Post on 22-Nov-2014
description
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Managing risk in major infrastructure
developments
Presented by
Peter Block Partner, Minter Ellison August 2014
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• What is risk?
• Risk identification
• Risk allocation
Risk management in use from conception to realisation
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• Drafting of the Contract
• Administration of the Contract
• Optimism Bias
• Black Swan Events
Some key risks which cause Project failure/reduction in return
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• Drafting of the Contract (Document Production)
• What?
• Errors in drafting
• Disharmony between documents
• Why?
• Never enough time
• Commodity
• The last job – next slide
• The structure – later slide
• The production process – later slide
Drafting of the Contract (1)
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Drafting of the Contract (2) The last job - The mutating contract
Generation A
Generation B
Current Contract
Another ‘Beginning’
Mutation
Mutation
Mutation
The ‘Beginning’
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Post Contract Behaviour Common Law Statute Post Tender
Correspondence Referenced Documents
Annexures to the Contract
Conditions of
Contract
Annexures
Referenced Documents
Post Tender Documents
Statute (Wrongs Act)
Common Law
Post Contract Behaviour
Decreasing Visibility
Drafting of the Contract (3) The Structure - The opaque contract
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The Contract
The Lawyers
Financial Advisors
Document 6
Document 5
Technical Advisors
Document 2
Document 1
Client
Document 4
Document 3
Component 1
Component 2
Component 3
Component 4
Component 5
Component 6
Output
Drafting 1
Drafting 2
Drafting 3
Drafting of the Contract (4) The production process - Document Complexity
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• Administration of the Contract
• What is administered?
• How is it administered
Administration of the Contract
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Administration of the Contract - The virtual contract
The Actual Contract
Experience
Administrative Documents
Understanding of the Contract
The Virtual Contract
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Project Conception
Documentation
Delivery
Administration of the Contract - The relay race
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• Optimism Bias
• causes a person to believe that they are less at risk of experiencing a negative event compared to others
• Natural Wiring
• Difficult to resist
• Formal Study
Optimism Bias
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• Black Swan Event
• Random
• Improbable
• High Impact
• Overlooked
• Difficult to neutralise
Black Swan Events
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Demand management and risk – the failure of the economic infrastructure model?
• Perception is that the successful bidder is the one who made the biggest mistake on demand risk and project costs
• Private sector has been donating infrastructure to citizens of the relevant State
• Very successful from State’s viewpoint
• Decreased appetite remains for patronage/demand risk economic infrastructure deals
• Using availability style techniques for demand risk deals – value for money?
• State needs economic infrastructure procurement as a policy tool to deliver infrastructure
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Possible Solutions (Partial) to Sharing Demand Risk
• Nothing is new in procurement
• Return to long ignored vanilla techniques
• Most involve Government taking some of the demand risk driven by VFM considerations
• Government guarantee
• Take or pay/cap and collar to protect one or more of
• revenue/vehicle numbers
• debt only – DSCR/LLCR trigger
• equity
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Questions
• Questions?
Peter Block – Minter Ellison
Partner – Projects and Infrastructure
peter.block@minterellison.com
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