Waking up in Geelong

Yesterday Premier Denis Napthine announced a $2–2.5 billion rail project to upgrade the Pakenham and Cranbourne railway lines, to deliver a 30 per cent capacity boost to Melbourne’s south eastern suburbs.

So what concerns me is a single line in the media release from the Victorian Government:

“This project is the first under the Government’s new unsolicited proposals process, which is designed to harness the innovation of the private sector and hasten the delivery of better infrastructure and services to Victorians at the best possible price,” Dr Napthine said.

The “unsolicited proposal process” is something new, only being made public back in February 2014. The Department of Treasure and Finance has the following to say:

The new guideline provides a transparent and consistent process where private parties can directly approach Government seeking support and approval to provide a project or service. The Government can also use the process to directly approach a private party to deliver a project.

Government will only pursue proposals that offer something genuinely unique and the best value for Victorians.

They also detail the steps involved:

A five stage process will guide the assessment of unsolicited proposals, detailed further in the guideline:

• Stage One: A private party submitting an unsolicited proposal for Government consideration, with full information requirements;
• Stage Two: The Government conducting a preliminary assessment of the merits of the proposal and deciding whether to enter into an exclusive negotiation;
• Stage Three: The Government and the private party entering into an exclusive negotiation to develop a full proposal for Government consideration;
• Stage Four: The Government entering into final negotiations to finalise outstanding issues with an intent to enter into a final and binding offer; and
• Stage Five: The Government awarding the contract.

So what has the Victorian Government been offered by the private sector?

Dr Napthine said the multi-billion dollar transformation of the Pakenham and Cranbourne lines would be delivered by MTR, with John Holland Construction and UGL Rail Services, with construction starting in 2015 and concluding in 2019.

The project would deliver:

• 25 new next generation, high-capacity trains;
• 21st century high-capacity signalling on the Pakenham and Cranbourne lines – one of the first uses of this technology in Australia that will enable more trains to run, more often;
• four level crossing removals at Murrumbeena Road, Murrumbeena; Koornang Road, Carnegie; Clayton Road, Clayton; and Centre Road, Clayton;
• planning and preconstruction funding to remove a further five level crossings;
  newly-rebuilt stations at Clayton, Murrumbeena and Carnegie; and
• a new train maintenance depot at Pakenham East, which will create local jobs.

Here is my laundry list of probity concerns.

New Trains

An order of 25 trains is on the small side: at present Melbourne’s smallest class are the 29 original X’Trapolis trains (which are actually made up of two 3-carriage units) followed by the 36 Siemens trains (which also come in 3-carriage units). The largest proportion of the fleet are the 96 Comeng trains, which were delivered back in the 1980s and the first of which will reach the end of their working life in 2017-18.

The last time Melbourne decided to order new trains there was a competitive bidding process between the two companies that had previously supplied trains to Melbourne: Alstom and Siemens. The result of this was 53 additional X’Trapolis trains (each made up of two 3-carriage units) being supplied by Alston.

Will the result of this unsolicited proposal see UGL Rail Services winning the contract to supply 96 Comeng-replacement trains by default, because we already have 25 of their ‘next generation’ trains?

New Signalling

Melbourne’s railway signalling systems are currently a mishmash of different ages and technologies, supplied by a variety of companies. Modern high-capacity signalling systems don’t have to be locked down to once supplier (Hong Kong uses the SACEM system, mixing equipment provided by Siemens and Alstom) but it is still a point to think about.

Will the result of this unsolicited proposal see UGL Rail Services winning the contract to upgrade the rest of the Melbourne suburban network with their ‘next generation’ signalling?

New Grade Separations

Every new level crossing grade separation project in Melbourne involves a contract being awarded through a bidding process – in the case of Springvale Road in Springvale, it was a consortium of companies including McConnell Dowell, Balfour Beatty Rail, Parsons Brinckerhoff and Beca.

Will the result of this unsolicited proposal see John Holland Construction receive the contract to carry out the four grade separation projects (Murrumbeena Road, Murrumbeena; Koornang Road, Carnegie; Clayton Road, Clayton; and Centre Road, Clayton) as well as the next five level crossings, and station rebuilds at Clayton, Murrumbeena and Carnegie?

Train Maintenance

When Metro Trains Melbourne won the contract to operate Melbourne’s train network, they also brought in house the majority of train maintenance. The exception was the Siemens trains, due to a 15-year long Fleet Maintenance Agreement with the manufacture’s subsidiary, Siemens Rail Services.

Will the result of this unsolicited proposal see UGL Rail Services winning the contract to maintain Melbourne’s “next generation” train fleet for a contractually obligated period of time?

Footnote

Brad Vann, partner at law firm Clayton Utz, has more to say on the Victorian Government’s “Unsolicited Proposal Guideline for Projects and Services”:

On paper, the Victorian Unsolicited Proposal Guideline seems to strike a good balance between providing confidence and certainty of process to the private sector.

Following the footsteps of its New South Wales counterpart, the Victorian Government has released a new Unsolicited Proposal Guideline for infrastructure projects and services from the private sector.

In particular, on the topic of probity:

One of the main objectives is for the process to “incorporate open competition wherever possible”. The guideline allows for the Victorian Government to open a proposal up to a competitive process at the conclusion of Stages Two and Three. In the absence of competition, the guideline also outlines a “value for money evaluation”, whereby the Victorian Government will be required to consider appropriate costing mechanisms, such as building a cost comparator, seeking independent assessment of a proposal or using benchmarking data.

It looks like we are in for a fun ride.

May 2014 update

In May 2014 The Age journalists Adam Carey and Royce Millar revealed the real cost to the taxpayer of the unsolicited Dandenong rail upgrade proposal, which was found in leaked cabinet documents:

The government spruiked the project as costing $2 billion to $2.5 billion. But the cabinet-in-confidence documents reveal taxpayers will be left to pay up to $360 million a year as ”annual service payments” to the consortium until 2034 in ”nominal” dollars – the actual amount spent, including inflation. The total payments in nominal terms will be as much as $5.2 billion.

The $2.5 billion figure released by the government is a ”net present” figure. In government, politicians tend to cite the net present, or today’s money, figure, pointing out that home-buyers think of the cost of their house as the sale price, not the additional cost of loan repayments and interest over decades.

They also give evidence that the private companies know that the State Government is in desperate need of good news stories on public transport before elections, and modified their timelines to suit the electoral cycle:

The leaked documents detail an in-principle deal between the government and the consortium, and reveal a key ”milestone” to be a ”contractual close” by September 29, two months before November’s state election. A timeline for the project lists elections in both 2014 and 2018 as milestones.

Once again the public is getting played for fools – by rent-seeking private companies and politicians who only look to the next election.

March 2015 update

On 31 March 2015 the new Labor Government announced the unsolicited proposal for the Dandenong line was dead, to be replaced by their own upgrade plan – you can find more detail on Daniel Bowen’s blog.

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