355 crB-2002 Stadium Australia Reflecting on the Risk Factors of Boot Procurement Marcus C. Jefferiesr & R. Gamesonr Abstract The private sector is playing an increasingly important role in the procurement process of public works and services' This has partly àrisen out of à requirement for infrastructure development to be undertaken at a rate that maintains and allows growth' In turn this has become a major challenge that cannot be met by government alone' The emergenie of Build-Own-Operate-Transfer (BOOT) schemes as the u ,.rponrð to this challenge provides a means for developing infrastructure of a country without directly impacting upon the government's budgetary constraints' The concepts of BOOT are iittlou, doubt extremeþ complex arangements, which bring to the construction sector risks not experienced previously' This paper examines perceptions of BOOT schemes in order to develop a framework of risk factors established from a case study of Stadium Australia. Keywords: BOOT procurement, case study, infiastructure challenge' risk factors, Stadium Australia Introduction According to McDermott (1999), a significant development in construction procurement has been the rapid increase in the use of Build-Own-Operate-Transfer (BOOT) arrangements' The private sector is playing an increasingly important role in the àevelopment of infrastructure growth. This in turn has become a majoi challenge for many countries, and particularly so wheie it is evident that these provisions cannot be met by government alone. The emergence of BOOT schemes as a i"rponr. to this challenge provides a means for developing the I Department of Building, University of Newcastle, Australia 3s6 Stadium Australia - Jefferies & Gameson infrastructure of a country without directly impacting on the government's budgetary constraints (Walker et al, 2000). The latest New South Wales (NSW) Government Green Paper attempts to capture this public-private sector joint venture opportunity in order to increase the benefits and comment on the issues and concerns (NSW Government, 2000). This is a welcome opportunity to broaden relationships between the public and private sectors that may involve innovative recommendations and the formulation of new policies. Therefore, the aim of this paper is to examine perceptions of BOOT schemes to establish a framework of risk factors developed from a case study undertaken on a current project. The BOT/BOOT Concept The concept of private sector participation in infrastructure provision is not a new idea. It is however, only in the last two decades that Build-Operate-Transfer (BOT) concepts have become high on many government agendas. Australian examples of the BOT approach include the Sydney Harbour Tunnel, M4 and M5 tollways in NSW and the Ord River Hydro-Electric Scheme in Western Australia (Angeles & Walker,2000). When a private sector group has a concession to build and toll a motorway project for say 20 years, this is a BOT. If, however, their concession also allowed them to own, build and rent warehouse space (for the concession period of20 years) at certain locations along the motorway then the contractual arrangement in place is described as a BOOT agreement (Walker & Smith 1995). Most BOT projects are first identifred by the host government. In advertising or requesting for proposals, the host government asks for bids to have a particular project delivered on a BOT basis (UNIDO 1996). 357 crB-2002 Risk Risk identification is an important step prior to risk analysis' In order to correctly manage risks through analysis, comprehensive identification at the preliminary stage is required (Salzman & Mohamed,1999). Managing risk in an integral part of the procurement process (Akintoye & Taylor, te97). The NSW Government Department of State and Regional Development published its 'Guidelines for Private Sector Participation in the Provision of Public Infrastructure' in October 1997. These guidelines confirm the shift in attitudes toward asset planning and procurement by stating, "The government aims to maximise private investment in infrastructure to the extent that this results in net benefits to the community beyond those from public provision' It also strives to promote an fficient allocalion of risk between the public and private sectors to parties best able to manage them." (NSW Government,l99T) These changes have indeed opened new avenues to the government for the procurement of buildings. The utilisation of the BOT concept or its variations, is an example of the increased acceptance of these forms of procurement. Identification of Risk It is difficult to generalise about the risk characteristics of BOT infrastructure projects, given that each host country, each infrastructure sector, and indeed each specific project has it's own risk profile. Notwithstanding this, the development of a broad based framework listing all relevant general issues, is seen to have good application at the planning and conceptual stages of such projects. Ma et al (199S) identified ftve main risk categories under the headings of political, construction and completion, market and 3s8 Stadium Australia * Jffiries & Ganteson revenue, operating and financial risks. They suggest that the identification, management and allocation of these risks is best served by the undertaking of comprehensive feasibility studies, UNIDO (1996) attempted the development of a'risk check- list', after dividing risks generally into two broad categories for the purposes of identification, namely general (or country) risks and specific project risks. The following table summarises the outcome. General lOr Country) Risks Political risks Country commercial risks Country lesal risks Political support Currency inconvertibility Changes in laws and risks risks regulations Taxation risks Foreign exchange risks Law enforcement risk Nationalisation risks Devaluation risks Calculating compensation delay Forced buy-out risks Inflation risks Cancellation of Interest rate risks concesslon Import/export restflctlons Failure to obtain aoorovals Specifrc Proiect Risks Development risks Construction/completion Operafing risks risks Bidding risks Delay risk Associated infrastructure risks Plannins delay risks Cost overrun risks Technical risks Approval risks Re-performance risk Demand risk (volume and price) Transnational risks Completion risk Supply risk (volume and price) Force Maieure risk Cost escalation risks Loss or damage to work Management risks Liability risk Force Maieure risk Loss/damage to proiect facilities Liability risk Table 1: Risk checklist for BOT projects (LINIDO, 1996) 359 ctB-2002 In noting the absence of a definitive list of risk factors applicable across BOT projects generally, Salzmann and Mohamed (1999) identified the need for development of a comprehensive risk framework. As previotts lists of risk factor ideniification were based on different definitions, categories and studies, then these lists were not totally comprehensive across the broad spectrum' Subsequently, the development of their framework was done in such a manner as to include every possible aspect where risk may elnanate from a BOT scheme' They saw it appropriate for the developrnent of two risk frameworks, where categories are fonned according to where the factors, influence is first encountered. The first framework lists those factors present throughout the feasibility to building stage, and is referred to by the authors as the development or 'build' phase. The second framework presents factors encountered throughout tlte 'owtt, operate and transfer' stages, and is referred to by the authors as the operations phase' Their models are an attempt to encompass available published material but the frameworks have not been tested on a current BOOT project. Research MethodologY Fellows and Liu (1997) comment that a case study yields deep but narrow results. The possibility of the case study results being 'narrow' is accepted in that they are restricted to the case study project in question. However, the case study will serve to test the validity of the risk factor issues identified from the related literature and subsequently develop a risk factor framework applicable to BOOT projects in general' A single case study has been selected as the most appropriate means for the research reported in this paper. collection of evidence for the case study was achieved by reviewing the documentation and reports provided by the consortium stakeholders, government office and general project literature and an 360 Sladium Australia - Jefferies & Gameson informal interview process with key senior project participants. The research has identified risk factor issues from the literature and they have been tested and developed through the interview process. The case study further validates these risk factors in a generic 'real world' context. Project Background: Stadium Australia The Olympic Co-ordination Authority (OCA) was established on 30 June 1995 by the NSW State Government to oversee the planning and development of facilities for the XXVII Olympiad. The NSW Government issued a call for proposals in August 1994 for private sector investment in the new Olympic stadium facility. This call was framed around a BOOT delivery scheme with an intention for the Government to shortlist successful tenderers (Magub and Hampso n, 1999) It was not until August 1996 that the OCA awarded the proposal to design, construct and operate the facility to the 'Australia Stadium 2000' consortium. The Stadium Australia Trust and OCA signed the