Partnerships Victoria projects with significant capital assets usually operate over 25-30 year terms. These long-term projects provide the government party with transparent, predictable, long-term pricing for public sector infrastructure-related services, and a consistent standard of maintenance of the project assets over this period.
As discussed in Chapter 12, it is inevitable that change events will occur during the contract term. As such, the value for money rationale underpinning each project may be undermined if these long-term contracts cannot incorporate changing public sector needs or innovations resulting from changes in technology. For example, if the demand for a facility changes or current equipment cannot meet higher level service needs, it is possible that the government party will not achieve value for money over the longer term without changing the project assets or services.
It is not only unplanned changes in service needs that lead to State-initiated modifications. In some cases, the State-initiated modification is considered as part of the original design, but is not built at the time due to affordability constraints. In others, scope for specific modifications are set out in the request for proposal, and built into the design, allowing for future modifications to occur. For example, both original project deeds for the Victorian County Court project and the Melbourne Convention and Exhibition Centre project included requirements for future facility expansion.
Usually the framework for managing a State-initiated modification will be outlined in the project deed. As with construction works in the original request for proposal, State-initiated modifications should, to the extent possible, be framed in terms of changes to the output specifications or services specification, which will in turn affect the project's performance regime, key performance indicators and the payment and abatement provisions.
Typically, the project deed will also provide for minor asset and technology upgrades at certain points during the contract term, and also provide mechanisms to either benchmark or market test certain services. Unless these changes require a material modification to the project assets or services, they are not within the scope of this chapter.
Partnerships Victoria projects are structured to achieve optimal risk allocation between the government party and the private party. One of a contract director's main roles is to ensure that the risk allocation negotiated for the project is maintained. This is particularly important when State-initiated modifications are being implemented. Without good contract management processes, the private party may use the change process to attempt to recoup the cost of risks that it had previously accepted, or to transfer risks back to the government party.
Successful State-initiated modifications begin with a carefully developed scope and clear output specifications. The output specifications should be developed in conjunction with users and other stakeholders to ensure a thorough understanding of what changes are required, and what will be delivered.
In addition to clarity of what needs to be delivered, the contract director needs to ensure that users, stakeholders and decision makers have realistic plans for delivery timeframes, a realistic expectation of the cost of construction, and an understanding of the likely impacts on the cost of service delivery. In particular, plans for delivery timeframes (if changes to the project assets are contemplated) should allow for statutory processes that are outside both the government party's and private party's control, such as the process for gaining planning approval. Modifications to project assets during the service delivery phase may experience more lengthier development processes due to contractual and resource constraints.
Making changes to the project assets or services may have flow-on consequences for other elements of the project deed, such as the relevance and usefulness of key performance indicators and service standards. As well as agreeing on the price and timeline of any State-initiated modification, the contract director should agree with the private party upfront (i.e. before approving the private party's proposal) on the new contractual arrangements, including, new output specifications, services specifications, performance standards, and key performance indicators that will apply to the new services and project assets. The contract administration manual should also be updated to take account of any changes.
Prior to issuing a formal request for modification, the government party should consult the private party with respect to the potential State-initiated modification. This interaction will clarify possible issues arising from a modification, while fostering greater understanding of both the government party's and the private party's needs and concerns.