Most state infrastructure services are provided by corporatised statutory authorities and government business enterprises (GBEs). The procurement method used by these vehicles is predominantly traditional although there is evidence of much wider use of outsourced management and relationship contracting in recent years.
The sub-optimal performance of GBE traditional contracts in Britain, Canada and Australia was confirmed in a number of recent studies (see Table 2) 13 Significant advances have been made toward improving traditional performance in recent years with the "gateway" program developed in the United Kingdom 14 The program was employed in Victoria in 2004 and is being evaluated by other Australian jurisdictions. Gateway applies a rigorous project evaluation and approval process to 6 key elements of a traditionally procured complex project. 15 The Gateway programs are improving the delivery of projects although evidence from the United Kingdom suggests that user satisfaction and service delivery outcomes are not at the same levels as those achieved with and outsourcing procurement methods.16
Table 2 UK OGC Gateway Review Procurement Outcomes
| TRADITIONAL PROCUREMENT PERFORMANCE | |||||
|
| United Kingdom 2002-2006 |
| |||
|
|
|
|
|
| |
| Performance | Review |
| Objective | ||
|
| 1999 |
| 2004 |
| 2006 |
|
|
|
|
|
|
|
| Cost Overrun | 73-75% |
| 45% |
| 30% |
|
|
|
|
|
|
|
| Late Delivery | 66% |
| 37% |
| 27% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SOURCE |
|
|
|
|
|
| NAO 2005 Improving public services through better construction | |||||
| Report by the Comptroller and Auditor-General HC 364-1, NAO | |||||
Do GBEs offer better performance at the enterprise level? Reviews of GBEs operated by state and territory governments over the 10 years to 2006-07 indicates improvement in some industries although average return on equity is less than the Commonwealth's 10 year bond rate (See Table 2).17 The Productivity Commission in its 2008 review of Government Trading Enterprises states:
"The 2006-07 performance continues the poor financial performance of the majority of GTEs that has been observed in previous reports in this series (see, for example, PC 1991, 2001, 2003, 2004, 2005, 2006). This suggests a lack of commitment by owner-governments to operate their businesses on a fully commercial basis, despite their previous undertakings to do so (NCC 1998; Trembath 2002; CoAG 2005)." 18
The poor performance of GBEs is attributable to a number of factors including:
1. The pricing of output which may include unfunded community service obligations and output pricing not fully referenced to actual cost of production
2. A lack of competitive market performance benchmarks - GBEs tend to internalise organisational performance measurement and are subject to political interventions in operational matters
3. Poor asset allocation decisions and failure to undertake lifecycle costing, continuing qualitative monitoring or risk-weighted evaluation of projects
4. Soft labour practices, over-employment and poor incentive structures
5. A reluctance to undertake innovation or new technology in the procurement of assets or delivery of services.19
Table 3 Performance of National Government Business Enterprises 1990-2007
|
|
| Year to June 30th |
|
| ||
|
| 1990 | 1995 | 2001 | 2004 | 2006 | 2007 |
| Electricity | 11.2 | 8.8 | 6.6 | 9.0 | 13.6 | 16.4 |
| Water | 3.2 | 3.0 | 5.0 | 5.7 | 4.7 | 5.0 |
| Urban Transport | 3.1 | 8.5 | 1.1 | 1.9 | -31.6 | -22.2 |
| Railways | -2.3 | -2.1 | 3.2 | 2.9 | -3.1 | -3.2 |
| Ports | 6.8 | 8.1 | 6.5 | 5.6 | 3.8 | 3.8 |
| 10 Year Bond Rate a | 13.4 | 9.2 | 6.0 | 5.1 | 5.7 | 6.6 |
| NOTES | SOURCE |
| a Average 30 June | PC 1991, 1995, 2001, 2004. RBA 10 Year Bond Yields 1992-2005 |
GBEs will be the diminishing source of infrastructure provision in the future if Queensland is to complete the privatisation of the Port of Brisbane, Queensland Rail and some energy services. Nevertheless, GBEs will retain an important role in the provision of public services in the state. The need for further reform with a view to improved operating efficiencies is clear with priority given to the following:
• fully-costed output pricing
• full compliance with regulatory impact assessment requirements
• greater financial and operational independence
• divestment of GBEs in competitive markets which may benefit from market disciplines.20
______________________________________________________________________________________________________________________________
13 NAO 2003, 2005; Mott McDonald 2002; Allen Consulting 2007.
14 Office of Government Commerce 2004.
15 The procurement strategy, business case, procurement plan, tender decision, readiness for service and benefits evaluation (Department of Treasury and Finance 2004).
16 Mathias and Reddington 2006; KPMG 2005; NAO 2005.
17 Task Force on Monitoring Performance of GTEs 1991; Industry Commission 1996, 1998; Productivity Commission 2001, 2003, 2004, 2005, 2006, 2007, 2008.
18 PC 2008.
19 Regan 2006.
20 Office of Best Practice Regulation 2007; Productivity Commission 2005; Bureau of Industry Economics 1996; Productivity Commission 2007, 2008.