Outlining trends in Rail

Project Delivery

The John Holland Experience

Ashley Douglas, National Pre-Contracts Manager

July 2013

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Current domestic rail projects

Future domestic rail projects

Future international rail projects

Challenges

Industry trends in rail project delivery:

- Public Sector

- Private Sector

- International business environment

Agenda

Current domestic rail projects (incl. form of

delivery)

ARTC MPM (LS-R)

Traction Power -

Londsdale to

Seaford (ECI)

CRN

(F)

BHPBIO Ballast Cleaning

(LS)

Brookfield Rail Maintenance (LS-R)

PTA Maintenance (SoR)

Grains Line Resleepering (LS-R)

Adelaide Rail

Revitalisation

(ECI)

Metro Trains Melbourne (F) Regional Rail Link - WP’s ‘A’ & ‘B’ (A)

Grade Separation – Rooks Rd (LS)

Trackwork Services

Alliance (A)

Glenfield to Leppington

Rail Link (LS)

Liverpool Turnback (A)

Sydney Light Rail (LS)

Perth City Link (A)

Butler Extension Project

(LS)

Eastern Goldfields Re-railing (LS-R)

Esperance Port

Access Corridor (LS)

NSFC – North

Strathfield Rail

Underpass (A)

Rail Services (SoR)

LS – Firm Price, Lump Sum

SoR – Schedule of Rates (term

maintenance contracts)

LS-R – Open book procurement,

Risk Sharing, Lump Sum delivery

ECI – Early Contractor

Involvement

F – Franchise

A – Alliance

PPP – Public/Private Partnership

Future domestic rail prospects (incl. form of

delivery)

Roy Hill Rail Construction (LS)

BHP Track

Maintenance

Services

(SoR)

Brisbane Inner City Rail

(PPP)

Alpha Coal Rail Link (ECI)

Surat Rail Line (LS)

Cobbora Coal (LS)

Hexham Maint Centre

(LS)

Melbourne Freight Terminal (LS)

Melbourne Metro (F)

North West Rail Link (PPP)

Sydney Light Rail (PPP)

Moorebank Intermodal (PPP)

Hobart Rail Yards

Perth Light Rail (PPP)

Perth Airport Rail

Link (LS)

Rio Tinto Maintenance (SoR) Rio Tinto Koodaideri Rail (LS)

PTA Maintenance

(SoR)

BHPBIO Ballast Cleaning (LS)

Brookfield Rail Maintenance (LS-R)

Adelaide to Gawler

Electrification

(ECI)

LS – Firm Price, Lump Sum

SoR – Schedule of Rates (term

maintenance contracts)

LS-R – Open book procurement,

Risk Sharing, Lump Sum delivery

ECI – Early Contractor

Involvement

F – Franchise

A – Alliance

PPP – Public/Private Partnership

Rail Investment continues to grow across

Asia, Middle East, Europe and America.

High Speed Rail and Light Rail are

increasingly popular.

Overseas jurisdictions at a different stage in

developing forms of delivery – still mainly

traditional.

Our overseas clients are interested in

Australia procurement models

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Future International Rail prospects

Industry Trends in Delivery

“There is gap between what the Australian community want and what they are

prepared to pay for” (Rod Eddington – Chairman of Infrastructure Australia)

“What we‟ve seen (with the PPP form of agreement) is an almost complete

transfer of risk from the client to the contractor, and that‟s an unworkable model”

(Glenn Palin – President of Australian Constructors Association and Managing

Director of John Holland Group P/L)

“We‟ve either got to reduce the expectations of clients in terms of putting those

(PPP) tenders together, or they will have to start contributing more substantially

to the costs involved” (Glenn Palin)

“New ways of approaching funding are required such as user charging and ….

levies” (Australian Academy of Technological Sciences and Engineering)

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Challenges:

Industry Trends in Delivery

A. State infrastructure budgets under

pressure so agencies are looking

for private sector funding where

feasible – PPP‟s, Franchises

B. Clients want open-book, risk

sharing during procurement phase

but fixed price during delivery

phase – ECI‟s.

C. Some agencies are providing partial

compensation to losing bidders –

conventional and relationship-style

forms of delivery.

D. Network operators are considering

extended possessions in order to

reduce overall programme duration.

