PPP

The Excel model audit team of Corality is based in Sydney, Australia. Most people appreciate that Sydney is one of the best places to live (in particular at this time of year - December - when Europe is not looking overly attractive and we have +28 degrees Celsius and sunshine) in the world but that is only one of the advantages of locating our financial model audit team here.

The model audit (model review) process of an Excel financial model

A typical model audit, or model review, of a financial model for a PPP/PFI/Project Finance transaction involves an initial spreadsheet review and an analytical review followed by additional iterations to resolve all outstanding spreadsheet issues satisfactorily. Typically in a bid tender process there are 3-5 Excel spreadsheet iterations in the model review process and the last two are often very minor.

Late nights of financial modelling for a bid tender process in PPP/PFI/Project Finance

By the nature of the high pressure environment of bid process in a PPP/PFI/Project Finance transaction the financial modeller in the deal team will be working on the financial model up until the very minute he leaves the office to go home a get a few hours well needed sleep. By that time the Excel project model is sent via email to the model auditors. This is obviously not a great structure from a bigger picture financial model risk perspective, but that is a different story.

The time zone advantage in using an Australian model audit company for European project finance/PPP/PFI projects

Unless you are working with a model audit team with seriously disturbed sleep patterns they are unlikely to be waiting at their desk at 1am waiting to potentially receive a new model…. (They probably would do this on the bid date, but not for the initial iterations). Should you work with an Australian model audit team then this would not be an issue. 1am in London is 11am Sydney time so we could get started straight away and complete the next model review iteration of the Excel financial model by 9am when the deal team modeller gets back to his/her desk to start the new day on the PPP/PFI/Project Finance model..

A consortium led by Leighton contractors has been awarded the AUD 1.1 billion contract for design, build and maintenance for seven schools on Queensland, Australia.

This is regarded by many as a success for the supported debt model and proves that the big PPP banks the Commonwealth Bank and National Australia Bank have become comfortable with the supported debt model which was widely discussed in the bid phase of this PPP project (I even wrote an article for Project Finance International (”PFI”) on the topic (subscribers only - sorry) ‘The brave new world of PPPs’

Project Finance Execution at the Commonwealth Bank

It is very satisfying to the Commonwealth Bank win this process as I used to work in their Project Finance Execution team. The team has really improved their modelling standards in the last few years after appointing Joseph Lau (who was previously with Mercers model audits) as responsible for financial modelling methodology and quality.

No doubt a background in financial model audits help when performing peer reviews on internal bids prior to bids (or even prior to external independent model audits). I am surprised that not more banks have taken this approach of developing a ‘centre-of-excellence’ for financial modelling.

Additional info on the PPP transaction

• Leighton wins AU$ 1.1 billion schools PPP project
• Queensland Government announcing the bid process (2008)
• Shortlisted proponents after the Expression of Interest

Congratulations Leightons and the CBA! (and NAB of course, I just don’t know them as well…)