New guidelines for market-led proposals
The Minister for Infrastructure, Hon Chris Bishop, announced on Monday the Government's new guidelines for market-led proposals. This reflects the Government's recognition of the need to embrace private sector ideas to address New Zealand's infrastructure deficit, inspired by the success of similar initiatives in other countries. These guidelines outline the guiding principles and process for the consideration of unsolicited proposals made to the Government by private sector players. They are broad in scope – applying to unsolicited proposals for building infrastructure, providing goods or services or undertaking major commercial transactions.
The guidelines, which form part of the Government's work programme to improve infrastructure funding and financing, provide that each proposal will be assessed against the following three key considerations:
- Public interest: While each proposal should be broadly consistent with the objectives of the Government and be in the best interests of the Crown, the key measure is whether the proposal is in the best interests of the public. The guidelines outline various questions that may be considered when examining whether the public interest criterion has been satisfied.
- Exclusivity: In order to justify the entry into exclusive negotiations with the Government, as opposed to a competitive tendering process, the proposal must be of a particular nature that the outcome of such proposal can only be achieved by the relevant proponent. The guidelines appear inherently flexible in terms of whether the Government will consider that exclusive negotiations are justified in any particular case. They provide an example list of characteristics (or a combination of characteristics) that a proposal may have to justify an exclusivity arrangement.
- Value for money: A key principle of Government is to obtain maximum value for money. The proponent will be required to demonstrate that the proposal delivers value for money to the taxpayers of New Zealand, with the value for money assessment being both quantitative (such as the proponent’s expected return on investment and other financial considerations) and qualitative (being a combination of scope, risk allocation and time to complete).
The "front-door" for market-led proposals will be the newly launched national infrastructure agency – National Infrastructure Funding and Financing Limited (NIFFCo).
The envisaged assessment process for the consideration of proposals is as follows:
- Stage 0 – Mandatory pre-submission review: This review is designed to explore whether the proposal is likely to satisfy the initial assessment criteria (stage 1 below) and assist proponents in determining whether to submit their proposal.
- Stage 1 – Initial assessment: The initial assessment is broken down into the following two sub-stages:
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- Stage 1a – The Government will conduct an indicative assessment of the proposal having regard to the public interest and exclusivity considerations referred to above.
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- Stage 1b – The Government will then conduct a comprehensive initial assessment of the proposal with regard to the value for money consideration referred to above.
- Stage 2 – Detailed proposal: The proponent will prepare a detailed proposal which will then be assessed by the Government. Cabinet approval is then required to progress the proposal to stage 3 (below).
- Stage 3 – Negotiation of the final binding offer: The proponent and the Government will negotiate final documentation. At this stage, the proponent will submit a binding offer, and the Government will assess such offer, with Cabinet approval being required to accept the offer.
If a stage 3 binding offer is approved by Cabinet, the next step would involve the execution of binding contractual agreements.
New Infrastructure Funding and Financing Framework
Also announced on Monday by Hon Chris Bishop, and forming part of the Government's same work programme to improve infrastructure funding and financing, is a new Infrastructure Funding and Financing Framework. This announcement was made during an update on the Government's progress against its infrastructure priorities outlined earlier this year.
After explaining the challenges associated with Crown and council infrastructure being historically primarily funded by taxpayers or ratepayers, Hon Chris Bishop announced that the Framework has the following two key objectives:
- to broaden the funding base for investments and utilise private capital, where efficient; and
- to apply commercial disciplines to the Crown’s approach to the provision of public capital.
In addition, underlying the Framework are the following four key principles:
- Crown funding and/or financing should only be sought when all other sources have been exhausted;
- Crown capital should be deployed in an optimal form;
- Crown capital should be provided on the basis it is ‘recycled’ as soon as practical; and
- the Crown should actively manage the financial risks associated with its investments.
The Minister further explained that utilising this Framework would allow the Government to support more initiatives and provide greater support to investments with no alternative funding options or where it is more appropriate for the Crown to be the primary funder (such as in the health and education sectors).
Get in touch with us
The introduction of the new guidelines for market-led proposals and the new Infrastructure Funding and Financing Framework will be welcomed by many private sector players looking to invest in infrastructure in New Zealand. The Government's recently announced plans to better enable overseas investment (see here for our summary on the proposed reforms to New Zealand's overseas investment controls) will also be of interest to international investors in this space.
For more information about the guidelines or the new Infrastructure Funding and Financing Framework, or if you would be interested in exploring what a market-led proposal might involve, please get in touch with one of our experts.