A further item of policy concern is the size of the project investment above which PPP projects should be considered.
The Secretary of Department of Treasury and Finance advised the Committee that some screening projects for development under the Partnerships Victoria policy are conducted:287
… there is a bit of a judgment call here. You do not wish the private sector to be bidding on projects where clearly they may not be able to beat the public sector comparator. Treasury looks at all those capital projects and picks the ones where it thinks the case is the strongest for private sector adding value and that justifies the substantial private sector investment by many parties, not just the winning bidder, to invest resources to put a business case to the government. Treasury uses some discretion when advising the Treasurer not to put forward those projects where there is a doubt that the private sector could add value, and by putting the private sector to that trouble you waste their time and money basically.
Thiess288 and Deutsche Bank289 have advised the Committee that in their view, projects should (on an individual or bundled basis) be worth a minimum of $100 million, not $10 million, to qualify for consideration under the Partnerships Victoria policy, due to the high costs associated with tendering for PPP projects.
The Committee also noted the recommendation of the Fitzgerald report that Partnerships Victoria projects be refocused towards projects greater than $100 million, and those with complex, one-off or non-standard requirements.290 Fitzgerald's recommendation was in line with the $50 million (Australian equivalent) level put forward by the HM Treasury (United Kingdom) when it stated:291
The overall implication of this research into individually procured small [less than £20 million] PFI projects is that, although PFI continues to perform well in these schemes, its transaction and development costs and procurement times are disproportionately large. These factors make it difficult for small PFI schemes to consistently attain value for money unless projects can be bundled together.
While the government indicated it accepted this recommendation, the Committee noted the Partnerships Victoria policy has not been amended. The PPP pipeline for Victoria also indicates that it will proceed with smaller projects that are of a unique nature.
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287 Mr I Little Secretary, Department of Treasury and Finance, Inquiry into 2002-03 Budget Estimates, transcript of evidence, p.55
288 Thiess Pty Ltd, submission no.32, p.8
289 Deutsche Bank AG, submission no.19, p.6
290 P Fitzgerald, Review of Partnerships Victoria Provided Infrastructure - Final Report to the Treasurer, January 2004, Appendix A
291 HM Treasury (UK), 2003, p.54