The initiation of a specific public interest test in Partnerships Victoria was a sensible step forward.222 The public interest test should be an explicit consideration in project design.
The Department of Treasury and Finance explained to the Committee that 'public interest issues are considered from the early option appraisal stage of the investment evaluation process, when the department or agency decides whether it should explore the delivery of the project by way of Partnerships Victoria'. Furthermore:223
At the later stages of the development of a business case, all projects are required to undergo a full public interest test. This involves an assessment of the impact of the project on the eight elements of public interest … and … As part of the public interest test, a decision must be made on whether suitable measures can be established that adequately protect the public interest. Suitable measures that protect the public interest may involve insertion of certain conditions into the contract and/or changes to legislation and regulations. After all relevant issues and potential public interest protection mechanisms have been examined an on-balance assessment is provided to allow government to decide whether the public interest would be properly protected by the proposed delivery arrangements.
The Committee considered that while the public interest test may be technically superior to previous arrangements, it was nonetheless no guarantee of the public interest being served. The Committee understands that the results of the public interest test are not public, and in the absence of transparency as to whether the test has been undertaken by public administrators, there is a risk that rather than being an objective independent test of the public interest, it might become a framework for the defence of projects advanced by policy proponents.
The Victorian Auditor-General stated that the PFI experience with the public interest test in the United Kingdom had been mixed and that recent rail disasters raised serious questions about the risks and benefits of PFIs.224 While the Partnerships Victoria public interest test includes security, it is doubtful whether such a checkbox ethos would be sufficient to guarantee safety. This would need to be the subject of separate professional analysis and investigation. The public interest test should also include an assessment of whether those affected by projects have been able to contribute effectively at the planning stages and have their rights protected through fair appeals processes and other conflict resolution mechanisms.
(a) Public consultation
The Institution of Engineers Australia advised the Committee of its strong support for private investment in public sector infrastructure, but noted that while sound in theory, 'the devil is in the detail' and that outcomes depended 'on the asset being provided and the structure of the deal'. The Institution judged that private sector financing was not suitable for all projects:225
Such long term planning would need to be done on the basis of infrastructure lifecycles and not just on the initial infrastructure delivery. Given that major projects can take several years until they are at a point where a construction project is initialised, planning should be robust and broad enough to gain realistic commitments. The Institution suggested that the long term infrastructure needs of Victoria be established, including the examination of a full range of infrastructure funding options in addition to the current partnership arrangements. It also suggested that:226
An effective way to produce this material is to broaden the terms of reference of the Infrastructure Planning Council and to include representation from Ministers, infrastructure owners, constructors, users and community representatives. Most of the specific resource projects could be outsourced but to maintain relevant competencies for government planning professionals, a substantial part of the research should be undertaken in-house. All reports should be made public.
In other words, the public interest would best be served through a strong forward planning capability that is seen to be representative of community needs, rather than being perceived to be driven by financial interests.
After a project is constructed, there is a further question of processes required to guarantee the public interest in terms of ensuring that contractual arrangements are adhered to and that the public interest is upheld throughout the period of the contract. The Committee was advised that expertise in government needed to be strengthened for it to be an informed buyer and regulator. In the Institution's view, commensurate skills are needed to the private sector to ensure value for money and include engineering, legal and financial expertise as well as subject matter expertise.227
(b) Role of evaluation in protecting the public interest
The role of evaluation in protecting the public interest (both pre-project and post-implementation) is critical. The report by an academic with experience in PPP matters noted that current processes did not necessarily include evaluation of projects from the community's perspective or directly consider equity issues.228 Given that the objectives of PPP projects were clearly to have positive community outcomes, the degree to which these stated objectives were being met on actual projects warrants following-up.
The Committee noted that Partnerships Victoria policy is orientated towards providing guidance material encouraging private investment in public infrastructure and has not addressed the need for increased independent evaluations of built projects. The Committee considers, therefore, that a program of independent evaluations of large infrastructure projects constructed in Victoria under private funding should be undertaken. An evaluation of the cost-effectiveness of publicly funded projects over the same period should also occur, where practical, given that PPP projects tend to be of a unique nature and direct comparisons with projects undertaken by the public sector is not always possible.
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222 B Moylan, Senior Management Policy, Partnerships Victoria, Department of Treasury and Finance, Seminar Series, Melbourne University Private
223 Department of Treasury and Finance, submission no.35, p.18
224 IPAA Seminar, Government Contracts - The next generation, Lessons from the review of government contracts, presentation by the (then) Victorian Auditor-General, 3 October 2000, p.6
225 The Institution of Engineers Australia - Victorian Division, submission no.29, p.2
226 ibid., p.4
227 ibid., p.6
228 Dr C Duffield, An Evaluation Framework for Privately Funded Infrastructure in Australia, PhD thesis, The University of Melbourne, 2001, p.64