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Cheers - AE

Tuesday, 12 April 2011

Contract traps

Back in January I blogged about the upcoming Melbourne Grand Prix, its ongoing cost to Victorian taxpayers, the fact that we were stuck with it because the previous Premier, John Brumby, signed a contract which Bernie Ecclestone is, not unreasonably, expecting the government to stick to, and that I thought this was very, very wrong.
... I do, reluctantly, have to side with Bernie Ecclestone when the unpleasant little prick points out that he has a contract.
Mr Ecclestone, chief executive of the London-based Formula One Group, told 3AW yesterday that the amount of money the Victorian government had to pay to his organisation for the rights to the race could not be re-negotiated.

''Whatever the contract says is what it will be,'' Mr Ecclestone said.
And though I loathe the man both for screwing Victorian taxpayers and for adding more negatives than positives to what was once one of my favourite sports, he's absolutely right - a contract entered into honestly must be kept, even when it's not doing one party any favours. If we lose contracts, if agreements between parties can be rewritten unilaterally by one of them, then we're all fucked.

But saying that is it right that a contract can be signed that affects third parties against their will? I'm not talking about the way governments commit taxpayers to shell out for things they might feel they neither want nor need, or at least not just about that. But here we have Bernie Ecclestone pointing out that he's got a contract with someone who did not sign it and who seems unhappy with the uneven terms he's been committed to by his predecessor, and, since the contract is until 2015, the year after the next state election is due, might not even be in office when it comes time to renew it. ...

Now that can't happen in normal life, but because it's a government signing deals it's believed that it's different for some reason. ... With a government it affects everyone whether they like it or not, and the opportunities to oppose moves are limited to protests that may be ignored and elections several years apart. In this way in 2008 the last Premier, John Brumby - who was not even elected Premier by the people of Victoria but was voted in by his own party to replace Steve Bracks, the guy who actually won the election and then resigned less than a year into the term - was able to sign Melbourne and Victoria up for a further five years beyond 2010, the year in which the Grand Prix contract would have expired.
But I'm not completely unreasonable and felt that there could be a fair solution.
So if Ted Baillieu is pissed off about this and also wants to make a mark as Premier I have a suggestion for him. It won't fix the problem for him but it is something radical that will prevent subsequent Premiers from screwing their eventual successors the same way. ... Make all contracts signed by the government constitutionally limited to a maximum of four years or two years beyond the date of the next election, whichever comes first, unless approved by a referendum. This prevents a government from cursing the one after it with the need to abide by shitty contracts that it can't change for the whole term or possibly even longer. At the worst this would mean a half term of being stuck with a poor deal, though a new government committed to ending it would be able to prepare to do so long before that, and while electorates still remembered who'd signed the thing in the first place. But it would still allow medium term contracts of 2-3 years to be agreed late in a parliamentary term, which should be a motivator for the contractor to provide something of value in order to maximise their chances of seeing it renewed by the next government. And if something really, really has to be agreed for a longer term there's still a mechanism to allow for it - simply agree pending a referendum and put it to the voters themselves.
And the reason I bring all this up again is that another one of John Brumby's timebombs is ticking away in our laps: the Wonthaggi desalination plant.

I've mentioned this white elephant in passing once or twice before, and blogged briefly on the hare brained idea to use taxpayers' money to compensate the losing bidder and the irony that something designed to secure Melbourne's water supply against warble gloaming induced drought has been damaged by flooding months before it's even ready to be switched on, and I'm sure I've mentioned that the cost is $5 billion or so. What I may have missed out is that once again Victoria and it's current government were contractually committed to the bloody thing by - wait for it - the previous government under John Brumby, now comfortably in opposition and one step removed. And because the news is quite recent I'm quite certain that I haven't mentioned that the builder is now expected to miss the agreed December opening as construction is six months to a year behind, partly because of all that rain we're not supposed to get anymore and the lack of which requires a five billion dollar desal plant to cope with.

