Where can you sue someone for over-optimism? Increasingly in Australia, where Arup is the latest consultant to face court proceedings over allegations from investors in Brisbane’s Airport Link toll road that it drew up unreliable traffic projections that were subsequently relied on. These numbers predicted that almost twice as many vehicles would use the road than actually did.
This is not the first action of its kind. Back in 2009, a similar one was brought against Parsons Brinckerhoff and Booz Allen for their role in traffic projections relating to Sydney’s Lane Cove Tunnel (which went into receivership in early 2010); and, in June 2012, against AECOM Australia for its projections in the case of Brisbane’s Clem7 Tunnel (which was also placed into receivership in early 2011). It should be noted that the consultants referred to are defending against the actions, which are ongoing.
Two considerations spring to mind in response to the growing number of cases in Australia. One is whether there will be a ripple effect. In the US, where the inclination to litigate is arguably stronger than anywhere else, there have been rumblings that investors exposed to similarly wayward toll road traffic projections may use Australia as their inspiration to take matters further.
Eyes are also on India, where a Fitch report found that toll roads built in 2010 were averaging 45 percent below traffic projections – and this in a country where high debt levels give projects precious little wriggle room on a revenue basis.
Another point to ponder is whether such cases – especially if they spread globally – will encourage a re-evaluation of the procurement process for concessions. The basis of a concession award is frequently the biggest upfront sum offered – or, to look at it another way, the bid that requires the least public subsidy.
Robert Bain of UK-based RBconsult Ltd, who has advised on many high-profile toll road projects around the world, told Infrastructure Investor: “The rules of the procurement game often reward big numbers, and that can act against the interests of genuine long-term players. Concessions are being awarded, not to the most appropriate private-sector partner, but to the riskiest bidder.”
This is, of course, a source of annoyance for the “genuine long-term players” referred to by Bain which may on occasion have spent small fortunes on bid costs only to lose out to rival bids that they knew were based on fanciful assumptions. It should not be beyond the wit of governments to understand that the most responsible guardian of an infrastructure asset over many decades is not necessarily the one prepared to stump up the biggest sum of money at the outset.
Frustrations such as this may lie behind the launch last week of the Long-Term Infrastructure Investors Association by fund manager Meridiam Infrastructure (and including the likes of Allianz Global Investors, Skandia and the Development Bank of Japan).
Among the priorities in the statement announcing the organisation’s launch were “discussions on the management of long-term infrastructure investments”, establishing “criteria for the conduct of business” and “sharing and promoting best practices”.
Unsurprisingly perhaps, nowhere in the statement announcing the organisation’s launch was there a reference to anything as specific as toll road traffic projections. But, in response to any questions as to why such an association is needed, its members could do worse than to refer interested parties to a few selected case studies.