Corrs High Vis: Episode 16 – Recent Developments in Market Led Proposals in Queensland

Alison Teh: Commentator - Corrs Chambers Westgarth - Special Counsel, Brisbane

Andrew McCormack: Corrs Chambers Westgarth – Partner, Brisbane

ALISON: Hello and welcome to High Vis – The Corrs Chambers Westgarth Construction podcast. My name is Alison Teh and I am a Special Counsel in the Construction team here at Corrs. I am joined today by Andrew McCormack, a partner in our Brisbane office. We will be discussing recent developments in Queensland concerning the State Government’s market led proposals framework. Andrew, the Queensland Treasurer recently released revised guidelines for Queensland’s market led proposals framework. Can you briefly explain exactly what a market led proposal is and what Queensland’s MLP framework looks like?

ANDREW: A market led proposal or MLP is a proposal from the private sector to government to provide services or infrastructure which fulfils a community need that is typically provided for by the government. The key distinction between an MLP and more usual government led procurements is that the private sector proponents is looking for an exclusive arrangement with the government to negotiate the terms of the transaction as opposed to participating in a competitive tender process with other bidders in an effort to secure the mandate to provide that service or infrastructure. Now, most Australian jurisdictions have their own MLP framework and there is indeed a fair degree of commonality between how those different regimes operate. Unfortunately, one common theme that has befallen perhaps all MLP frameworks in Australia is that as a percentage of the market led proposals that have been presented to government only a small portion have actually successfully navigated the MLP process and become live projects that have actually been delivered. The MLP framework in Queensland is not markedly different from that that exists in other jurisdictions like New South Wales and Victoria. Essentially, it is a three stage process by which the private sector submits proposals to government. The first stage is an initial proposal. If the first stage is successfully navigated the second stage requires preparation of a detailed proposal and finally if that process is successfully navigated stage three is when a final binding offer is negotiated and presented to the government so that the transaction can close and the project or service can be delivered. There is also at the very outset of the process an optional informal pre-submission stage where a proponent can contact the government and discuss the potential for a particular proposal before they proceed to far along the track. Given the strike rate for successful MLPs across the nation, this is perhaps a good idea to engage in where there may be some doubt as to whether the investment of time and resource in taking the MLP forward is fact with it.

ALISON: Turning then to the recent developments. In terms of how MLPs assessed in Queensland, what has changed?

ANDREW: So the key change that has been made to the MLP framework in Queensland is the replacement of what was previously known as “the uniqueness test”. Previously MLPs had to satisfy this uniqueness test which required a proponent to demonstrate that their proposal was unique and that they were uniquely placed to deliver it. Market feedback in Queensland and indeed in other parts of the country was very much that this placed a very high threshold for market lead proposals and really hindered the process and undermined the whole purpose of the MLP framework which was to drive economic opportunities. The Queensland government’s response to that has been to replace this uniqueness test as I said with a new requirement which is effectively that the proposal must justify direct negotiation with the government. In other words, why should the government negotiate directly and exclusively with a particular proponent as opposed to engaging in more usual competitive tender process?

ALISON: Andrew, previously there were nine assessment criteria used to assess an MLP in Queensland. Has this changed too?

ANDREW: Yes Alison that’s right. Previously there were nine criteria used to assess a market lead proposal in Queensland. These have now been distilled down to six. Four which apply at Stage 1 and a further two criteria which apply at Stage 2 of the process I described earlier. The four criteria which apply at Stage 1 on the MLP process, that’s the initial proposal phase are as follows. First, alignment with government policy, priority and community need. The emphasis here is that a proposal should be low cost and low risk for governments. The second criteria, is a justification for direct negotiation. That’s what’s replaced the previous uniqueness test that we talked about before. In essence the proposal must offer good value to government and some benefit that other competitors are unable to provide. The third criteria has not really changed, it’s value for money. In the absence of a competitive process which is the usual barometer as to whether a value for money proposition has been offered. There are other ways that parties can reference the fact that value for money is being provided. Such as independent valuations, an open book process, in terms of costing, or through competitively tendering aspects of the MLP. And the fourth criteria is that the proponent must demonstrate a capacity and capability to deliver the project that is the subject of its proposal.

ALISON: And if you get successfully pass the Stage 1 assessment, what happens in Stage 2?

ANDREW: Well Alison if one successfully negotiates the Stage 1 assessment in Stage 2 there are a further two criteria that are applied when considering whether the MLP should go forward. The first of these concerns risk allocation and associated with that, cost allocation. If the proposal seeks to apportion a particular risk or require a particular contribution in cost terms from Government, the proponent will need to demonstrate a significant and proportionate benefit to the State in return for the State accepting that risk allocation or cost contribution. And finally, to round things off, in the assessment, as you wouldn’t be surprised to learn, the Government will be keen to understand and verify that the project that is being presented is feasible both technically, commercially and practically.

ALISON: Many of us would be interested to know, in your opinion, is there a key issue that a market lead proposal needs to address if it is to be successful in Queensland?

ANDREW: I think if one was to look at perhaps not just Queensland but beyond, the key theme that flows through all market led proposals that have been successful is to be able to demonstrate that there aren’t any other active proposals or competitors who can fulfil the community need that’s sought to be addressed by the proposal for the same price or in the same way. For example, if there are two proponents who can say that we can satisfy this particular community need or supply this particular piece of infrastructure, but offer different methods of delivery, that perhaps indicates that there is in fact a competitive market that would justify going with a competitive tender process, and not entering into direct negotiation with one party with an exclusive mandate to negotiate with them. Having said that, one might comment that, well, what has really changed in Queensland? Aren’t we just asking for a proposal to be unique but with different language in order to succeed through the MLP framework in this State. Now, only time will really tell whether that’s a valid observation or not but what I would say is that the move away from this concept of uniqueness to justifying a reason for directly negotiating with one party on an exclusive basis, I think broadens the opportunity for government to engage with proponents who are putting forward proposals to them. It doesn’t have to be unique one of a kind but there has to be sufficient merit to the proposal or sufficient benefits to the State that no one else can provide or that they provide on a greater scale than any competitor could provide to justify the State not going with a competitive process and engaging with one party. It will be interesting to see indeed if other jurisdictions move along a similar line and seek to broaden the remit of market-lead proposals, which is something that the construction and infrastructure market is certainly looking to do.

ALISON: Thank you for joining me today, Andrew. It will be interesting to see how the market responds to this change in approach to the assessment of MLPs. And to our listeners, we hope you’ll join us again for the next episode of Corrs Hi Vis. Thank you and goodbye.

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