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PPP Case Study


									Help Desk – Private Sector Involvement

                             Case Summary :

              Provision of Victoria County Court Complex
                     by Public Private Partnership
                                    Case Summary
           Provision of Victoria County Court by Public Private Partnership

Commissioning Body: Department of Justice, Victoria, Australia

Consortium:                 The Liberty Group Consortium Pty Ltd1

Capital Cost:               A$140 million

Contract Length:            20 years

Need for A New County Court Complex in Melbourne

The County Court was spread across four separate locations in Melbourne. In
addition to the run-down state of the old buildings, there were insufficient courtrooms,
or space in the courtrooms, to service the increasing demands on the facility leading
to backlogs in both the criminal and civil areas. There was also absence of basic
services, such as disabled access, and inadequate areas for jurors, witnesses, victims
and the public.

In December 1999, the State Government decided to house the County Court in one
location. The Government was prepared to work in partnership with the private
sector in the provision of the new justice infrastructure and non-core services, but
essential court services would continue to be provided by the Government.

New County Court Complex in Melbourne

In June 2000, a private sector consortium, The Liberty Group Consortium Pty Ltd was
contracted under a Court Services Agreement (the Agreement) to design, develop,
build, finance and maintain Melbourne's new County Court complex, which is
Australia’s largest court complex. The contractor would provide the building related
services, such as building security, maintenance and information technology support.

    Comprising Multiplex Constructions Australia (construction), ABN AMRO Australia Ltd (financier),
    N.M. Rothschild & Sons (Australia) Ltd (financial adviser), Daryl Jackson Architects, Sinclair
    Knight Merz (building services agency), Lyon Architects (joint architects), Corrections Corporation
    of Australia (operator and security/court user movements) and Interform P/L (information
The Government would provide the judicial related services, such as the
administration of justice, case list management, registry, court information, recording,
reporting, transcription of trials, and contract supervision and administration.

Private Sector Consortium Selection Process

The Government provides community input into infrastructure development through
appropriate planning mechanisms. Where there is private sector involvement in
major public infrastructure projects, the selection of contractors will be through a
rigorous and transparent system of public tendering.

Prior to formal consideration of a Public Private Partnership (PPP) scheme, the
Department of Justice submitted a project proposal to the Department of Treasury and
Finance, which reviewed the conformity of the proposal to Government policies, its
viability and its priority.

For major infrastructure projects, approval by the Victoria Cabinet is required before
expressions of interest from private sector consortia are sought and before the release
of a Project Brief to shortlisted bidders. The release of the Project Brief is a
significant milestone as it signals that the Government is prepared to proceed with the
project provided that a conforming bid offering value for money in comparison with
the Public Sector Comparator (the estimated cost of meeting the same output and user
requirements but through a publicly funded solution) is received. Victoria’s
framework for integrating private investment into public infrastructure is outlined at

Features of the New County Court Complex

The new court complex, which was completed and opened in May 2002, combines a
modern court design with use of natural light and spacious public areas to improve the
operation of the criminal justice system by making it more accessible and welcoming
to the Victorian public. It includes -

    46 courtrooms, a jury pool area that can accommodate over 400 people and a
    high-security holding facility for up to 50 people in custody;

    four separate circulation zones for the judiciary, persons in custody, jury members
    and the public; and

    access for disabled users.

'In-court' Technology

The new court complex is installed with an innovative 'in-court' technology system.
It seeks to ensure greater access to the justice system for regional and rural Victoria,
make the administration of justice more efficient, and better link the police, courts,
legal professionals and corrections services. Its features include -

    Real-time reporting technology (voice to text in three seconds), which will
    enable transcripts to be made available electronically via the Internet;

    Video conferencing facilities, available in each courtroom to provide improved
    access to court users in regional Victoria as well as to people in custody;

    Remote witness facilities, allow witnesses such as children and sexual assault
    victims to give evidence in a less intimidating environment;

    A duress alarm that, once activated from the bench, relays in-court audio and
    visual data to the building's security command centre and

    A Courtroom Allocation Management System to allow automated allocation of
    courtrooms to daily lists, and is linked to public signage, building services
    (lighting, air-conditioning and security) and the reporting, monitoring and
    invoicing of courtroom usage.

Funding of Information Technology System

The acquisition, installation and commissioning of the ‘in-court’ information
technology equipment and products was funded by the contractor who was required to
deposit A$1,785,000 into a separate interest-bearing bank account ('IT Fund') on the
commencement of the Court Services Agreement.

