market-led proposals – what is the future? - assets.kpmg · prepare high-level proposal outline...

What is the future?

March 2016

kpmg.com.au

Market-led proposals

http://www.kpmg.com.au

ContentsIntroduction 3

Queensland‘s MLP framework 4

The process 6

Granting of the ‘elusive’ exclusive mandate 8

Critical success factors – for government and proponents 12

About the authors 13

Contacts 14

© 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.

3Market-led propoals What is the future?

IntroductionIn July 2015, the Queensland Government unveiled a new framework for the submission and evaluation of Market Led Proposals (MLPs) received from private sector proponents1.

The release of the new MLP framework has raised questions about the direction government is taking and the impact that the new framework will have.

– Does it represent a shift in government procurement policy?

– Does it represent a move towards a new era of collaboration between government and the private sector?

– Will it succeed in generating successful outcomes for government and private sector proponents?

These questions are relevant as there have been a number of MLP frameworks introduced across Australia in recent years and opinions are divided on their effectiveness.

The jury is out as to whether such frameworks deliver effective outcomes for either government or the private sector. There are obvious challenges and opportunities for success and failure.

1. Project Assessment Framework – Guidelines for the assessment of market-led proposals: https://www.treasury.qld.gov.au/projects-infrastructure/initiatives/market-led-proposals/index.php


https://www.treasury.qld.gov.au/projects-infrastructure/initiatives/market-led-proposals/index.php

4 Market-led propoals What is the future?

Queensland‘s MLP frameworkThe new MLP framework replaces Queensland’s previous exclusive mandate guidelines contained in the Government’s Value for Money Framework, implemented in 2001.

Like its predecessor, the new framework permits government to enter into direct negotiations with a proponent without the requirement for a competitive tender process. Although this is carefully predicated on the understanding that an exclusive mandate will be granted by exception and market testing is likely, the new framework is undoubtedly a positive step towards providing a more transparent, consistent and structured approach for unsolicited proposals.

What areas can a MLP cover?

Not limited to infrastructure, in Queensland, a MLP can cover a broad range of areas including:

– delivery of services to or on behalf of government

– provision of infrastructure

– access to government assets

– access to government information, and

– otherwise, seeking government support to undertake a specific commercial activity.

The processThe framework sets out a three stage process which proponents will need to navigate through. The key features of each of these are summarised in Figure 1.



Figure 1. Process map

Pre-submission stage (optional)

Stage 1A: Preliminary assessment

Prepare high-level proposal outline and complete Minimum Information Requirements

Stage 1B: Strategic assessment

Provide additional information as requested

Stage 1: Initial proposal

Stage 2: Detailed proposalPrepare and submit detailed proposal and

provide additional information as requested

Stage 3: Final binding offerNegotiate legal and commercial terms



Stage 1: Initial proposal‘Stage 1’ requires proponents to describe the proposal, and detail how it addresses the assessment criteria.

‘Stage 1’ consists of a tiered evaluation, where the proposal must satisfy Stage 1A: preliminary assessment in order to be given further consideration.

Stage 1A: Preliminary assessmentPrimarily, ‘Stage 1A’ concerns an assessment by government’s MLP Panel to determine if the proposal constitutes a market-led proposal, and if sufficient justification exists for an exclusive mandate. The Panel comprises of senior members from Queensland Treasury, the Department of Premier and Cabinet, the Department of Infrastructure, Local Government and Planning, the Department of State Development and members from other agencies depending on the subject matter of the proposal. If the proposal relates to infrastructure, the Panel will consult Building Queensland. ‘Stage 1A’ may result in either of the four outcomes:

– the proposal is suitable to proceed to Stage 1B: Strategic assessment, or

– the proposal is suitable to proceed straight to Stage 2: Detailed proposal, subject to any specific terms to be agreed with government, or

– the proposal is not suitable for further consideration on an exclusive basis (i.e. may instead form the basis of a competitive bidding process), or

– the proposal is not suitable for further consideration.

