Procurement through an Unsolicited Process

November 2015

• Project background

• Unsolicited proposal process

• Stage 1 – Preliminary

Assessment

• Stage 2 – Detailed Proposal

• Stage 3 – Negotiations and

Binding Offer

• Challenges of the Unsolicited

Process

• Conclusions

Agenda

Pennant Hills Road

4

In 2012, the NSW Government received an unsolicited proposal from

Transurban and Westlink M7 shareholders (the Project Sponsors) to manage

the design, construction, maintenance and operation of NorthConnex.

Unsolicited proposal process

Key Stages in the Consideration of the NorthConnex Unsolicited Proposal

Stage 2:

Detailed

proposal

Approval Target – 2nd half CY2014

Approval to progress – June 2013

Approval to progress – July 2012

Stage 3: D&C

Procurement

Negotiation of

Binding Offer

Start of

Construction

Stage 1: Initial

Submission

and Strategic

Assessment

Stage 1 Process involved:

• Submission of an unsolicited proposal – 30 March 2012

• Assessment under the unsolicited proposal

• Approval to progress to stage 2 of the unsolicited offer process –

July 2012.

Stage 1 Initial Submission and Preliminary

Assessment

Stage 2 Process involved resolution of:

• Commercial term sheet

• NorthConnex concession period

• Funding model

• Allocation of traffic volume risk on NorthConnex

• Who obtains planning approval and acquires land for the Project

• Collaborative working relationship

• Construction Contractor engagement process.

Stage 2 Detailed Proposal

• A project budget of around $3 billion

• Commercial term sheet agreed (Around 30 pages)

• NorthConnex concession granted until 2048

• Funding model agreed

• Sponsors take traffic volume risk on NorthConnex

• State obtains planning approval and acquires land for the Project

• State implements Truck Regulatory measures on Pennant Hills Road

• Collaborative working relationship

• Sponsors tender and procure D&C Contractor and provide assistance in

preparing EIS for planning approval.

Stage 2 agreement

• One of the key objectives of the NorthConnex Project is to reduce

the number of trucks using Pennant Hills Road but not reduce the

current number of lanes on Pennant Hills Road (no funnelling)

• The tunnel has been designed to encourage trucks to use

• Dangerous Goods and trucks with a genuine destination along

Pennant Hills Road will be permitted to continue to use Pennant

Hills Road

• The proposed regulatory measures will prohibit trucks other than

those permitted using Pennant Hill Road with a fine for those

found using the surface road rather than the tunnel.

Pennant Hills Road – regulatory

measures

• High level term sheet proved very useful and allowed a solid basis

for commercial negotiation to allow commercial documents to be

finalised

• Mutual respect with both sides working to resolve issues and

progress the transaction

• Agreed budget and setting maximum construction cost provided real

incentive to innovate

• The proposed use of an alternate procurement process was well

received by both Government and Private sector.

Stage 2 agreement – Key lessons learnt

Stage 3 Process involved resolution of:

• Commercial Contracts

• Contractor procurement process and timing

• Planning approval process

• Achieving Project Budget of circa $3b

• Collaborative working relationship

• Construction Contractor engagement process.

Stage 3 – Negotiations and Final Binding

Offer

• A construction budget of $2.65 billion was established and shared with the

market

• Market sounding and EOI completed in six weeks

• High level mandatory requirements were established in less than a dozen pages

these included price not to exceed $2.65 billion

• Lessons learnt from existing tunnels

• Draft technical specification provided for guidance but not mandatory

• No reference design just a high level scheme based on previous feasibility report

• Highly interactive tender process – genuine discussions with the D&C tenderers

• EIS being prepared in parallel

• Clearly stated evaluation criteria and feedback provided throughout process

• Highly collaborative working relationship between Government and private

sector.

Alternate procurement process

Accelerated procurement

• Process received well by market – 5 potential bidders short listed to

three

• Three bidders all prepared conforming bids below the maximum cost

of $2.65b

• Quick and streamline assessment

• Property requirements were less than expected

• Tunnel ended up at around 9kms which was longer than the

feasibility study – Trade off between brown field and greenfield.

Alternate procurement process –

Outcomes

• The aim of the competitive tender process was to select a preferred

scheme and preferred contractor

• November 2013 - three tenders for the design and construction of

the project were submitted

• Tenders were assessed in terms of innovation, cost effectiveness

and environmental features

• On 16 March 2014, the NSW Government and Australian

Government announced the preferred NorthConnex Scheme and

proceeding to planning approval and delivery of the project

• Lendlease Bouygues were confirmed as the preferred tenderer for

the design and construction of NorthConnex.

Preferred scheme process

• The Lend Lease Bouygues tender delivered the best

results in relation to:

– Offering best value for money

– Superior design features and safety

– Minimising impacts to the community and the environment

– Minimising property acquisition through engineering and

construction methodology

– Durability, performance and road user satisfaction.

