Greater competition will result in better outcomes from Public Private Partnerships, says Hawkins Construction
One of New Zealand's largest builders says it has learned about public private partnerships after its big Australian prison job.
David McConnell, Hawkins Construction's interim chief executive throughout part of this year, says the business will not be deterred from other PPPs after the Ararat job in Victoria. Nor has it lost faith in the model.
"Hawkins believes strongly that PPPs are a good model for the right types of projects, and we have an appetite for them on a selective basis. However, PPPs are very complex contractual arrangements and require enormous accuracy and clear definition from the start," he says. The prison extension project was a one-off, both as a PPP project and in terms of the difficulties encountered. "The issues are unique and relate to the project, not the model," McConnell says.
He outlines a number of key risks to consider with PPPs: cost of making the original bid, the ability of parties to understand the scope of a project, decision-making and governance risks.
Bid cost risks should be examined at the outset. "The cost in putting together a PPP tender is significant. It becomes a lost cost should you be unsuccessful, and tends to be disproportionately borne by the contractor."
Another issue is the scope change risk. "Scope needs to be fully understood and ring-fenced from the start. You only know if the public sector partner has fully appreciated and defined the scope and definition of the project when you are shortlisted and receive the request for proposal documentation," he says.
"PPPs are better suited to greenfields projects where you have a blank canvas and can clearly quantify the design, construction and operational path ahead. While the Ararat prison project is a 'one-off', a core issue has been the complexity of building in an existing operational facility, not only significant changes in scope but significant issues around access and work interfaces," McConnell says.
On the decision-making risk front, the construction partner needs to be at the top table "and/or be an equity participant in the project consortium. For Hobsonville Schools, a PPP which is progressing extremely well, Hawkins has done exactly this and protected our interests by taking an equity stake holding in the special partnership vehicle that has contracted with the Crown," he says.
Strong project governance is required by public and private stakeholders to ensure a project meets the design outputs, timescales are closely monitored, financial cash flows are robust, and early action is taken should problems arise, he said.
"As the PPP market matures in New Zealand, and standardised PPP guidelines and documentation are developed, costs are likely to reduce and the quality of output documentation defining project scope is likely to increase. This will serve to minimise risks to the private sector, and will therefore encourage more companies to enter the market. This greater competition will, in turn, result in more efficient project outcomes from the PPP market," McConnell says.
Roading PPPs the way of the future
First came the schools, then the prisons, now it seems logical the Government could apply its Public Private Partnership model for developing new infrastructure to roading.
Robert Jones, Fulton Hogan's NZ infrastructure chief operating officer, believes this might swing into action after the 2014 election.
He is in charge of diversifying the big Christchurch-headquartered Australasian business away from its traditional roading roots into other sectors but he can already see less state funds available for major works.
Some of the Roads of National Significance, representing one of New Zealand's biggest infrastructure investments, could be first off the blocks as PPPs, he thinks.
"The Government hasn't just jumped into deep water from the outset. This has been planned," he said, referring to the gradual process of applying the model.
The NZ Council for Infrastructure Development took a proactive stance on the issue and Jones, also on the organisation's board, believes roading PPPs are the way of the future.
"We need to consider actively looking at PPP roading projects and our role as a company in these. Do we go on our own or with a partner? Would we take equity or not? Would we just want to build it? Would we look at a partner from overseas that needs a local partner to support them? We're not averse to taking risks as long as it is equitably shared," Jones said.
The way big new roads and motorways are built and run could change, and Jones envisages mechanisms such as London's congestion tax for Auckland's CBD and peak-hour charges applied on existing roading networks, most likely via electronic tolling like on the existing 7.5km Northern Gateway toll road.
Fulton Hogan's biggest New Zealand job is the $350 million Tauranga Eastern Link project, to be finished in 2016, the Bay of Plenty's largest state highway and one of the Government's Roads of National Significance. "It's quite an extreme project, on very difficult ground conditions," Jones said referring to peat bogs and shifting sand.
Asked about his biggest win in his first nine months, Jones counts being named preferred contractor on power and water projects worth $80 million to $100 million as "one that appeals to me. I knew the clients from previous roles and my relationship with them helped us get into the preferred contractor position." The outcome won't be known for over a month but Jones says Fulton Hogan envisages this type of work as the way of the future.
$1.4b annual revenue from NZ
A$1.5b from Australia
Owned by family and shareholder interests and Shell New Zealand
Company - shareholders and family - buying out Shell gradually
Bob Fulton, chief operating officer
BIG JOBS ENDING THIS YEAR:
Newmarket Viaduct upgrade, Auckland: used by 160,000 vehicles a day
Te Rapa Bypass: 6km road in Hamilton north-western area
Christchurch Southern Motorway: four-lane median-separated road to ease congestion
JOBS UNDER WAY:
Tauranga Eastern Link Project, Bay of Plenty, one of the Roads of National Significance
Member of the Stronger Christchurch Infrastructure Rebuilt Team (SCIRT)
Alliance partner on $20b Christchurch rebuild, working across many sectors
Lincoln Rd interchange, State Highway 16, part of Auckland's Western Ring Route
Work on 42 empty houses next to Burnham Military Camp for earthquake rebuild workers
Source: Fulton Hogan