Stage 1B: Strategic assessmentFor those proposals which have been assessed as suitable to proceed to this stage, government will seek additional information from proponents in order to inform its assessment of the potential benefits to government. A recommendation will be made by the MLP Panel as to whether the proposal proceeds to the next stage, or is not suitable for further consideration on an exclusive basis, or non-exclusive basis.

Pre-submission stageThe framework makes provision for an optional, but strongly recommended, pre-submission stage which provides proponents with the opportunity to discuss with Queensland Treasury the potential proposal. Fundamental to this is the proponent’s ability to clearly articulate:

– the proposal

– the inputs, benefits, assumptions and requirements of government in relation to the proposal, and

– the unique attributes of both the proposal and the proponent’s ability to deliver.

Noting, that although government will not reimburse costs under the framework, this can be a valuable stage in ‘testing the water’ and seeking initial feedback from government, prior to the proponent committing substantial resources to the development of a proposal and formally submitting it to government.

The process

0

1



Stage 2: Detailed proposal‘Stage 2’ requires proponents to prepare and submit a detailed proposal, and may also require proponents to supply additional information (upon request by government) and participate in workshops/meetings. At this stage, government may also seek to enter into an agreement with the proponent to cover items such as timeframes for engagement and the format of the detailed proposal. This agreement may also cover the terms for recovery of government’s assessment costs from the proponent, and any confidentiality and/or exclusivity arrangements. As per ‘Stage 1B’, the MLP Panel may recommend the proposal proceeds to the next stage, or is not suitable for further consideration on an exclusive basis, or non-exclusive basis. It is understood that only a very small number of proposals have progressed to ‘Stage 2’ since the introduction of the MLP framework.

Stage 3: Final binding offer‘Stage 3’ is the final stage and consists of negotiation of the legal and commercial terms under which the proposal will be delivered. This stage is led by Queensland Treasury and the appropriate line agency, with the executable contract to be presented to government for consideration. This should be a legally binding contract capable of unconditional acceptance and execution, at government’s absolute discretion.

At this point government may decide to:

– accept the terms contained in the final binding offer and approve that documentation be executed on this basis, or

– accept the final binding offer subject to specific conditions, or

– not accept the final binding offer and conclude the MLP assessment process.

The assessment criteriaThe new framework sets out a non-exhaustive list of nine evaluation criteria which government will consider in assessing a proposal. These principally concern:

– Community need/government priority

– Value for money

– Uniqueness/intellectual property

– Benefit of proponent’s preliminary investment

– Risk/cost allocation

– Capacity and capability of the proponent

– Feasibility

– Public interest and benefits to government

– Competing proposals.

Further detail of each is contained in the MLP guidelines.

Most notably, the guidelines stay silent on the relative importance of each of the criteria and whether the proposal must satisfy all criteria at each stage. Furthermore, it is noted that government reserves the right to introduce additional assessment criteria at ‘Stage 2’.

2

3



In order to warrant the granting of an ‘exclusive mandate’ whereby the proponent has the exclusive right to negotiate with government and deliver the project, the new framework indicates that the proponent must demonstrate:

1. Why the proposal (and/or proponent) is unique in its ability to achieve a government priority outcome.

2. Why the proposal is unable to be replicated by a competitor.

3. Why a different process to the traditional competitive market tender process is justified.

Examples may include where: – the proponent owns or controls

land, intellectual property or other legal or contractual rights that limit competitors from being able to deliver the same outcomes

– there are no competitors, or those currently in the market would be unable to deliver the same outcomes, or

– a combination of unique attributes are demonstrated by the proponent to create a unique proposal and constitute an innovative departure from previous practice.

The statistics from other States are telling as to the difficulty in convincing government of why an exclusive negotiation should be pursued. Most notably, the NSW Government received over 117 unsolicited proposals since January 2012, approximately 95 percent of which were not progressed, largely due to the

proposals having been assessed as not being sufficiently unique to warrant exclusive negotiations.

