GUIDANCE Alternative Dispute Resolution Process

TI 25 clause 25.16 provides that a Chief Executive must inform the Department of Treasury and Finance of any disputes which may lead to litigation or other processes with the ATO.

Reissue date: September 2015 48

ABATEMENT GUIDANCE - TI 28

SA Public Private Partnership (PPP) ABATEMENT POLICY

1. Effective contract management is critical to ensuring that the State receives the level of service it has contracted for in a PPP, and therefore achieving value for money.

2. Agencies responsible for managing PPP contracts (Responsible Agencies) must have clear, well developed contract management policies and procedures in place.

3. An important role for Responsibility Agencies is to enforce the PPP Abatement Regime which underpins the agreed risk allocation, and is a key driver of Project Co performance.

4. To ensure that the Abatement Regime operates as intended, Responsible Agencies must actively monitor the delivery of the Services by Project Co against the requirements of the contract and Services Specification, and have clear and robust processes in place to assist and guide them in doing so. 5. It is therefore important that Responsible Agencies take appropriate steps to

ensure that facility users (as well as contract administrators) are made familiar with those requirements, and that appropriate hand-over and knowledge management procedures are in place to deal with staff changes.

6. Responsible Agencies should pay particular attention to ensuring that Project Co complies with the detailed Performance Monitoring and Reporting

requirements contained in the Services Specification. As PPP’s rely heavily on Project Co “self-reporting” it is imperative that Responsible Agencies perform regular checks to satisfy themselves that they are receiving timely, accurate, reliable and complete performance data. This is critical to ensuring that the State receives the level and quality of service that it has contracted for. 7. To assist in this task, it is recommended that regular, random inspections of

PPP facilities be undertaken and that Project Co is notified that these will occur as a matter of course. The results of these inspections can then be cross checked against Project Co Performance Reports.

8. Responsible Agencies should conduct (minimum) yearly formal Performance Monitoring Audits. Audit results should be tabled at the relevant inter-agency PPP steering committee meeting (if one exists), or otherwise be provided to DTF on an annual basis.

9. The Abatement Regime must be the primary mechanism used when

responding to Project Co failures.

10. Where an abatable failure occurs the Responsible Agency must promptly abate in accordance with the PPP contract. A Responsible Agency must not delay the application of abatements. This includes in cases where an extra-

contractual arrangement (e.g. a negotiated agreement between the

for other ‘benefits’ such as additional scope) has been proposed by Project Co as an alternative to abatement.

11. Consistent with standard PPP contract terms, abatements must be applied at the first Quarterly Service Payment (QSP) invoice to be served after the abatable failure is identified.

12. The abatement should be for failures that occur within the relevant invoice period. Recovering ‘historical’ abatements can pose legal difficulties. 13. Delaying the application of abatements in order to gain future ‘negotiating

leverage’ over Project Co is not permitted.

14. The value of the abatement must be quantified by the Responsible Agency in accordance with the Payment Mechanism and Services Specification. If the contract provides for the accumulation of abatement points, then the

Responsible Agency must allow points to tally so that the default consequences are felt by Project Co.

15. If agency staff are uncertain about any aspect of the Abatement Regime, including its application to a particular fact situation, CSO advice should be sought and followed. It is not acceptable to ignore CSO advice on the interpretation of the contract.

16. Only in a minority of cases where exceptional circumstances exist should any form of extra-contractual arrangement such as trade-offs be considered. Where they are considered it must be strictly in accordance with this policy.

17. In cases where:

(a) an abatement is applied; and

(b) the value of the abatement has been withheld from the relevant invoice; and

(c) Project Co disputes the abatement in accordance with the contract; and

(d) an extra-contractual resolution of the dispute is subsequently proposed by Project Co (for example involving a trade-off of the abatement in return for other benefits such as additional scope); and (e) the Responsible Agency wishes to accept the extra-contractual arrangement; then:

A meeting must be convened as soon as practicable between senior officers from the Responsible Agency, CSO and DTF (Senior Officers’ Group). The Responsible Agency would then need to put a strong case to the Senior

Officers’ Group as to why it believes the extra-contractual arrangement is in the best interests of the State. Note that in relation to some PPP projects such a group may already exist in the form of an executive steering or project

committee on which DTF and CSO are represented. In such cases it will not be necessary to convene a ‘special purpose’ Senior Officers Group to deal with the proposal. Responsibility for deciding whether the extra-contractual

arrangement is accepted by the State will rest with the Senior Officers’ Group (or equivalent), subject only to paragraph 23 below.

