1 August, 2017
ANALYSIS: Australian contractors will be watching with interest construction and support services company Carillion's announcement of a write down of £845 million, based on three public-private partnership (PPP) projects in the UK and the cost of pulling out of construction projects in the Middle East and Canada.13 Jul 2017.
Carillion announced the write down, with ongoing cash outflows from the projects of £100m to £150m in 2017 and 2018, in a trading update in which it also said that chief executive Richard Howson would be stepping down.
Carillion's troubles highlight the issues in current Australian PPP projects and might have contractors and investors considering the attractiveness of the model as part of their broader portfolio.
There are a number of PPP projects currently being built in Australia that are known to be under strain. Risk profiles are very onerous and leave little room for error. Liability for delays and non-performance easily runs into the 10s or even 100s of millions of dollars, and the Availability PPP model offers little financial upside for investors whose maximum return is set in stone. That sees most risk passed on to contractors like Carillion.
Any contractor watching developments elsewhere in the world might be wondering whether PPP contracts are always the right choice for their construction pipeline and if so, what the right balance should be.
Even the Australian government is rethinking its options, with direct infrastructure investment using "good debt" being a central theme of the 2017 federal budget. Once operational, governments always have the option of privatising the asset as an alternative way of getting assets "off-book".
Of course, the significant turnover PPPs provide may mean they will always be attractive for major contractors.
For further information, please contact:
Adam Perl, Legal Director, Pinsent Masons
adam.perl@pinsentmasons.com