Technological advantages, particularly if they are proprietary to the proponent, may be advantageous here, however, this does introduce issues in relation to the protection of confidentiality and intellectual property. Proponents would want to avoid a scenario where they are unsuccessful, the government ‘cherry picks’ ideas from the proposal and runs a competitive tender process. Under the new framework intellectual rights of the proponent will be protected, however the concept encapsulated in the proposal itself may not.

The framework is also clear that government specifically reserves the right to submit any MLP to competitive processes if the proposal fails to meet any of the criteria to the government’s satisfaction at any point during the assessment process.

In this scenario, it would be interesting to consider the government’s willingness (or ability) to recognise the original proponent’s initial contribution, as the source of the initial MLP and ‘owner’ of the original idea. This may be by way of granting the original proponent a form of competitive advantage in the tender process – such as by granting the proponent additional ‘bonus points’ in the evaluation process or, where the original proponent is unsuccessful in the tender process, granting the proponent the option to price match the winning bid.

Another relevant factor for proponents in securing an exclusive mandate is the ability to demonstrate the savings or value for money to government that will result from pursuing an exclusive negotiation, compared to the relatively high costs of a competitive tender process. In relation to this, the proponent may consider, as a means of providing government with a level of certainty that the proposal will be value for money from the government’s perspective, agreeing upfront to a defined rate of return and/or committing to a transparent bidding process for each component of works (e.g. construction) in order to secure the best value price from contractors. Depending on the features of the project, a proponent may also be able to identify additional value for money enhancement opportunities for government or the affected communities arising out of the proposal.

Finally, proponents should bear in mind that where an exclusive mandate is granted to the private sector to develop an innovative proposal, government will normally not accept any material project risks or make any service or facility payments to the proponent, (unless doing so achieves a better value for money outcome). Any material cost or risk exposure that is proposed to be allocated to government would need to be considered in the context of the benefits expected to be gained by the government. Risk transfer to government would be expected to ’raise the bar’ for proponents.

Granting of the ‘elusive’ exclusive mandate



Other MLP Frameworks in AustraliaQueensland’s MLP framework provides a comparable process to the market-led, or unsolicited, proposal regimes that have been adopted in Victoria and New South Wales in the last 24 months. In particular, Queensland’s framework draws significantly on the regime implemented in New South Wales.

Outlined on the right, is a background to each regime. This supplements the table on pages 12-13 which provides an overview of the key features of each regime.

New South WalesIn January 2012, the NSW Government launched its Guide for the Submission and Assessment of Unsolicited Proposals. The government subsequently released an updated guide in February 2014 to reflect industry feedback and improve the quality of proposals received. In particular, the revised guidelines seek to enhance, clarify and streamline certain aspects of the regime in order to improve outcomes for both the private sector and government.

VictoriaOn 18 November 2015, the Department of Treasury and Finance released the Market-led Proposals Guideline for assessing unsolicited proposals received by the government from the private sector in Victoria. This replaces the previously released Market-led Proposals Interim Guideline, and reflects the recommendations made by the Victorian Auditor-General (VAGO) in August 2015 to improve the guideline and assessment process. In particular, the VAGO identified a need to:

– improve the level of rigour applied to assessing and realising the intended benefits of unsolicited proposals

– consider and fully assess alternative funding options for unsolicited proposals

– require proponents to clearly communicate value for money and define stakeholder engagement strategies.



Queensland New South Wales Victoria

State Framework

Project Assessment Framework – Guidelines for the Assessment of Market-Led Proposals www.treasury.qld.gov.au/projects-infrastructure/initiatives/market-led-proposals/index.php

Unsolicited Proposals – Guide for Submission and Assessment

www.nsw.gov.au/your-government/unsolicited-proposals

Market-Led Proposals Guideline www.dtf.vic.gov.au/Publications/Infrastructure-Delivery-publications/Market-led-Proposals-Guideline/Market-led-Proposals-Guideline

Scope of Proposals

– Delivery of services to or on behalf of government – Provision of infrastructure – Access to government assets – Access to government information – Seeking government support to undertake

a specific commercial activity

– Delivery of services and projects – Construction of infrastructure projects – Provision of services

