Posted on December 9, 2013 by Lindsay Taylor

IPART Draft Report on Benchmarking Local Infrastructure Costs

The Independent Pricing and Regulatory Tribunal (IPART) published a draft report in November 2013 titled ‘Local Infrastructure Benchmark Costs’. The report responds to a request by the NSW Government for IPART to develop benchmark costs that will be used to inform local infrastructure contributions under the new planning system for NSW.

Following publication of the draft report, the legislation to create the new planning system was substantially amended by the NSW Legislative Council and the NSW Government is currently considering whether and if so how to proceed with the legislation.

The Planning Bill 2013 makes provision for ‘local infrastructure contributions’ to be required as a condition of the grant of development consent to development. Such contributions will be paid to local councils and will fund essential local infrastructure to support growth in local council areas.

Local infrastructure contributions will fund the cost of land and capital works for local roads and traffic management, local open space and community facilities, and capital works for stormwater drainage. Such costs will be based on standardised, benchmarked costs for types of infrastructure.

The methodology adopted by IPART to determine benchmark costs estimates involved defining the typical configuration of infrastructure items  and costing the items having regard to base cost, adjustment factors and a contingency allowance.

The adjustment factors are intended to reflect congestion-related costs, and regional variations in transportation costs, area-specific prices and market competition for labour and materials.

The draft report sets out proposed contingency allowances that are subject to further consultation and will be finalised in IPART’s final report.

The draft report recommends that IPART review the benchmarked costs estimates ‘within 4 years’ and that between reviews the costs be escalated in accordance with the construction-based Producer Price Indices published by the Australian Bureau of Statistics.

The draft report addresses the difficult task of valuing land. However, an oddity is the recommendation that existing council-owned land should (with one exception) be valued at its historic purchase price indexed by the consumer price index (All Groups) Sydney.

Local infrastructure contributions that are used to recoup the cost of land purchased by a council (whether or not through borrowings) should recoup the opportunity cost to the council of parting with funds during the period of time between the outlay of the money by the Council and the time the money is recouped from the Developer. The consumer price index is ill-suited for this purpose. A more rational approach would be to employ an index or methodology that is able to measure the true cost to the council of being unable to use the funds during the period between the outlay and the repayment.

A similar comment can be made in relation to the method of escalating the value of land included in a local infrastructure plan in future years. The draft report recommends that the consumer price index should be used for land already owned by councils, but that councils should be able to choose between that index or another ‘suitable’ land value index that is ‘representative and statistically robust’ for land to be purchased. While the use of a so-called ‘suitable’ index for land purchases is sensible, the recommendation that the consumer price index should otherwise be used is neither rational nor, in IPART’s own words, ‘representative and statistically robust’.

Another oddity in the draft report is the recommended means of resolving disputes between councils and developers about infrastructure contributions.

Amongst other things, the draft report acknowledges that developers may disagree with councils over how the cost of facilities or land are calculated in determining local infrastructure contributions. IPART recommends that disputes between councils and developers should be referred for independent review by an Independent Hearing and Assessment Panel or the Joint Regional Planning Panel in the region.  However, in many cases, it is unlikely that suitable technical expertise will exist in the members of such bodies to be able to competently resolve such disputes.

For items of local infrastructure not yet benchmarked, IPART recommends methodologies that will lead to estimation of efficient costs.

The draft report states that it is intended that the Department of Planning and Infrastructure will include the benchmarked costs estimates in guidelines that will be issued for the preparation of local infrastructure plans and that the Department and IPART will use the benchmarks to guide reviews of such plans prior to their approval by the Minister for Planning and Infrastructure. The draft report also states that local councils will be required to justify any deviation from benchmarked cost estimates.