Preferred scheme selection

Preferred scheme

• Twin motorway tunnels around 9km, with two lanes in each direction

• Each tunnel built wide enough for 3 lane but marked for 2 with a breakdown lane and a speed limit of 80km/hr

• Northern interchange: connecting the M1 Pacific Motorway, Pacific Highway and Pennant Hills Road

• Southern interchange: connecting the Hills M2 Motorway and Pennant Hills Road

• Tunnel clearance height of 5.3m, reducing the likelihood of overheight vehicle incidents

• Direct motorway to motorway connections with M1 and M2 Westbound (towards M7) with safeguarding for future direct connection to M2 Eastbound (towards city)

• Integration work with the Hills M2 Motorway including the provision of a new westbound lane from Pennant Hills Road to Windsor Road.

Key features

• Links Sydney's north to the Orbital network and forms part of the National Highway route

• Increases capacity along the Pennant Hills Road corridor from 6 lanes to 10 lanes

• Removes 30-50 % vehicles off Pennant Hills Road

• Improved amenity and traffic reduction in the Pennant Hills area

• Provides a safe reliable motorway reducing congestions and road accidents

• As part of the wider Sydney road network it provides a direct connection from north to western and southern roads – keeping Sydney and the NSW economy moving.

Key benefits

As State Significant Infrastructure, the project was subject to:

• Assessment under Part 5.1 of the Environmental Planning & Assessment Act 1979

• Preparation of a comprehensive Environmental Impact Statement based on the preferred scheme. Target was to be on exhibition within three months of selection of preferred scheme

• Using the Preferred scheme rather than a reference scheme allowed more flexibility and innovation in the design and more certainty of outcome with the preferred scheme.

Planning approval - environmental

assessment

Planning Approval for past projects

Project Name EIS Exhibition Period Number of

Submissions

Date of

Submissions

Report

Project

Approval

Time from end of

Exhibition to

Planning Approval From Until Extended

Lane Cove Tunnel

Nov 2001 Dec 2001 Feb 2002 340 Jun 2002 Nov 2002 9 Months

Cross City Tunnel

Aug 2000 Sep 2000 Oct 2000 196 Apr 2001 Oct 2001 12 Months

Cross City Tunnel

Supp. EIS

Jul 2002 Aug 2002 N/A 1012 Nov 2002 Dec 2002 4 Months

M2 Upgrade

May 2010 Jun 2010 N/A 910 Aug 2010 Oct 2010 4 Months

M5 West Widening

Sep 2010 Oct 2010 N/A 67 May 2011 Nov 2011 13 Months

Epping to Thornleigh

Third Track Project

Sep 2012 Nov 2012 N/A 426 Mar 2013 Jul 2013 9 Months

NorthConnex

July 2014 Sep 2014 N/A 1518 1 Dec 2014 13 Jan 2015 4 Months

• The preferred scheme identified 66 properties that were directly affected from the project. This consisted of 59 residential properties (including eight partial acquisitions), six business and one parcel of Council property, which was significantly lower than forecast

• Allowing flexibility in choosing land needed gave greater design freedom leading to more innovation rather than defining availability

• Roads and Maritime Service were responsible for acquiring the land and were able to secure all land required to the agreed programme

Property acquisition

Summary Timeline

Description Timing

Stage 1 – Submission March 2012

Stage 1 – Acceptance July 2012

Stage 2 – Detailed Proposal Acceptance June 2013

Stage 3 – Negotiations and Binding offer

including tendering of construction work and

Planning Approval

January 2015

• The $3 billion project consists of a total construction budget of $2.65 billion in addition to land and project delivery costs

• The majority of the cost will be funded through toll charges on NorthConnex and changes to the M7 concession period and increase to M7 truck toll charges

• The existing M7 concession (brownfield) is effectively leveraged to provide funding for NorthConnex (greenfield) with balance by NorthConnex tolls and Government contributions

• The Federal and State Governments each committed up to $405 million to the project.

NorthConnex funding

• Conversion of Term sheet to Contract Documents

• Agreement through one on one negotiations

• Balancing risk and reward

• Need for trust and collaborative working relationship

• Complex transaction

• Keeping it in line with the market but recognising the market has moved since GFC.

Challenges of the Unsolicited Process

• NorthConnex represents a genuine partnership between the private and public sector

• The procurement process provided a real opportunity for the private sector (D&C Contractor) to provide innovative solutions with both Sponsors and State open to new ideas and happy to provide guidance throughout the process

• The agreement represents a model where private sector retains traffic risk but the new works is leveraged off a performing brown-field concession

• Investment by both the State and Federal Government in partnership with the private sector will allow this project, long on the drawing board, to be delivered earlier and in a more sustainable fashion.

Conclusions