Reissue date: September 2015 50

18. Each of the steps in 17 (a), (b) and (c) above must be followed before the extra-contractual arrangement may be put to the Senior Officers’ Group. 19. Relevant considerations when assessing any proposal would include:

• The reasons advanced by Project Co for disputing the abatement; • The State’s assessment of the prospects of winning a dispute in

light of those reasons. Note that the fact that CSO does not provide a ‘guarantee’ of success is not on its own sufficient reason to accept an extra-contractual arrangement;

• The cost/benefit to the State including the impact of the extra- contractual arrangement on the value for money premise on which the PPP was selected;

• The impact (actual and potential) of the defect on users of the facility and whether a negotiated solution might provide a more efficacious way of dealing with these impacts than strict application of the contract;

• The impact that any extra-contractual arrangement with Project Co will have on the respective rights and obligations of the parties, and incentive structures under the PPP contract;

• The length of time the matter has been known to each party – whether there has been previous opportunities to resolve;

• Whether the consortium has abided by the terms of any previous extra-contractual arrangement such that the State can have confidence that any agreement would be honoured;

• Whether any previously agreed extra-contractual arrangement attempted to deal with the defect in question (i.e. no second chances should be granted); and

• General PPP policy considerations including ensuing compliance with the Infrastructure Australia National PPP Policy and Guidelines to which S.A. is a signatory.

20. Any extra-contractual arrangement must relate specifically to the disputed abatement and must not draw in unrelated abatements or failures. Accordingly, any such arrangement should be ‘without prejudice’ to the State’s ability to pursue unrelated abatements, or future abatements in respect of the same failures should they recur.

21. The possibility of incurring interest costs in the event that a disputed abatement is lost by the State is not a relevant factor in making a decision whether or not to accept an extra-contractual arrangement.

22. It is envisaged that approval for such arrangements will only be granted in exceptional circumstances, but the policy acknowledges that some limited flexibility needs to be retained.

23. If the Senior Officers’ Group (or equivalent) cannot agree on the proposal it should be referred to the Chief Executive of Treasury and Finance with appropriate advice. This advice should include the reasons why the Senior

Officers Group was unable to reach consensus. The Chief Executive will then determine the proposal in consultation with CSO. In either case there must be a clear documented process that leads to the acceptance or rejection of the alternative proposal and sets out the State’s reasons for arriving at a final position. These reasons should be tabled at the next Senior Officers’ Group meeting.

24. The final terms of any extra-contractual arrangement must be reviewed by the Senior Officers’ Group (or equivalent) prior to the Responsible Agency

communicating the State’s position to Project Co.

25. Care should be taken to ensure that those terms are clear and enforceable and minimise to the greatest extent possible the prospect of further argument or dispute about what was agreed between the parties.

26. Only when Project Co satisfies all conditions that have been imposed by the State as part of the extra-contractual arrangement should the Responsible Agency pay the withheld abatement.

27. In the ordinary course it will be the responsibility of either the Project Director or Contract Administrator to ‘certify’ that all conditions imposed in relation to the trade-off have been met by Project Co to his or her reasonable satisfaction. The Senior Officers’ Group (or equivalent) should also be informed when this occurs.

Note

28. This policy is based on general principles and is not intended to replace or override the specific requirements and provisions of each PPP Project Agreement as they relate to performance management, the operation of the Payment Mechanism and the Abatement Regime. These provisions, while broadly similar across PPP contracts, will necessarily differ on occasion to reflect the particular operational context and service delivery requirements of each project and Responsible Agencies should take time to familiarise themselves with them. For this reason the Contract Management Manual (operating phase) for each PPP must reflect the particular requirements of the PPP contract relating to the aforementioned matters, as well as the general requirements of this Abatement Policy.

Reissue date: September 2015 52

A compliance program/internal control system is not a stand-alone activity - it must be integrated into all aspects of how SA public sector authorities operate (e.g. into operational requirements; procedures; and information, financial, risk, tax and health and safety management systems).

This checklist provides public sector entities with guidance in assessing their compliance program/internal control system. This checklist is simply one part of a continuous assurance framework.

The checklist is structured in three parts and draws on the requirements of the Australian Standard AS 3806 –2006 Compliance Programs: