Draft PPP standard contract released for consultation
The National Infrastructure Unit ("NIU") issued yesterday for market consultation the draft standard contract for use in public private partnership ("PPP") projects in New Zealand (http://www.infrastructure.govt.nz/publications/draftpppstandardcontract).
The NIU is the specialist infrastructure unit within Treasury with a mandate to assist the Crown to meet its objective of permanently lifting the sustainable growth rate of the economy. The development of PPPs to deliver social infrastructure projects (such as prisons, schools and hospitals), where PPPs demonstrate improved value for money, is one of the main areas of work for the NIU.
The proposed template PPP contract is a detailed and comprehensive document. It builds on experience gained in other relevant jurisdictions in which PPP projects have been undertaken, primarily the UK and Australia, with a view to adopting existing best practice.
The contract has been drafted and reviewed by lawyers from New Zealand, Australia and the UK, with experience not only of procuring projects under various PPP structures but also, in the case of the UK lawyers, of advising the UK's HM Treasury on the terms of its current guidance and mandatory contract terms (Standardisation of PFI Contracts 4).
The NIU acknowledges that the PPP standard contract is intended to provide the contractual basis for all PPP projects that are undertaken in New Zealand, but will need to be adapted to reflect the specific requirements of particular projects. However, regardless of the project, there are issues that will be common across all PPP projects, and the standard contract reflects the Crown's proposed approach to these issues, including:
- the payment and deduction regime;
- where the contractor is entitled to additional costs and/or an extension of time;
- changes;
- value testing;
- the extent of indemnities and the Crown's liability;
- refinancing; and
- compensation on termination.
Where the market has any concerns over how the Crown proposes to deal with the common issues (as well as the basic risk allocation and contract structure), ideally these should be raised during this market consultation phase, with a view to ensuring that the starting point for negotiating all PPP projects is appropriate and that they can be procured as efficiently as possible. This is an opportunity to raise issues outside of a commercial, competitive environment and before the Crown's position in relation to any of these common issues becomes fixed as a matter of policy.
The first PPP project to be procured is an approximately 1,000 prisoner capacity men's prison at Wiri, with the next likely projects being schools. Given the inherent differences between a design, build, maintain and operate project for the Wiri prison and a design, build, maintain project for a school, there are likely to need to be significant project-specific changes between the contracts for these projects.
We suggest that all parties with an interest in PPP projects consider whether to make submissions on the draft PPP standard contract. The closing date for submissions is 5 November 2010. If you would like to discuss the terms of the draft standard contract or PPPs generally, please contact any member of our Infrastructure and PPP Group.