1 January 2018
Taking action: chapters 11 to 14
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Summary of document
This section of the business case recommends actions that need to be taken to deliver North East Link.
Chapter 11 recommends a reference packaging and procurement solution for North East Link, informed by market sounding and a detailed evaluation of potential options. The reference solution aims to maximise competition and market capacity and capability by optimising the size of construction packages while managing interface risk and maximising whole of life considerations through alignment of construction and operation responsibility. As the most significant technical risk associated with the project is geotechnical and tunnelling risk, the Reference Packaging Solution is:
- A Primary Package consisting of the middle section of North East Link (including the tunnelled section) will be procured as an Availability PPP and designed and constructed (D&C), operated and maintained (O&M) by a single private sector operator. Redacted – commercial-in-confidence.
- One or two Secondary Packages for the sections of the road at the ends of the link, potentially procured with a separate private sector party (or parties) as the D&C contractor(s). Redacted – commercial-in-confidence. The scope of the Secondary Package(s) will be identified following the development of the commercial framework for the project, and are currently assumed to be works that are returned to the State for operations and maintenance, however this will be further tested with the market.
The road will be subject to a tolling regime. A separate State-owned entity (State Toll Co) will collect toll revenue, as well as ongoing maintenance of tolling-related infrastructure. Creating this entity means the State can consider monetisation/divestment options in the future, once toll revenues have matured. A preliminary scoping analysis has been conducted to determine how best to align the incentives and interests of an Availability PPP contractor (PPP Co) with the State’s – noting that more traffic means more revenue for the State, but additional operational and maintenance costs for the PPP Co. NELA will continue to explore and develop these options ahead of procurement.
Chapter 12 reports the results of the analysis of indicative budget impacts associated with the project. To address the balance sheet constraints of potential operators identified during the market sounding, DTF and NELA have determined that the Availability PPP for the Primary Package will benefit from State funding contributions. This is consistent with recent Victorian PPP projects. In considering the timing and quantum of funding contributions, the State will seek to balance a reduction in the private financing costs of the contractor with maintaining sufficient private capital at risk to absorb O&M risk and provide performance incentives.
The budget and accounting analysis assumes State capital contributions.
Redacted – commercial-in-confidence
Further consideration with regard to the quantum, timing and structure of State funding contributions will be undertaken in the next stage of the North East Link Program's development.
Chapter 12 provides financial tables showing the project’s impacts on the State’s balance sheet and operating statement under both the current accounting framework and the new Australian Accounting Standard AASB 1059 Service Concession Arrangements: Grantors (AASB 1059) issued in July 2017.
The North East Link Program has several defining characteristics that influence its risk profile:
- The project will have a significant tunnelling component, which introduces geotechnical and construction risks.
- The project will have a very high capital cost, due in part to the tunnelling component, which increases the magnitude of construction risk and introduces risk associated with market capacity and financing of the project.
- Redacted – commercial-in-confidence
- The project alignment has elements of both brownfield and greenfield development, which elevates risks around environmental approvals and community/stakeholder concerns with the project.
Key project risks have been identified and quantified through a comprehensive structured risk assessment process based on the North East Link Concept Design (outlined in Chapter 6).
