Key Points when Negotiating Infrastructure Agreements

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A well-constructed Infrastructure Agreement (IA) provides certainty for the developer and Authority regarding the delivery of various trunk infrastructure items.

By Brent Thomas

A well-constructed Infrastructure Agreement (IA) provides certainty for the developer and Authority regarding the delivery of various trunk infrastructure items. A good IA will clearly set out the obligations of each party, the funding and extent of infrastructure to be provided, identify any offsets and mechanisms for refunds, specify trigger points and reference the relevant design and construction standards.

We previously wrote about how to negotiate the right deal in an IA (click here). With IA’s becoming more common and more important in unlocking projects we thought a follow up article that lists the key points of any IA template would be of value.

We are currently working with several developers and Authorities negotiating IA’s. Each Authority IA is a little different so we have compared a few of them, collated our comments and have listed out a few key points that should be considered when negotiating an IA. These are listed below:

Issue/Key Point Recommendation
Actual Cost of Construction v Agreed Amounts There should be the option of choosing either actual construction costs or an agreed amount for the work contribution being provided. We would almost always recommend the ‘actual cost of construction’ method to lower the risk of cost overruns. An ‘agreed amount’ should be used when sufficient work has been undertaken to determine the cost and understand the delivery risk of the infrastructure item. Never accept the ‘lesser’ of the two as contemplated in many IA’s.
Changes to design and construction standards Months or years may pass from the date an IA is agreed to when the infrastructure item is delivered. Design standards may change and this may impact the value of the work contribution envisaged. A mechanism for dealing with changes to design and construction standards should be included to limit cost risk.
Don’t give away your rights to conversion applications Not all trunk infrastructure may have been envisaged when the IA is executed. Some IA’s seek to restrict the developers right to lodge conversion applications in the future (conversion of non-trunk infrastructure to trunk infrastructure). Retain the right to lodge conversion applications in the future.
Allow for cross crediting across the various infrastructure networks Some IA’s seek to restrict offsets from being ‘cross credited’ across different Authority networks e.g. a work contribution for roads is unable to ‘cross credited’ against parks or drainage. Ensure the ‘cross crediting’ provision remains in place.
Refunds and Access to refunds If you provide a work contribution that exceeds the value of the financial contribution you are required to make, then you are entitled to a refund. This could include a cash refund paid at on-maintenance or paid progressively over a fixed time period. Alternatively, the refund could be converted to offset entitlements transferred to other projects in the LGA.
‘Pass through’ provision to collect charges faster Taking years to realise the accrued infrastructure offset is not that good for IRR or project cashflows. Consider inserting a ‘pass through’ clause in an IA that requires Authorities to ‘pass through’ (within 21 days) the infrastructure charge monies collected from other developers in the catchment.
Land acquisition Authorities have a number of avenues available to them with respect to land acquisition and securing downstream owners consent for critical infrastructure e.g. Acquisition of Land Act 1967 (QLD). Be sure to include a provision that requires an Authority to implement their powers should it be required at some point in the future.
Termination and Sunset Date Include an appropriate termination clause in the IA. Many IA’s are left open ended and run indefinitely. The reasons and process to effect termination should be listed out and an avenue for the agreement to come to end included.
Access to Authority Land For Infrastructure Include a clause that acknowledges the right of the developer to use the Authority land for the provision of trunk infrastructure. This should avoid delays arising due to one Authority department not being able to agree with the other in relation to future access rights.
Security Many IA’s are seeking performance bonds of up to 150% to secure the infrastructure contribution from the developer. Bond after bond after bond places unnecessary financial burden on the developers’ business. An IA is a legal, contractual obligation and should be sufficient. In the event a bond is required, request an insurance bond rather than a bank guarantee as insurance bonds do not affect the balance sheet.
IA Schedules and Nodal Plans The IA schedules is where it all happens and the obligations, timing and offsets are all specified. A considerable amount of time should be spent ensuring these are correct, clear and concise. Triple check it for ease of reading and removal of ambiguity. Nodal plans that show schematically the intent of what is listed in the schedules should also form part of the IA.
A picture is worth a thousand words Use sketch plans and drawings to illustrate key concepts. For instance, rather than describe how a riparian buffer or development interface works in words, show it in a sketch. Show where water quality basins or batter extents are located to avoid confusion. Provide road cross sections showing kerb to kerb and footpath widths and highlight any parking lanes or cycleways. Use ‘pictures’ to explain the outcome.

IA’s will play an increasingly important role in unlocking land and providing certainty for both developers and Authorities in the delivery of trunk infrastructure. The above is not intended to be a comprehensive list of every single important IA point, but rather a list of practical and useful points that if covered off in the agreement, sets up the project for successful delivery.

We would be keen to hear of any others views or opinions on important IA clauses.

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