To make resources available for the acquisition and installation of more up-to-date
equipment and products, or upgrading of existing products to meet Government’s
requirements for IT services, the contractor is further required to deposit about
A$400,000 per annum (out of the court services fee paid by the Government) into a
separate interest-bearing bank account ('Technology Refresh Fund'). On termination
of the Agreement for any reason, the contractor is required to return to the
Government the balance remaining in the Fund.

Supply of Source Code and Intellectual Property

The contractor is required to place the up-to-date source codes for software products
in escrow and release them, if demanded by the Government or upon termination of
the Agreement.

The contractor must own or have the right to use all intellectual property in the
software products. On the expiry of the court services contract, the contractor is
required to grant to the Government, including any new IT services operator, a licence
to use all the intellectual property rights in the IT services for a period of two years.

Specification of Service Requirements and Service Levels

To ensure the quality and timely delivery of services, the Agreement has specified
service requirements and service levels, including –

    Development and construction: Construction obligations, construction milestones,
    construction guarantee, IT milestones, design and construction warranties,
    construction works programme, transitional programme, operational
    commissioning programme and defects liability period;

    Delivery of accommodation services: Accommodation services criteria,
    availability standards for courtrooms and non-courtroom areas, maintenance and
    repairs requirements, arrangements for alterations and additions, and maintenance
    guarantee; and

    Delivery of court services: Court services criteria, court services standards or
    industry best practices on service outcomes, renewal of further service terms at
    Government’s option, setting up of IT fund for acquisition or upgrading of IT
    systems, supply of source code and intellectual property for IT services, and
    operating guarantee.

Performance Review and Monitoring

The contractor is required to submit monthly reports, annual reports, general reporting
and audit trail, and other relevant reports to the contract administrator.

The contract administrator will evaluate the service delivery performance of the

contractor on accommodation and court services against the outcomes described in the
availability standards, court services standards or industry best practices. If the
Government determines that the service delivery does not meet its requirements, the
contractor is allowed, within 2 months, to rectify and amend its operating manual and
practices to comply with the availability and/or court services standards.

Staffing Quality

To ensure staffing quality in the delivery of court services, the contractor is required to
seek Government’s prior approval of appointment and removal of its operators (i.e.
security operator and IT operator) by submitting an operating agreement setting out
the probity, identity and financial standing of the operator. The Agreement has
defined that an operator must –

    be capable of performing all the obligations of the contractor;

    have a good reputation for the provision of the services; and

    have demonstrated good performance in the provision of the services.

Dispute Resolution Procedure

The Agreement has defined in detail the dispute resolution arrangements, i.e. the form
of default notices on the construction, accommodation services and court services, the
rights and obligations of the respective parties and the dispute resolution process.

It has also specified that a dispute may be resolved by expert determination,
arbitration or legal proceedings. However, all parties should continue to perform
their obligations pending resolution of a dispute.

The Advantages of PPP over Traditional Procurement Approach

(a) Innovative Financing

     Promoting private investment in the provision of justice infrastructure and
     non-core court services.

     Under PPPs, services not assets are purchased. The contractor is contracted to
     design, develop, build, finance and maintain the new court complex on land

       leased by the Government and provide accommodation services and non-core
       court services (i.e. building related and IT services) to the Government under the
       Agreement as follows –

           The contractor provides specified accommodation services for 20 years, for
           which the Government pays an accommodation services charge2 of about
           A$9.6 million in year 1;

           The contractor provides specified court services for a term of 5 years, for
           which the Government pays a court services fee3 of about A$2.4 million per
           annum.      Further service terms of 5 years are renewable at the
           Government's option or under certain circumstances can be put out to tender
           by the Government before the end of a term; and

           On the commencement of court services, the Government pays the contractor
           a one-off initial start-up payment of A$3 million.

      In sum, the net present value of the obligation for the term of the contract was
      A$195 million. The project is expected to deliver an economic benefit to
      Victoria through productivity gains in excess of A$17 million per year.

(b) Risk Allocation

       Improving value for money by allocating risks to the party best able to manage
       them, and providing incentives for sustained and effective performance

       The fundamental principle in PPP risk allocation is that each individual risk is
       identified and then allocated to the party best able to manage that risk. In this
       project, most of the risks associated with the design, construction, court facility
       management and maintenance are allocated to the private sector consortium.

       For example, the private partner is required to design and build the court
       complex to strict output specifications defined by the Government and provide
       court services that meet the specified services standards. If there are flaws in
       the solution (e.g. if construction milestones are not met, or the design of the
       building is not fit for purpose, or the quality of court services is not up to
       standard), the private sector consortium will experience severe financial penalties
       and will have to rectify the problem at its own expense. With its capital at risk,

    Comprising the fixed use payment, court reservation fee and court usage fee.
    Comprising the court user management and security services fee, system integration services fee
    and courtroom and management services fee.

    the private partner would have a strong incentive to perform well throughout the
    life of the contract.

