A further critical issue noted by Fitzgerald was the question of assumed competition and value for money. In noting recent United Kingdom research by PricewaterhouseCoopers and HM Treasury, Fitzgerald pointed out the challenges facing the Australian market.292
Given the size of the UK market, the level of investment in PPPs (£34 billion) and the number of projects so far undertaken (over 450 to date), a finding that outcomes are not as competitive as one might expect is quite significant. It should not be assumed in an immature market such as Australia, that PPP outcomes will always be competitive.
The problem of achieving a competitive bidding field is exacerbated by the make up of the Australian construction market, which is characterised by a small number of large contractors with the financial and technical capability to undertake large and complex projects. This concentration has been increasing in recent times with the acquisition of major construction companies John Holland and Thiess by Leighton Contractors (exhibit 7.1). The lack of depth in the market was also highlighted by the EastLink project, where the two competing consortia saw the Leighton companies competing against each other.293
Exhibit 7.1:
PPP projects in Victoria - Successful consortia partners
| Equity investor or financier | Lean contractor |
| ABN Amro (1) (5) (8) | Leighton Contractors (1) |
| Babcock & Brown (2) | Multiplex Constructions (2) (3) (5) (8) |
| Deutsche Bank (3) | Baulderstone Hornibrook (4) (6) |
| Bilfinger Berger BOT GmbH (4) (6) | Thiess and John Holland (TJH)* (7) |
| Macquarie Bank (4) (7) | |
| ANZ (4) | |
| NM Rothschild & Sons (Aust) Ltd (5) | |
| Bank of Scotland (6) |
| Notes: | * | John Holland and Thiess are now wholly or part-owned subsidies of Leighton Holdings |
| (1) | Southern Cross Station | |
| (2) | Showgrounds | |
| (3) | Convention Centre | |
| (4) | Royal Women's Hospital | |
| (5) | County Court | |
| (6) | Victorian Correctional facility | |
| (7) | EastLink | |
| (8) | Casey Community Hospital |
Source: Partnerships Victoria, Projects, www.partnerships.vic.gov.au, accessed 30 September 2006
In addition, consortia short listed to provide proposals for the development of the new $850 million Royal Children's Hospital include:294
• Children's Health Partnership - Babcock & Brown, Bovis Lend Lease and Spotless Services;
• Kids's Health Partnership, Bilfinger Berger BOT, Baulderstone Hornibrook, United Group Services, ISS Facility Services and Macquarie Bank; and
• Plenary Health, Plenary Group, Multiplex, Deutsche Bank, Honeywell and Medirest.
The Committee took evidence from many witnesses overseas who emphasised that a considerable degree of competitive tension was needed in the bidding process to ensure the private sector provides its most efficient bids. If the depth of competition is not available, however, a PPP project should not proceed.295
In view of this, the Committee concurs with Fitzgerald's recommendation that the state should not assume that the present structure and size of the Australian PPP market is diverse and active enough to be fully competitive. This should be taken into account in the valuation of tenders, and the state should explicitly retain the right to declare a potential outcome as 'not value for money'.296
The issue of 'bundling' also deserves further consideration. If a bundling level of $100 million was recommended, and private funding was (after independent evaluation) determined to be a truly cost effective option against traditional public funding arrangements, this would lead to positive economic flow ons for the state. If, however, private funding on closer examination was a less cost effective option compared with traditional arrangements, the bundling of many smaller projects into this $100 million level would, in fact, simply magnify the state's potential exposure to higher repayment levels to the private finance sector.
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292 P Fitzgerald, Review of Partnerships Victoria Provided Infrastructure - Final Report to the Treasurer, January 2004, p.33
293 Standard & Poor's, Infrastructure & Public finance ratings Public Private Partnerships - Global Credit Survey, 2005, p.37
294 Hon. B Pike, MP, Minister for Health, Pike announces children's hospital shortlist, media release, 31 July 2006
295 For example, Partnerships UK; UK Audit Commission; Flemish Expertise Centre PPP
296 P Fitzgerald, Review of Partnerships Victoria Provided Infrastructure - Final Report to the Treasurer, January 2004, p.33