Implementation of the policy will be vigorously pursued where it is likely that a better outcome can be achieved when measured against the traditional infrastructure or service delivery methods.
To make this assessment of whether or not private sector involvement will deliver value for money on a particular project, it is essential that a thorough and detailed analysis be undertaken of all of the project's costs and potential revenue streams available under the traditional methods of project delivery. It is essential that all risks associated with the traditional development, construction and operation of the project are also identified and qualified. This assessment is called the public sector comparator, and provides the basis upon which value for money can be tested.
Value for money may be achieved on infrastructure and service delivery projects where:
- the project size justifies the transaction and management costs
- there is a defined measurable service delivery function or output mechanism
- there is scope within the project delivery for the optimisation and the allocation of manageable risk to the private sector, delivering a cost effective outcome
- there is scope for sector private sector innovation, value adding and/or cost reductions in the delivery and operation of the service
- that there is real value in transferring responsibility for the operational and maintenance phase of the project to the private sector
- there is an identifiable market of private sector bidders prepared to compete for the opportunity to deliver the project.
Following the development of the public sector comparator the government will then develop the project contractual relationship model, based predominantly on the appropriate allocation of risk. In this model the government will also determine the benefits of project specific output specification, the contract term, available performance incentives, benefit of effective competition in the tender process, and any other project specific management or operational efficiencies and other benefits this policy approach may provide.
Under this policy the governing principle of a project's risk allocation is that risk will be allocated to whichever party is best able to manage that risk, taking into account the public interest considerations. It is not the government's intention under this policy to necessarily attempt to transfer all project risk to the private sector, as it fully recognises that the inappropriate transfer of risk will generate and carry a significant premium.
The government recognises that it is inappropriate to seek private sector involvement in public infrastructure provision unless all significant project risks are identified and the government has quantified what risks and costs, if any, it is prepared to retain and what risks and costs it expects can be justifiably transferred to the private sector.