Stages

Three stage process, in addition to an optional pre-submission stage: – Stage 1: Initial proposal

– 1A: Preliminary assessment – 1B: Strategic assessment

– Stage 2: Detailed proposal – Stage 3: Final binding offer




Five stage process, in addition to an optional pre-submission meeting: – Stage 1: Preliminary assessment of ideas or proposals – Stage 2: Strategic assessment, interim due diligence and

recommendation – Stage 3: Detailed due diligence, investment case and

procurement preparation – Stage 4: Negotiation and assessment of final offer – Stage 5: Contract award

Assessment Criteria

– Community need/government priority – Value for money – Uniqueness/intellectual property – Benefit of proponent’s preliminary investment – Risk/cost allocation – Capacity and capability of the proponent – Feasibility – Public interest and benefits to government – Competing proposals

– Uniqueness – Value for money – Whole of government impact – Return on investment – Capability and capacity – Affordability – Risk allocation

– Service/project need and government objectives – Value for money – Innovative and benefits to the public – Feasibility and capability – Uniqueness

Cost recovery – Proponent’s Costs

The proponent is responsible for its own costs – government does not reimburse proponents’ costs associated with the development of MLPs.

Government will not normally reimburse costs associated with unsolicited proposals.

Reimbursement of costs of the proponent will only be considered if the proposal progresses to Stage 3. Cost reimbursement will be decided by government on a case-by-case basis and should be documented and agreed at the start of Stage 3.

Cost recovery – Government’s Assessment Costs

At the discretion of government, it may seek to enter into an agreement with the proponent for the recovery of the government’s assessment costs. This may include, but is not limited to, costs relating to internal resources applied to the assessment, external advisor fees and reasonable travel.

At Stage 2, government may seek to enter into a Participation Agreement containing detail of cost arrangements.

The government is responsible for its costs in assessing the proposals as submitted.

Intellectual Property Rights

Where a MLP is not accepted by the government and instead an alternative process is undertaken (e.g. competitive bidding process or third party development) government agencies must not inappropriately disclose or utilise any genuine intellectual property provided by a proponent to government.

If the proposal does not meet the assessment criteria and the opportunity to participate is offered to the market, the government will respect any IP owned by the proponent.

Where the government chooses not to proceed with the proposal and wishes to use IP, appropriate compensation will be considered.

Submitted Proposals

Proposals under assessment (Stage 2): – Logan Enhancement Project – Transurban – Brisbane Cruise Ship Terminal – Port of Brisbane

Completed proposals: – Crown Sydney Resort – University of Sydney – NorthConnex

Proposals under assessment (Stages 2/3): – ‘Macquarie Square’ – AMP Capital and Macquarie University – ‘Wynyard Place’ – Brookfield Office Properties Australia

Pty LtdUnsuccessful / withdrawn proposals: – University of Western Sydney – Echo Entertainment

Completed proposals: – CityLink – Tulla Widening

Proposals under assessment: – Digital Train Radio System Upgrade – Victoria Police Centre – Western Distributer

Unsuccessful / withdrawn proposals: – Cranbourne – Pakenham Rail Corridor – Moolap Saltworks Urban Renewal




https://www.nsw.gov.au/your-government/unsolicited-proposals

http://www.dtf.vic.gov.au/Publications/Infrastructure-Delivery-publications/Market-led-Proposals-Guideline/Market-led-Proposals-Guideline




Queensland New South Wales Victoria

State Framework

Project Assessment Framework – Guidelines for the Assessment of Market-Led Proposals www.treasury.qld.gov.au/projects-infrastructure/initiatives/market-led-proposals/index.php

Unsolicited Proposals – Guide for Submission and Assessment

www.nsw.gov.au/your-government/unsolicited-proposals

Market-Led Proposals Guideline www.dtf.vic.gov.au/Publications/Infrastructure-Delivery-publications/Market-led-Proposals-Guideline/Market-led-Proposals-Guideline

Scope of Proposals

– Delivery of services to or on behalf of government – Provision of infrastructure – Access to government assets – Access to government information – Seeking government support to undertake

a specific commercial activity

– Delivery of services and projects – Construction of infrastructure projects – Provision of services

Stages







Five stage process, in addition to an optional pre-submission meeting: – Stage 1: Preliminary assessment of ideas or proposals – Stage 2: Strategic assessment, interim due diligence and

recommendation – Stage 3: Detailed due diligence, investment case and

procurement preparation – Stage 4: Negotiation and assessment of final offer – Stage 5: Contract award

Assessment Criteria

– Community need/government priority – Value for money – Uniqueness/intellectual property – Benefit of proponent’s preliminary investment – Risk/cost allocation – Capacity and capability of the proponent – Feasibility – Public interest and benefits to government – Competing proposals

– Uniqueness – Value for money – Whole of government impact – Return on investment – Capability and capacity – Affordability – Risk allocation

– Service/project need and government objectives – Value for money – Innovative and benefits to the public – Feasibility and capability – Uniqueness

Cost recovery – Proponent’s Costs

The proponent is responsible for its own costs – government does not reimburse proponents’ costs associated with the development of MLPs.

Government will not normally reimburse costs associated with unsolicited proposals.

Reimbursement of costs of the proponent will only be considered if the proposal progresses to Stage 3. Cost reimbursement will be decided by government on a case-by-case basis and should be documented and agreed at the start of Stage 3.

Cost recovery – Government’s Assessment Costs

At the discretion of government, it may seek to enter into an agreement with the proponent for the recovery of the government’s assessment costs. This may include, but is not limited to, costs relating to internal resources applied to the assessment, external advisor fees and reasonable travel.

At Stage 2, government may seek to enter into a Participation Agreement containing detail of cost arrangements.

The government is responsible for its costs in assessing the proposals as submitted.

Intellectual Property Rights

Where a MLP is not accepted by the government and instead an alternative process is undertaken (e.g. competitive bidding process or third party development) government agencies must not inappropriately disclose or utilise any genuine intellectual property provided by a proponent to government.

If the proposal does not meet the assessment criteria and the opportunity to participate is offered to the market, the government will respect any IP owned by the proponent.

Where the government chooses not to proceed with the proposal and wishes to use IP, appropriate compensation will be considered.

Submitted Proposals

Proposals under assessment (Stage 2): – Logan Enhancement Project – Transurban – Brisbane Cruise Ship Terminal – Port of Brisbane

Completed proposals: – Crown Sydney Resort – University of Sydney – NorthConnex

Proposals under assessment (Stages 2/3): – ‘Macquarie Square’ – AMP Capital and Macquarie University – ‘Wynyard Place’ – Brookfield Office Properties Australia

Pty LtdUnsuccessful / withdrawn proposals: – University of Western Sydney – Echo Entertainment

Completed proposals: – CityLink – Tulla Widening

Proposals under assessment: – Digital Train Radio System Upgrade – Victoria Police Centre – Western Distributer

Unsuccessful / withdrawn proposals: – Cranbourne – Pakenham Rail Corridor – Moolap Saltworks Urban Renewal




https://www.nsw.gov.au/your-government/unsolicited-proposals





MLPs face a series of challenges that can be seen as being associated with overcoming perceptions and objections that over many years have formed part of the DNA of government and the private sector. These include:

For government: – achieving outcomes that meet

government priorities and objectives

– overcoming concerns about purchasing without competition and not achieving value for money

– being seen to be picking winners

– deterring the rent-seeker

– delivering an efficient and timely outcome without compromising a consultative and robust decision process

– providing a level of certainty to the private sector regarding the process, milestones and stage gates

– understanding private sector concerns regarding bid costs, process risk, and protection of IP.

For proponents: – demonstrating uniqueness to

government

– demonstrating value for money

– overcoming concerns regarding certainty of process, timing, and outcome

– protecting IP

– avoiding significant bid costs whilst providing high-quality proposals.