(c) Management of Change

    Upgrading and rationalising the accommodation and non-core services for the
    County Court.

    The project offered the Government a chance to identify and address community
    needs relating to County Court services and, in particular, to increase the number
    of courtrooms from 34 to 46, reduce waiting times for court appearances, provide
    better security for the building, enable greater access to the justice system for
    regional and rural Victoria, and make the administration of justice more efficient
    and better link the police, courts, legal professionals and corrections services
    through the use of new ‘in-court’ technology.

Lessons Learnt and Applicability to Hong Kong

When considering enhancing the role of the private sector in the delivery of justice
infrastructure services in Hong Kong, the following points should be taken into
account -

    Combination of separate court buildings and integration of non-core services
    - Good quality court complexes and comprehensive non-core services (e.g.
    building related services and IT services) can be provided by the private sector in
    an integrated and cost-effective way. Non-core facilities compatible with a court
    facility, e.g. office accommodation for the legal profession, can be considered
    within a complex, facilitating the legal profession and helping the administration
    to offset the cost of providing new facilities.

    Change management – The private sector can be contracted to manage the
    migration from old facilities to a new complex.

    Assessment of service delivery options - To enable the most cost-effective
    outcome, and a proper assessment of private sector tenders, an economic appraisal
    (cost/benefit analysis) of the various internal and external service provision
    options should be undertaken.

    Specification of service requirements and service levels – A court services
    agreement should define very clearly the accommodation and non-core court
    services to be provided – existing, improved and new, and specify the required

    quality and outcomes.

    Performance review and monitoring - The contract administrator should
    evaluate the service delivery performance of the contractor against the outcome
    specifications in the contract.

    Staffing quality is of the essence in ensuring quality in service delivery.

    Contract arrangements for dispute resolution – An Agreement should specify
    in detail the form of default notices, the rights and obligations of the respective
    parties and the dispute resolution process.

    On-going technology improvement – Arrangement should be considered
    whereby the contractor earmarks necessary resources for the acquisition and
    installation of more up-to-date equipment and products, or upgrading of existing
    products to meet evolving requirements for IT services.

    Supply of source code and intellectual property for IT services - An
    Agreement should specify that the up-to-date source code for software products
    should be released and a licence to use all the intellectual property rights in the IT
    services be granted to the Government and its authorised persons, if demanded or
    on termination of the Agreement.

Efficiency Unit
March 2003


                             Partnerships Victoria Policy
             Integration of Private Investment into Public Infrastructure

The Policy

Partnerships Victoria is Victorian government policy, launched in June 2000,
providing a framework for integrating private investment into public infrastructure.

The policy focuses on whole-of-life costing of infrastructure and related ancillary
services and a full consideration of the benefits of risk allocation to the private party.
When considered from this perspective, it is apparent that the private sector can often
deliver public infrastructure services more cost-effectively than the government can.

Once the government has determined that new public infrastructure and related
ancillary services are required, departments and agencies need to consider carefully
how they can best be delivered. The method of delivery may be by the government
alone, by the government in combination with the private sector, or by the private
sector entirely. There is no presumption that the private sector is invariably more
efficient in building and operating public assets. Equally, there may be no obvious
benefit in holding or keeping assets in public ownership if the private sector is better
placed to build or update them, and services to the community are improved or
delivered at lower cost. The key issue is which form of project delivery provides the
best value for money in meeting government service objectives.

The Victorian government has taken the position that it should retain direct control of
certain core public services for which it has particular responsibilities to service
recipients and the community. These core services are identified on a case by case
basis as projects arise.

The Victorian government requires the use of a Public Sector Comparator (PSC) to
compare private bids with the costs that would be associated with government
procurement of the same desired project outputs. The PSC provides a financial
benchmark for assessing the value for money of private sector bids and includes the
value of risk allocation to the private party that occurs under a Partnerships Victoria
All potential Partnerships Victoria projects are to be assessed against a public interest
test comprising probity, transparency and other criteria designed to protect the
interests of the community and to ensure that no group is unreasonably disadvantaged
by, or denied access to, the proposed infrastructure and/or services as a result of the
way services are to be delivered.

Determining the Best Form of Service Delivery

In choosing the most appropriate form of delivery of particular public infrastructure
services, the government has regard to:

    the core services question - whether any part of the proposed service should be
    delivered by the government itself;

    the value for money question – whether involvement of the private sector will
    deliver value for money and, if so, how to optimise that value; and

    the public interest question – whether the project will satisfy the public interest
    criteria which form a key part of the Partnerships Victoria policy.

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