The debate regarding whether private funds should be used to build public infrastructure has not slowed down the rate of Public Private Partnerships (PPPs). Justin Whealing asks how lawyers handle the myriad interests and scrutiny involved in a PPP.

Public Private Partnerships (PPPs) were a popular source of investment in the first half of the 21st century, as governments were attracted to PPPs because they could attract finance for major projects, while banks and business consortiums were attracted by the promise of the profits that could be made and the increasing levels of influence that come from working closely with government.

However, some governments, particularly in New South Wales, have recently gone cold on the PPP front after projects such as the Sydney Metro were abandoned and others, like the Cross City Tunnel, received bad press.

Freehills partner David Templeman acknowledges that any project involving the government will have a political element. However, he does not believe that the days of large-scale PPP projects are numbered.

"The government is very concerned about probity issues, and what is commonly called the 'Daily Telegraph test', which is the political risk that can go with a PPP project," he says. "You need to be very careful in what you say, in that you don't embarrass the government."

Templeman has acted on over 20 PPPs in Australia, representing all sides. He is currently acting for the preferred bidder in the new Royal Adelaide Hospital project, one of the bidders in a proposed 800 bed prison in Darwin and has acted for the Queensland Government in the construction of the Southbank TAFE.

Some years ago, Templeman was also involved in the Cross City Tunnel, with Freehills acting for the consortium that brought the much maligned project out of receivership.

"With something like the Cross City Tunnel, if it's worth, for instance, only a portion of what it was originally built for, the loss will be borne by the private sector, through equity and in the worst cases debt, with a lot of that offshore," he says. "But the political risk comes back to the government, and they will cop the criticism that it is a failed project.

Due in part to the political risks associated with building unpopular toll roads or costly transport infrastructure projects, there has been a shift away from these types of projects in the PPP space to more social projects, like the building of hospitals, in the past few years.

These political factors were certainly at play in the NSW Government's decision to cancel the Sydney Metro project last year.

Phillip Cornwell, the head of the project finance group at Allens Arthur Robinson, was heavily involved in that project on the finance side. He acknowledges the frustration expressed by all parties when a major project is canned, but says that on the whole, "people are still getting behind PPPs".

"There is no undue concern about the political risks involved," he says. What Cornwell has noticed is a shift in emphasis in PPP work, not a decline in its volume.

"A privately financed toll road, where the private sector has to take demand risk, is pretty unlikely at the moment," he says. "I think there have been enough problems on that front to deter people from pursuing it."

Allens is one of the leading firms in the PPP space, with Cornwell and the firm involved in a number of current deals that are still subject to confidentiality requirements.

"Right now, I have never seen more PPPs on the books," he says. "Virtually every state and the Northern Territory have at least one PPP in the bid, document or expression of interest stage."

While Cornwell says that activity in the PPP space is buoyant all over Australia, he nominates Victoria as being at the forefront of PPPs, and providing the most opportunities for firms.

The Victorian PPP model is widely held up as the yardstick by which PPPs should be structured in Australia.

Gilbert + Tobin banking and finance partner Ros O'Mally says the Victorian Government, stretching back to the 1990s when Jeff Kennett was premier, is renowned for being a "market leader" in the PPP field. She says that the location and type of deal will all throw up different issues for the parties involved.

"Each transaction is different, as it is a PPP, where the purpose is to allocate risk effectively," she says. "So each deal depends on the nature of the project, with risks to be allocated differently."

Like Cornwell, she notes the shift from transport to social infrastructure, with O'Mally and G + T involved in PPPs as diverse as the Mundaring Water Treatment Plant and the Queen Elizabeth II Medical Centre Car Park in Western Australia, the Royal Adelaide Hospital and the Victorian Comprehensive Cancer Centre. O'Mally and G + T are acting for financiers on all these projects.

According to Melbourne-based Clayton Utz major projects partner Brad Vann, the government is the "ultimate client" for a PPP transaction, as it is the primary driver.

"The government sets the timelines, sets the process and sets the whole environment really to attract competitive and innovative bids from the private sector," he says.

Vann is a leading government lawyer in the PPP area, having acted for the South Australian Government on the Royal Adelaide Hospital Project, the Victorian Government on the Peninsula Link and CityLink and the NSW Government on the Cross City Tunnel and Epping to Chatswood Rail Link.

He says that maintaining close relationships with Government clients is important in ensuring work continues to flow to the firm.

"We place lawyers, of both a senior and junior level, into secondment positions regularly, but typically after they have become a client," he says. "In the PPP road space, we probably have the dominant footprint in the marketplace advising government because we have advised on almost every major toll road since the Melbourne CityLink (which opened in 2000), and an integral part of that has been seconding a mixture of senior and junior lawyers into the clients, and getting them involved as part of the client team."

Despite the small number of firms that regularly do work on PPPs - with Corrs Chambers Westgarth and Clayton Utz regarded as leading figures on the government side and Mallesons Stephen Jaques, Allens, Freehills and Gilbert + Tobin leading figures acting for the financiers or business consortiums - Vann says it is a very competitive market for law firms.

"The tendering for these projects, whether it is on the government, financier or consortium side is extremely competitive," he says. "Firms now, particularly on the bidding side, are almost taking what you would call equity risks, where you are essentially punting on whether your client is successful."

Still, such risks for a law firm can be highly rewarding. "On the smaller projects, the fees are not that significant, but on very large projects, firms could be speculating millions of dollars on the outcome of the deal," says Vann.

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