A diversity of views is held on the advantages of PPPs relative to traditional procurement strategies. These views extend to some of the key elements of the PPP framework, including the soundness of decisions reached on projections of value for money offered by PPP projects.
Because value for money projections deal with future uncertain outcomes such as predictions of risk allocations and assumed discount rates, empirical experience is the only way to assess actual results. Experience has proved that economic projections and financial business cases were often unreliable when compared with actual outcomes achieved. The government does not publish a comparison between actual and estimated value for money results from PPP projects.
Differences of opinion also exist about the value and robustness of the public sector comparator (PSC), a central component of the government's PPP policy for value for money determinations. Some proponents of the PSC advocate its wider dissemination to prospective tenderers to assist in optimising outcomes, while critics view the current application of the PSC as biased towards the private sector. The Committee was advised that the PSC should, in most cases, be available to bidders as occurs in Queensland.
The government's policy documents include considerable guidance on the construction of a PSC and identify its hypothetical nature, which involves assumptions of risk and the principle of competitive neutrality. As part of its ongoing review of PPP policy, the government should reconsider the views conveyed by Mr Peter Fitzgerald in his 2004 review, and those expressed to the Committee by the Auditor-General on ways to improve the use of the PSC, if use of a PSC is to be retained. The 2004 Fitzgerald report urged a change in discount rates and project evaluation methodology, but was not seen by the Treasurer as appropriate for Victoria at the time.
There have been some important developments in the United Kingdom based on past experience with private finance initiatives, including decisions to apply a discount rate of 3.5 per cent for public infrastructure projects together with a risk adjustment to cash flows, and to no longer use a risk-adjusted PSC.