In the absence of public documentation, the Committee cannot conclusively state whether the PPP policy is delivering value for money over the life of the projects, compared with traditional procurement methods used by government.
The Committee's review identified a range of concerns that need to be addressed by the Victorian Government. Foremost among these concerns is that although Victoria is promoted as being at the forefront of using the PPP model in Australia, the Committee found that certain overseas jurisdictions - notably the United Kingdom and British Columbia - had taken steps to address many of the criticisms about the public sector comparator, high discount rates, and the premiums paid for the transfers of risk to the private sector that are used in PPP arrangements.
The Committee observed from its review of certain PPP projects that despite paying large premiums for the assumption of risks by private sector consortia, it was been common practice for certain risks to revert back to government without any adjustment to the discount rate.
The Committee considers policies such as the build own operate model used in earlier projects (Mildura Hospital and County Court) that treat multi-million dollar purpose built government funded assets as disposable early in their life span need to be revisited by the government.
There is no question about Victoria's need for new infrastructure. The Committee acknowledges that it is a difficult and challenging task for any government in providing infrastructure to determine the appropriate level of investment to fund hospitals, schools, roads and other essential infrastructure.
The early PPP arrangements were devised in such a way that in return for the private sector providing the infrastructure, the repayment of construction and maintenance costs was achieved through the government entering into operating leases. With the advent of the Australian equivalent of International Financial Reporting Standards, most of these earlier financial arrangements will be reclassified as finance leases, representing long term debt to be met by future governments.
There is substantial evidence to indicate that most PPPs result in infrastructure being delivered on time and within budget, with some exceptions. The Southern Cross Station, for example, ran more than 12 months behind the scheduled completion date and the third party builder incurred a substantial loss.
The Committee has reservations about the reliability of the public sector comparator because of its theoretical approach to estimating and comparing costs, particularly in relation to the valuation of risk.
The Treasurer has acknowledged that scope changes and budget and time overruns have occurred in projects procured under traditional means. The government has acknowledged this problem and implemented the Gateway Review Process. This has had some success in resolving issues that delay projects and in ensuring that infrastructure is delivered in a cost efficient manner.
The biggest barrier to determining the benefits or otherwise of PPPs has been the lack of public information about these projects, although marginal improvements have occurred. The International Accounting Standards Board is still to finalise a new accounting standard for PPPs, as previous efforts have proven unsuitable to governments worldwide because the draft accounting standard focused on disclosure in private sector financial reports and largely ignored public sector accountability requirements.
The Committee considers that accountability needs to be improved within Victoria in a range of areas such as the prompt disclosure of contracts on the government's website and providing Parliament with a schedule of repayments to consortia. The Committee is also concerned about the excessive use of 'commercial in confidence' to prevent full disclosure of details such as the public service comparator, the risks to be transferred, the total amount of payments (often what is included in the lengthy complex contract is a formula rather than actual amounts), and contracts that are only released publicly months after the financial close has been agreed.
The Committee is also concerned that the high cost of preparing bids results in only a small number of consortia bidding for major PPP projects. This raises issues about whether there is sufficient competition to ensure the government gets a good deal.
The Committee has made 20 recommendations to improve the Partnerships Victoria policy and significantly strengthen the governance arrangements for these projects. These recommendations are also seen as contributing towards the government ensuring that PPPs provide value for money over the life of the projects.