Economy, efficiency and effectiveness of service delivery, or value for money ('VFM') in service provision, have been major drivers of NPM reform. Infrastructure-based outsourcing, privatisation and PPPs can be distinguished on the basis of asset ownership and the extent of the state's control over the quantity, quality and cost of services.
In an outsourcing arrangement such as a detention centre, the state owns the infrastructure and the private contractor provides associated services which are paid for by the state. What distinguishes outsourcing is the public ownership of the infrastructure asset, and the public responsibility for its construction and design, and funding. Also, outsourcing attracts less negative public attention than PPPs or privatisation, but requires that governments have the ability to fund infrastructure construction in a political climate that views public borrowings negatively. To avoid the negative impact on public borrowings, privatisation or PPPs may be used.
Privatisation (such as the sale of the Commonwealth Bank or of Telstra) involves the sale of the asset and of the right to produce and sell associated services. The state's ability to influence service quality and cost to consumers is more circumspect. It relies on law and regulation to manipulate social outcomes from privatised corporations. However, with little left to sell, privatisation, which was used to raise funds to eliminate public debt in the 1990s, has largely served its purpose, and is unpopular with the electorate.
PPP arrangements are distinguished by a long-term relationship between the state and a private contractor for the construction, maintenance and operation of infrastructure assets and procurement of related services. In PPPs, the private contractor owns the infrastructure for the term of the contract and provides contracted services which are paid either directly by government or by consumers. Typically, the asset reverts to the state at the end of the agreement. PPPs provide governments with the opportunity to bring on stream new infrastructure projects earlier than might otherwise be possible, ostensibly without the associated ballooning of public debt. They also enable governments to reap the benefits of VFM, derived from the use of private money to promote private risk taking and inventiveness.
These service delivery solutions are based on the premise that private provision offers superior savings to consumers and governments. All involve the need to compare the costs and efficiencies between existing (public) supply and supply involving the private sector as contractor/purchaser/partner. In theory, such decisions are made on the basis of appropriate net present cost, or similar mathematically-based calculations, using established and credible methodologies. However, while the methodologies may be relatively straightforward, there have been numerous criticisms of their application in the 'in-house' versus 'outsource' debate.[5] Choice of service arrangement is largely explained by the nature of services provided (which determines demand and, hence, the source of the revenue stream), political ideology and necessity.