Now let me ask you this: if you were signing a contract to have something delivered by a certain date, and subsequently the whatever it is turns out to be so far behind schedule that there's no hope of it being ready on time (and possibly, though only incidentally, no longer necessary), wouldn't you expect to be able to get out of the contract without penalty or at least to be compensated for the late delivery? I bloody would. I mean a day or two and I'd probably just bitch and moan and give them a bollocking about it when they finally did arrive, but there'd come a point where I'd be on the phone telling them that either I get a refund or a sufficiently large discount to make me forgive their failure to live up to their end of the deal. But of course the less than wonderful world of government doesn't work like that, and just as Britain's Ministry of Defence signs contracts that mean they don't just have to pay for late delivery but actually have to pay extra so Victoria's last government signed a contract that the contractor seems to believe makes the fucking state rather than themselves liable for the delay. And so they're making noises - and the fucking front this must take must be almost unquantifiable - about suing the state of Victoria because they're now expecting to make only about $6 million profit.
Construction giant Leighton yesterday acknowledged the project had become a physical and financial quagmire, dogged by bad weather, poor productivity and extraordinary underestimates on design, construction and materials costs.
The company revealed it now expected to make just $6 million profit from the desal project, a fraction of the initially anticipated $288 million.
It would not rule out suing the state government, raising alarm bells for taxpayers already facing a $24 billion bill over 28 years for the controversial public-private partnership project. ''[We] will be pursuing our rights to recover what we believe we are entitled to,'' said Leighton chief executive David Stewart.
The mind just fucking boggles. Look, I'm terribly sorry to hear that their investment isn't going to deliver the kind of profits they'd hoped, but my sympathy is tempered by the fact that the taxpayers are still going to have to shell out on it and the fucknuts who signed us up to this will be in his 80s by the time its 28 years are up. Oh, and also by the fact that they do still expect to make a profit, even if it is much less than hoped for because of the cost overruns and because, slightly to my surprise, the last government did put in a penalty clause.
As forecast in The Age last week, Leighton said it was unlikely to meet the December deadline to produce desalinated water, and had allowed for a $15 million penalty.
Mr Stewart said the company would ''target'' a second deadline of June 2012 for full operation. But a senior insider described this as ambitious.
The company faces $1.8 million a day in penalties from June if the plant is not fully operational by then.
And now they want to sue the state government, which isn't the one that actually signed the contract, and by extension the taxpayers who weren't asked if they wanted to be sent the invoice but were always going to be the ones who had to pay? Because of bad weather, which you'd expect a contractor to allow for when submitting their tender, below forecast productivity rates, which you'd also expect them to allow for, and massive underestimates, which are surely nobody's responsibility but their own, they want to sue us all for the money they think they should have made if everything had gone according to their sadly unrealistic plan. Their balls must be the size of the fucking moon.

So no matter whether he has stones big enough to tell them where to go, and to advise them exactly how much government work they can expect to be considered for in the future if they don't take responsibility for their own late delivery of what has always been a contentious project, I repeat my earlier advice to Premier Ted Ballieu. Write an amendment to Victoria's constitution which restricts the ability of the current government to sign a contract which binds its successors for more than half the next term unless approved by voters. As I said before, it doesn't stop you doing long term deals with industry but it does oblige you and your successors to ask the people who'll have to pay for it before you're able to commit the next government to it as well. Write the amendment and submit it for referendum as soon as practical. If it was me I'd aim for sometime around a year from now - just after the 2012 Melbourne Grand Prix which we're contractually obliged by the last government to host at great expense and just before the Wonthaggi desal plant is now hoped to be operational, and for which we're also obliged to pay thanks to your predecessors.

You, your government and everyone living in the state are stuck with anything and everything Brumby and his predecessors agreed contracts for and which are still going today. We can't do anything about that now without changing contract law and wrecking the principle that an agreement someone puts their signature to is a binding agreement, and despite the short term attraction that really is a can of worms we're much better off not opening. But if you're prepared to rise above politics and sacrifice your ability to stiff whatever government comes after yours the same way yours was stiffed by the last Labor governments - and no doubt they in turn were stiffed by the Coalition government before them - then you can give us all the chance to break the cycle.*

Come on, Ted, what do you say?

The Angry Exile checks skies for flying pigs, crosses his fingers and waits... more in hope than expectation, sadly.

* In fairness to Brumby, and Bracks and Kennet and so on, I'm not suggesting that any of them did deliberately sign a shitter in the expectation of making life difficult for whoever came along next. I'm sure that nearly all politicians really believe that they're acting in everybody's best interests when they do this kind of thing, but unfortunately they are often poor judges as to what's in the best interests of millions of disparate individuals. In addition as long as the ability to sow poison for your opponents in office exists you can be certain that now and again there will be someone willing to do so. Better for all that governments of all stripes lose the ability altogether.
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