Peter Block - Minter Ellison Lawyers - Managing risk in major infrastructure developments

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Peter Block delivered the presentation at the 2014 Future of Infrastructure Conference.

The Future of Infrastructure forum explored state and national challenges which impact the long term economic growth and future of infrastructure development in Australia at this time. It also addressed the latest proposals for changes within Australia's infrastructure.

For more information about the event, please visit: http://bit.ly/FutureofInfrastructure2014

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Peter Block - Minter Ellison Lawyers - Managing risk in major infrastructure developments

  1. 1. ME_103731910_1 - Slide 1
  2. 2. ME_103731910_1 - Slide 2 Managing risk in major infrastructure developments Presented by Peter Block Partner, Minter Ellison August 2014
  3. 3. ME_103731910_1 - Slide 3 • What is risk? • Risk identification • Risk allocation Risk management in use from conception to realisation
  4. 4. ME_103731910_1 - Slide 4 • Drafting of the Contract • Administration of the Contract • Optimism Bias • Black Swan Events Some key risks which cause Project failure/reduction in return
  5. 5. ME_103731910_1 - Slide 5 • 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)
  6. 6. ME_103731910_1 - Slide 6 Drafting of the Contract (2) The last job - The mutating contract Generation A Generation B Current Contract Another ‘Beginning’ Mutation Mutation Mutation The ‘Beginning’
  7. 7. ME_103731910_1 - Slide 7 Post Contract BehaviourCommon LawStatute 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
  8. 8. ME_103731910_1 - Slide 8 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
  9. 9. ME_103731910_1 - Slide 9 • Administration of the Contract • What is administered? • How is it administered Administration of the Contract
  10. 10. ME_103731910_1 - Slide 10 Administration of the Contract - The virtual contract The Actual Contract Experience Administrative Documents Understanding of the Contract The Virtual Contract
  11. 11. ME_103731910_1 - Slide 11 Project Conception Documentation Delivery Administration of the Contract - The relay race
  12. 12. ME_103731910_1 - Slide 12 • 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
  13. 13. ME_103731910_1 - Slide 13 • Black Swan Event • Random • Improbable • High Impact • Overlooked • Difficult to neutralise Black Swan Events
  14. 14. ME_103731910_1 - Slide 14 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
  15. 15. ME_103731910_1 - Slide 15 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
  16. 16. ME_103731910_1 - Slide 16 Questions • Questions? Peter Block – Minter Ellison Partner – Projects and Infrastructure peter.block@minterellison.com
  17. 17. ME_90136011_1 - Slide 17

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