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Help Desk – Private Sector Involvement Case Summary : Provision of Victoria County Court Complex by Public Private Partnership Australia Case Summary Provision of Victoria County Court by Public Private Partnership Australia 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. 1 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 technology). 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 Appendix. 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 3 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. 4 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 5 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 6 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 improvements. 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, 2 Comprising the fixed use payment, court reservation fee and court usage fee. 3 Comprising the court user management and security services fee, system integration services fee and courtroom and management services fee. 7 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 8 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 9 Appendix 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 approach. 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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