The new Newman government is starting to make decisions and trying to get the construction sector going, but are they making it too hard?
BURSTING out of the shed with a stimulus for the fourth pillar of the economy, the new Government’s announcement of plans to redevelop the government accommodation precinct took most of us by surprise.
It wasn’t on any 100-day plan in a ministerial charter letter and at first glance, looks an awkward fit with a cost-of-living and frontline services government agenda.
Having said that, if it is to be, then the Government needs to be confident that it can conceive, scope and run a process for a project that leads to a transaction strongly resembling the one for which they invited submissions in the first place.
For the past 10 years, the property development industry has suffered at the hands of the previous government, being asked to spend millions of dollars responding to government-sponsored bids only to have the process scuttled or worse, wither slowly and expensively on the vine before dying an unrecompensed death without a decision being made.
Tenancy and privatisation offerings at Bowen Hills, Gold Coast Cruise Terminal, Coorparoo TOD, and – don’t mention the war – North Bank, have been failed government processes that have sapped the will of the private sector.
Any executive in a large property group looking to bid for transactions of this scale will report to an executive committee and board located in, most commonly, Sydney or perhaps Melbourne or overseas not Ipwich or southeast Queensland.
Besides the leap of faith needed for such a remote board to approve significant expenditure on a bid in which they are one of five or six, it is critical that they can believe the competition itself will prevail through to a transaction for the lucky one.
Government will always have the lowest cost of funds and the private sector will always seek a development margin for the whole-of-life risks inherent in developing a very large single tenant building of this quality.
Respondents to a bid process asking for an offer expressed as a rent per square metre will seek a 15 to 20-year term and yes, this does start to look like a mortgage, which in the past has led the discussion back to who has the cheapest source of funds and so on.
With the William St to Ipwich River precinct, there are also many significant and long-standing departmental positions on turf and technical threshold issues that only the state can resolve through internal machinations.
It is entirely unreasonable and unrealistic to expect the private sector to resolve these in or after a bid process. They need resolution as part of the project brief.
These knowns should be acknowledged, dealt with and resolved in the structure of offers sought via the RFP (request for proposal) process or the errors of the past government may be repeated. When a formal bid process crashes, everyone loses.
The current expressions-of-interest process instigated for the William St precinct has got off to a pretty woolly start. When the process does hit the formal bid phase, we all need the RFP for William St and any associated precinct to deliver a set of well-defined technical requirements and exhibit a transaction design, land tenure, title and lease covenant that collectively describe a project that is both doable for government and bankable for the private sector.
At least then the lucky six or so shortlisted bidders risking up to $1 million each on a bid, can concentrate on providing options for a single piece and not a mixed bag of fruit.
There are many varieties of apple on the market, but at least we can clearly ask for an apple. A process that permits exotic star fruit or that southern favourite, the seedy cantaloupe, will be hard to successfully complete.
* James Basham is a director of DMA Partners
Article published on the couriermail.com.au on June 21 2012
