Australian practice is generally to separate analysis of whether a project should go ahead from analysis of how to implement the project. Cost-benefit analysis is undertaken as part of the decision whether to undertake a project (see Figure 1)-a requirement that was emphasized in introducing the Partnerships Victoria policy: "Prior to a decision in principle to commit to major infrastructure projects, the Government will prepare a full cost benefit analysis of the potential project".11
The new national PPP guidelines provide advice on measurement of risk in projects. 12Their emphasis, however, is on estimating the expected cost of uncertain payments associated with publicly financed projects, not uncertain payments associated with PPPs.13 That is, the documents are mainly concerned to ensure that departments do not ignore cost overruns and other sources of unplanned spending in publicly financed projects. (For more on the nature of the required analysis, see the section on South Africa, which follows a similar approach.)
Figure 1 Developing and approving a PPP in Victoria
Service need
Identify service needs versus government priorities; focus on outputs; consider broad needs, over time; allow scope for innovation
Option appraisal
Consider options; consider application of Partnerships Victoria; evaluate financial and other impacts, risks and benefits (triple bottom line)
Business case
Confirm the project offers net benefit (quantify risks and costs, begin developing a public sector comparator, conduct cost-benefit analysis); assess Partnerships Victoria potential; Obtain funding and project approval
Project development
Assemble resources (steering committee, project director, probity auditor, procurement team, contract management team); develop a project plan; further develop the public sector comparator; develop commercial principles; consultation
Bidding process
Develop expression-of-interest invitation;
Seek approval to issue the expression-of-interest invitation
Evaluate responses and develop a shortlist; develop a project brief and contract and incorporate contract management requirements
Seek approval to issue the project brief
Conduct clarification sessions; evaluate bids
Project finalization review
Confirm achievement of the policy intent; confirm value for money; report to the Minister; advise the Treasurer of intent
Final negotiation
Establish the negotiating team; set the negotiation framework; probity review; report to Minister and Treasurer; execute contract; financial close
Transition
Finalise and implement contract management strategy/plan; finalise contract administration manual; implement performance reporting
Seek approval for contract management plan
Contract management
Formalize management responsibilities; monitor project delivery; manage variations; monitor the service outputs; maintain the integrity of the contract
Source: Government of Victoria (2006, figure C1).
Note: steps at which the approval of the Victorian Cabinet or a committee of the cabinet is required are italicized.
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11 Government of Victoria (2000).
12 See especially Government of Australia, Infrastructure Australia (2008a, vol. 4)
13 Although the documents describe this as "risk valuation", the Australian approach does not adjust expected payments or the discount rate according to an estimate of the price of a particular risk (unlike the approach to valuing revenue and exchange-rate guarantees in Chile).