), such as the relevance and usefulness of key performance indicators and service standards.
• Giving direction on how the design should be changed can mean that the government party may take back part of the performance risk for the project assets.
• The private party may attempt to take advantage of the lack of competitive tension during the construction phase to recoup costs for risks it had previously accepted. To counter this possibility, the government party should strictly adhere to the value for money safeguards in the project deed. These safeguards include prior agreements on the magnitude and type of costs and margins related to modifications that the private party can claim.
• Delays to commercial acceptance have consequences for project cash flows, private party cash flows, commencement of service payments and the delivery of services to end users. Therefore, the project director must be aware of a modification's impact on the project's critical path.
Throughout the construction phase, either the government party or the private party may request modifications. These will usually be considered by the project steering committee in the context of their expected effect on the project's lifecycle costs. It may be that due to design integration and construction cost savings, the proposed modifications should be undertaken. Alternatively, the modifications may be delayed until construction is completed. Importantly, the project director should ensure that there is no unapproved 'scope creep' that may undermine the project's value for money.