Key project risks for North East Link
|Land acquisition||Due to the size of the project and length of the preferred alignment, the project will require significant land acquisition. The project is expected to run through greenfield and developed areas, which introduces complexity and cost variability in the land acquisition process. There is a risk that forecast land acquisition-related costs are higher than anticipated and/or project timelines in relation to land acquisition agreed to at financial close cannot be met.|
|Planning and environmental approvals||Due to the greenfield nature of the project, there are risks associated with gaining the required planning and environmental approvals within the required timeframe.|
|Community and stakeholder impact risks||Due to the greenfield nature of the project and existing environmental, residential and commercial land uses, there is a risk of community and stakeholder opposition to the project. This may lead to additional communications resources being required and delays to project timelines.|
|Market capacity and competition risk||Due to the number of major projects in the current infrastructure pipeline, the market’s capacity for a project of this size is likely to be more restricted. There is a risk of insufficient resources being available in the market to adequately support the project.|
|Scope specification risk||Due to the size and complexity of the project, there is an increased chance of scope requirements not being met.|
|Industrial relations risk||The potential for industrial action (which may be due to an act or omission by contractor) is a key risk in large scale construction projects, potentially affecting labour costs and productivity.|
|Interface risk||The project’s complex interfaces with the M80 and the Eastern Freeway present key risks that could cause unexpected project costs and delays.|
|Design development risk||Due to the size and complexity of the project, there is an increased chance of scope changes and cost increases during the project’s detailed design phase.|
|TBM failure risk||The TBM is a key piece of equipment during the project’s construction and may be impacted by unfavourable geotechnical conditions expected within the project alignment.|
|Change in law risk||Given the long concession period of the project, a change in law may impact O&M costs.|
|Latent defect risk||Due to the complexity and high capital cost of the tunnel and viaduct structures, the risk of latent defects is enhanced.|
|Traffic risk||O&M costs have been developed based on traffic forecasting. These costs may increase if traffic levels are higher than anticipated. The design and cost of noise barriers are based on traffic forecasts. These costs may increase if traffic levels or vehicle mix differ to those anticipated at financial close.|
|Toll revenue risk||There is a risk of inaccuracies in forecasting traffic volumes and the risk that underlying assumptions regarding future macro-economic factors that support the long-term traffic growth forecasts are inaccurate.|
The next phase of work related to project risks will include finalisation of risk allocation between the State and the private sector (following further market sounding and determination of a final procurement model) and development of a detailed management plan for risks retained by the State.
Chapter 14 sets out the deliverability and implementation plan for North East Link, including:
Governance arrangements for the project
These arrangements, which incorporate oversight by the Victorian Coordinator-General, are designed to deliver the project using best practice across technical disciplines, make project delivery clearly accountable to government and provide robust oversight and stewardship of the project.
Stakeholder engagement and communications
NELA recognises that public participation is essential for achieving high quality outcomes across all phases of the project. A Communications and Engagement Strategy has been developed for North East Link that extends from the corridor options assessment phase across the Environment Effects Statement process and through procurement.
Statutory approvals pathway
A submission will be made to the Minister for Planning to seek declaration of the project as ‘public works’ under the Environment Effects Act 1978. If a declaration is made, an Environment Effects Statement (EES) must be prepared. An EES, followed by a Planning Scheme Amendment (PSA) under the Planning and Environment Act 1987, is the recommended assessment and approval pathway for North East Link.
Delivery of the project
Assuming an EES is required, a request will be made to the Premier for declaration of North East Link under the Major Transport Projects Facilitation Act 2009. The project can then use the Act’s streamlined delivery provisions, including those covering land acquisition and temporary access to or occupation of land. Compensation for parties with an interest in land required for the project would be provided under the provisions of the Land Acquisition and Compensation Act 1986.
Readiness and next steps
Tasks that will be undertaken to progress the project to the next stage include further technical investigations and environmental assessments, exploration of potential early works and complementary projects, development of a Reference Design and preparation work for land acquisition, the EES process and procurement. Additional analysis will also be conducted to fully understand the project’s impacts on the arterial road network and to confirm complementary projects and network upgrades/changes that should be implemented to maximise desirable outcomes across the metropolitan transport network.
An indicative timeline has been established to take the project from business case to construction commencement.
Key project milestones
2018 to 2019
- site investigations
- community consultation
- planning and environmental approvals
- commence procurement for major construction contract
2019 to 2020
- procurement for major construction contract
- planning and environmental approvals
- start early works
- award major construction contract
- community consultation
- start major construction works
2020 to 2027
- major construction works
- procurement for remaining construction works
- project completion and commencement of operation
*Dependent on planning approvals and final delivery strategy.