Aecom’s global chief risk officer feels the NSW and Victorian governments have grown too fond of lumping their private sector partners with the bulk of the risk in major infrastructure projects, and says a shared risk model is the most constructive option for the sector moving forward.
Aecom risk boss Regis Damour reportedly spoke with the Australian Financial Review over the weekend, days after Spanish infrastructure firm Acciona filed a case in the NSW Supreme Court claiming it is owed more than $1 billion in extra fees by the State Government, for unexpected extra work done on the CBD and South East Light Rail project.
The Spanish firm’s lawsuit alleges the State Government of “misleading or deceptive” conduct.
Acciona claims it was given inconsistent information on how Ausgrid’s existing underground cables would be handled. The firm told the court last week it was told one thing by Transport for NSW, and another thing by Ausgrid a few months later. This difference created “unknown risk of cost and delay,” according to Acciona, particularly through the CBD, where the firm says there are at least 100 “clear conflict[s]” between the light rail construction and the Ausgrid network.
The Supreme Court gave the State Government until May 23 to respond to Acciona’s filing.
But Aecom’s Damour says the case is an example of Australian governments’ growing tendency to take an “adversarial” approach to managing infrastructure contracts.
“The current model is not in the best interests of the taxpayers,” Damour was quoted by AFR on Sunday. “When you end up with projects with a billion dollar claim, how can that be good for anybody? An adversarial-type approach is always making only lawyers rich.”
Damour reportedly singled out the NSW and Victorian governments as being overly eager to push risk onto their private partners.
“Nobody is going to convince me that using an adversarial model with full risk transfer can be the right approach because nobody has any clue what’s underground,” he was quoted.
“There are certain risks that the authorities can control, they need to do more homework on existing utilities.”
I would have expect big experienced contracting organisations like Acciona to have extensively investigated the likely conditions and made the necessary allowances in their tender.
The extent of problems may be more than they expected but that is in the nature of construction projects.
The solution proposed above would lead onto open ended cost plus contracts so that the contactor would just shift all their shortcomings onto the taxpayer.
But how did the unknown become “the contractor’s shortcomings”?
Contractors are in business to make a profit. If they lose money on one project or one process then they will simply find a way to claw that back on another project or another process. There is no free lunch.
Why not take a collaborative approach to risk in the first place? It works out cheaper for everyone in the end except the lawyers.
I think experience especially in the US military has shown that cost plus contracts end up inflating costs greatly.
A contractor needs to estimate the scope of the job themselves, they can hardly expect the taxpayer to agreed to a blank cheque.
If I get a quote and agree a price with say a fencing contractor I can hardly be expected to pay more because he underestimated the number of post holes needed.
To follow your suburban fencing contractor annology. If the fencing guy dug a hole and found conduit or pipe etc. Then they would simply tell you that you need to have that service relocated before they can finish your fence. You didnt tell the fencing guy about the unknown power cable. Your problem.
It doesn’t have to be cost plus. It’s about addressing unknown risks or unplanned for risks in a collaborative approach. For example more careful planning before awarding contracts and better project controls and project reporting, standards, etc. requirements during the entire process.
Personally I think that at least the NSW government is getting better at this in general. One rather high profile project not withstanding.