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Public Sector Clients

Industry Trends in Delivery

A. Resource sector projects being delayed or cancelled resulting in significant

unrecovered expense by proponents.

B. Clients looking for proponent provided finance to lift the viability of certain

project – equity positions.

C. Partial reimbursement of proponents bid costs becoming more common.

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Private Sector Clients

Public Sector Clients

PPP models becoming popular again following recent

poor outcomes for the private sector, however

prohibitive bid phase costs are discouraging

proponent involvement.

Patronage risk being managed in different ways – in

some cases the agency is taking on patronage risk

initially and then marketing the concession once

usage is established.

In other cases the private consortium is only required

to ensure that the asset is available for use with no

patronage risks involved.

In both cases this results in less risk to the BOOT

consortium and a more „bankable‟ proposal.

Franchises are also becoming more popular as State

Governments look to save costs by outsourcing their

network operations and maintenance activities to

private operators.

A. Private Sector Funding

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Public Sector Clients

For conventional forms of delivery (D&C, CO) the agencies are increasingly

interested in understanding the proponents risk profile and so client workshops

and briefings during the tender phase are becoming commonplace.

For relationship style contracts (Alliance, ECI) the agencies are running dual

proponent teams prior to award in order to maintain competitive tension. ECI‟s

are popular because they combine the alliance style of partnering and openness

with the risk limiting aspects of conventional forms of delivery.

The demarcation between „risk limiting‟ and „risk sharing‟ forms of delivery is

becoming increasingly blurred.

B. ‘Open Book’ Risk Sharing during Procurement Phase, Fixed Price during Delivery Phase.

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Public Sector Clients

In recognition of the considerable costs of

tendering imposed on the industry,

proponents are now being advised in

advance whether the agency will be

contributing by way of bidding costs to the

losing bidder. The compensation is rarely full

value and still leaves the contractor with a

considerable burden.

It is an improvement from past practice

however, and enables improved

procurement phase budget management as

well as encouraging world class proponents

to become involved.

C. Partial compensation to losing bidders

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There has been stronger support by the community

and other stakeholders for longer “mega-shuts”

(extended shutdowns). These mega-shuts are now

being considered outside the traditional Christmas

shut where their benefits were first realised.

For example, projects such as Middleborough Road in

Melbourne (Victoria) where the short term

inconvenience far outweighed the prolonged

disruption to the rail service. Extended shutdowns are

now becoming more accepted outside of Christmas.

Another example is one of the Regional Rail Link

projects that is starting a two week shutdown at the

end of June this year in order to minimise the overall

programme of works.

Longer shutdowns give greater certainty of service to

Stakeholder with minimised impacts as long as

alternative services (e.g. bussing of patrons) are

properly planned.

D. Network Operators considering extended possessions (shutdowns)

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Public Sector Clients

Private Sector Clients

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The resource sector is not as active as in recent years and a number of

large projects have either been put on hold or delayed indefinitely.

Proponents lack certainty that firstly the project is going to proceed and

secondly that there is a reasonable likelihood of bid costs being

recovered.

It can be difficult for proponents to maintain the teams originally

considered for the delivery phase if there are significant delays in

awarding the works.

Clients sometimes utilise market pricing to validate project feasibility

studies and, if there is pressure on their construction and commissioning

budgets, alter the scope accordingly. This approach can result in

contractors over-capitalising the tendering phase and other

unsatisfactory project outcomes.

A. Resource sector projects delayed or cancelled

Private Sector Clients

Access to cost effective finance can affect the viability of certain projects

and clients may look to the proponents to take an equity position.

This can be challenging for delivery consortiums unless they have large

balance sheets.

Contracting organisations operating in this space need to have access to

high quality financiers who are willing to take project risk.

B. Clients looking for Proponent provided finance

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Private Sector Clients

In order to encourage high quality consortia to participate in expensive

and time consuming procurement phases, private clients are increasingly

adopting a stance similar to that of some government agencies in that

they are providing part-funding to the proponents.

As for Public Sector work, this payment enables improved business

development and procurement phase budget management.

C. Partial reimbursement of Proponent bid costs

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International Trends

In many cases, the commercial frameworks

utilised in other countries are as per our

„traditional‟ forms of agreement.

This presents opportunities for Australian

organisations to work with overseas clients

on complex, multi-discipline projects.

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