23 February 2019

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New South Fails?

The case for using PPPs is often predicated on them being ‘on time and on budget’. So it is perhaps little surprise that a committee in New South Wales is questioning its use on Sydney’s delayed light rail project. But are there some broader lessons?
New South Fails?

New South Wales’s parliamentary public accountability committee has recommended the state’s government “formally request the auditor-general to undertake a review into the effectiveness of PPP contracts for significant state infrastructure projects” following ongoing problems with the Sydney light rail scheme.

It should come as no surprise to anyone working in the PPP world that, as soon as something goes slightly awry with a project, the model is quickly blamed.

Critics point to the fact that the light rail project is now severely delayed, and has seen its budget rise to $2.1bn from an initial projection of $1.6bn.

On the other hand, supporters can argue that, on the cost front, the $2.1bn figure was the one agreed on ahead of financial close, and has not risen since it was signed in February 2015. And the delays are largely wrapped up in subcontractor Acciona’s legal battle, where it is claiming that an inability to deal directly with power firm Ausgrid – instead having to develop a schedule with Transport for New South Wales – resulted in the amount of work it would have to do to deal with utilities on the route was grossly under-represented.

It is hard to imagine that, under a standard design and build contract, the transport agency would have been more open with Acciona and enabled it to discuss the utilities issues directly with Ausgrid.

There are, of course, other issues raised in the report, some specifically to do with Acciona and others less so. Nonetheless, it is the review of the PPP model that is the first recommendation of the parliamentary report.

We have seen this quick pointing of the finger at the procurement model when things have gone wrong elsewhere. One of the most obvious examples – and with perhaps even less justification than in the NSW case – is the case of the Edinburgh schools PFI, where the wall of one of the buildings collapsed. While this had happened some years earlier at a non-PFI school (in that case killing a pupil), the Scottish government was quick to place the blame for the shoddy workmanship on the PFI model, refusing to accept this could be a wider construction issue that may need deeper investigation.

That said, there are clearly lessons to be learnt from the Sydney light rail project. Perhaps the biggest is that all parties need to go into such complex projects being completely transparent with each other, and with all sides being able to access the relevant information from the relevant organisations.

Whether or not Acciona’s legal battle is a success, the fact the firm was not able to speak directly with Ausgrid has clearly caused a problem for all parties concerned. Furthermore, a 2016 report from Infrastructure NSW suggested there were, for a PPP, an “unusually” large number of unresolved scope issues in the project.

Lack of prior information has been a sore point in many projects in the past, perhaps notably London’s Underground programme, where it was virtually impossible to tell the full extent of the work needed until the teams were in the tunnels.

Once again, it may be that the auditor-general of New South Wales should be looking not so much at the “effectiveness” of PPPs, but at a much wider procurement point about how much information should be available to contractors before contracts – of any type – are signed.

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The case for using PPPs is often predicated on them being ‘on time and on budget’. So it is perhaps little surprise that a committee in New South Wales is questioning its use on Sydney’s delayed light rail project. But are there some broader lessons?

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