If experience can be taken as a guide, achieving outcomes that satisfy government and the private sector will be challenging in the greater majority of cases. A successful report card for the MLP framework is likely to involve a combination of clear early decisions to reject proposals, early advice and clear directions on how proposals may need to be modified, and a smaller number of well-structured success stories. Forty submissions could not be expected to result in 40 successfully completed MLPs. Successful outcomes can only come from good-will, common-sense, a healthy dose of pragmatism, and a willingness of both sides to understand the perspectives of each other.

Looking aheadSo where is the MLP framework heading in Queensland? Is the new proposal a meeting point for the private sector and government?

MLP frameworks have the potential to generate highly effective outcomes between government and the private sector – as long as the critical success factors are observed for government and private sector proponents, and all parties have realistic expectations.

Critical success factors – for government and proponents



About the authors

Graham MatthewGraham is the Partner in Charge of KPMG’s Infrastructure and Projects Group in Queensland. Graham has more than 25 years of experience in advising on major infrastructure projects including financial and commercial assessments, project modelling, risk analysis, strategic options analyses, project evaluation, procurement strategy, project restructuring, and capital raising. He is presently advising on some of the largest infrastructure projects in Australia in the rail, port, road, and social infrastructure sectors and has advised on a number of market led proposals.

Prior to joining KPMG, Graham was a General Manager of Queensland Treasury Corporation and was a trusted adviser to the State of Queensland on matters of funding, procurement, and commercial and financial risk assessment and commercial policy on major infrastructure projects, government investments, and commercial arrangements in the rail, port, energy, water, justice, health, and accommodation sectors. He is also a former Vice President and Corporate Finance Group Head for Citibank in Queensland.

Andrew HoylingAndrew is a Director in KPMG’s Infrastructure and Projects Group. Andrew has over 14 years of experience in infrastructure investment and advisory roles. He has advised corporates and government and undertaken principal investments across a range of infrastructure types including rail, port, road, social and energy and for both greenfield and brownfield projects. Andrew's experience includes roles in project feasibility assessment and investment evaluation, commercial structuring and documentation, transaction execution, preparing investment proposals, financial modelling, joint venture arrangements and asset management.

Sarah FreyneSarah is a Senior Executive in KPMG’s Infrastructure and Projects Group, with extensive experience in project finance and infrastructure advisory roles. Sarah has worked with both the public and private sectors in Europe and Australia, and is skilled in procurement design and development, financial and commercial analysis, contract development and negotiation, commercial structuring, and transaction execution. Prior to joining KPMG, Sarah worked in Barclays’ Debt Finance team in London, where she worked on a number of project finance transactions across the renewable energy, water, and road sectors.


kpmg.com.au

Want to know more or want assistance with a MLP?

Graham Matthew Partner0419 737 073 [email protected]

Andrew Hoyling Director0403 445 208 [email protected]

Sarah Freyne Senior Executive0429 334 127 [email protected]

The information contained in this document is of a general nature and is not intended to address the objectives, financial situation or needs of any particular individual or entity. It is provided for information purposes only and does not constitute, nor should it be regarded in any manner whatsoever, as advice and is not intended to influence a person in making a decision, including, if applicable, in relation to any financial product or an interest in a financial product. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

To the extent permissible by law, KPMG and its associated entities shall not be liable for any errors, omissions, defects or misrepresentations in the information or for any loss or damage suffered by persons who use or rely on such information (including for reasons of negligence, negligent misstatement or otherwise).

© 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo and are registered trademarks or trademarks of KPMG International.

Liability limited by a scheme approved under Professional Standards Legislation.

March 2016. NSW N13826INFRA

Contacts

http://www.kpmg.com.au

https://itunes.apple.com/app/kpmg-thought-leadership/id391375421?mt=8

http://www.instagram.com/kpmgaustralia

https://www.linkedin.com/company/kpmg-australia

https://www.facebook.com/kpmginaustraliagraduatesandstudents

https://plus.google.com/118315276708922554504

https://www.youtube.com/user/kpmgaustralia

https://twitter.com/kpmgaustralia

mailto:[email protected]



market-led proposals – what is the future? - assets.kpmg · prepare high-level proposal outline...

Documents