[*] Senior Lecturer, Discipline of Accounting, Faculty of Economics and Business, University of Sydney. This article was written with funding from the Australian Research Council for research into post-performance evaluation of public private partnerships ('PPPs').
[1] Carsten Greve and Graeme Hodge, 'Introduction' in Graeme Hodge and Carsten Greve (eds), The Challenges of Public-Private Partnerships: Learning from International Experience (2005) 1, 1.
[2] Olov Olson, James Guthrie, and Christopher Humphrey (eds), Global Warning! Debating International Developments in New Public Financial Management (1998); Christopher Pollitt and Geert Bouckaert, Public Management Reform: A Comparative Analysis (2000); Linda M English and Matthew Skellern, 'Public-Private Partnerships and Public Sector Management Reform: A Comparative Perspective' (2005) 1 International Journal of Public Policy 1; Linda M English, James Guthrie and Lee D Parker, 'Recent Public Sector Financial Management Change in Australia: Implementing the Market Model' in James Guthrie et al (eds), International Public Financial Management Reform: Progress, Contradictions and Challenges (2005) 23; Greve and Hodge, above n 1.
[3] Pollitt and Bouckaert, above n 2, 6 ff; English and Skellern, above n 2, 4 ff.
[4] Linda M English, 'Investigating Performance Auditing of Australian Public Private Partnerships' (2006) (Working Paper, Discipline of Accounting, Faculty of Economics and Business, University of Sydney) (unpublished).
[5] David J Johnstone and Michael J R Gaffikin, 'Review of the Asset Valuation Guidelines of the Steering Committee on National Performance Monitoring of GTEs' (1996) 6(1) Australian Accounting Review 50; Tyrone M Carlin, 'Measurement Challenges and Consequences in the Australian Public Sector' (2000) 10(2) Australian Accounting Review 63.
[6] Prior to 2000, the two most common PPP models were the 'build, own, operate' ('BOO') model and the 'build, own, operate, transfer' ('BOOT') model. In this period, Australian PPPs included delivery by private consortia of core hospital and corrective services. Loan Council rules, which changed in 1996, were influential in PPP packaging in the period from 1980 to 1996: see Linda M English and James Guthrie, 'Driving Privately Financed Projects in Australia: What Makes Them Tick?' (2003) 16 Accounting, Auditing and Accountability Journal 493.
[7] In the 1990s, Australia outsourced the delivery of core medical and correctional services management in PPP hospitals and prisons. In the United Kingdom ('UK'), by contrast, health services have never been privatised. However, correctional services have always been contracted out in private finance initiative ('PFI') prisons.
[8] Department of Treasury and Finance, Victoria, Partnerships Victoria (2000) Partnerships Victoria 1 <http://www.partnerships.vic.gov.au/CA25708500035EB6/WebObj/Policy/$File/Policy.pdf> at 12 October 2006.
[9] Linda M English, 'Using Public-Private Partnerships to Achieve Value for Money in the Delivery of Health Care in Australia' (2005) 1(1/2) International Journal of Public Policy 91.
[10] Duncan Hughes with Mark Ludlow and Lisa Allen, 'PPP Reforms to Allay Concerns', Australian Financial Review (Sydney), 9 June 2005, 3.
[11] Department of Treasury and Finance, Victoria, Practitioners' Guide (2001) Partnerships Victoria 5 <http://www.partnerships.vic.gov.au/CA25708500035EB6/WebObj/PVGuidanceMaterial_PracGuide/$File/P VGuidanceMaterial_PracGuide.pdf> at 15 October 2006.
[12] Government underwriting of consortia profits explains why investing in PPPs is viewed favourably by capital markets in Australia.
[13] Jane Broadbent and Richard Laughlin, 'The Private Finance Initiative: Clarification of a Future Research Agenda' (1999) 15 Financial Accountability and Management 95.
[14] New South Wales Treasury, Submission to the Inquiry into Public Private Partnerships (15 November 2005) 13.
[15] Allyson Pollock, David Price and Stewart Player, Public Risk for Private Gain? The Public Audit Implications of Risk Transfer and Private Finance (2004) Unison <http://www.health.ed.ac.uk/CIPHP/publications/unison_2004_public_risk_for_private_gain_the_public_audit_im.pdf> at 15 October 2006.
[16] Ibid; English, 'Investigating Performance Auditing', above n 4; Pam Edwards et al, Evaluating the Operation of PFI in Roads and Hospitals (Research Report No 84, Association of Chartered Certified Accountants, 2004) <http://image.guardian.co.uk/sys-files/Society/documents/2004/11/24/PFI.pdf> at 15 October 2006.
[17] The Public Sector Comparator ('PSC') is based on decision models used in the private sector to determine whether or not a company should invest in infrastructure-based projects.
[18] 'Hypothetical' because many PPP projects would not be brought to fruition if they were not 'PPPable'.
[19] Darrin Grimsey and Mervyn K Lewis, 'Are Public Private Partnerships Value for Money? Evaluating Alternative Approaches and Comparing Academic and Practitioner Views' (2005) 29 Accounting Forum 345.
[20] See, eg, Olov Olson, Christopher Humphrey and James Guthrie, 'Caught in the Evaluatory Trap: The Dilemma of Public Services under NPFM' (2001) 10 European Accounting Review 505.
[21] For example, when a PPP project moves into the operating stage risk typically reduces, resulting in lower interest rates charged to the consortium after any refinancing. In such a case, value for money will not be achieved unless the state can share in the gains from refinancing.
[22] For example, the Sydney Harbour Tunnel (NSW) and the Melbourne CityLink (Victoria).
[23] For example, the Hawkesbury Hospital (NSW), Mildura Base Hospital (Victoria) and Joondalup Health Campus (WA).
[24] For example, the Borallon Correctional Centre (Queensland), the Junee Correctional Centre (NSW) and Acacia Prison (WA).
[25] For example, the two new schools projects in NSW.
[26] For example, the Macarthur Water Treatment Plant (NSW), the South-West Queensland Gas Pipeline and the Challicum Hills Wind Farm (Victoria).
[27] For example, Stadium Australia (now Telstra Stadium) (NSW) and Docklands Stadium (now Telstra Dome) (Victoria).
[28] Australian Council for Infrastructure Development, Delivering for Australia: A Review of BOOs, BOOTs, Privatisations and Public-Private Partnerships: 1988 to 2004 (2005) <www.auscid.org.au/home2/downloadproc.php?id=125> at 15 October 2006; Australian Council for Infrastructure Development, Delivering for Australia: A Review of Public-Private Partnerships and Privatisation (2001) <www.auscid.org.au/home2/downloadproc.php?id=80> at 15 October 2006.
[29] Table 1 is adapted from a table in Linda M English and James Guthrie, 'State Audit of Public Private Partnerships in Australia: A Lack of Public Accountability?' (Paper presented at the 5th International Conference on Theory and Practice in Performance Measurement, London, 25-28 July 2006).
[30] The Australian Council for Infrastructure and Development ('AusCID') databases reflect whole of life costs on a net present cost from a consortium perspective, that is, the AusCID figures represent only the estimated costs of projects to consortia members. Thus, the AusCID figures exclude some government costs. This indicates that from a public oversight perspective the AusCID databases understate the true cost of PPP projects because they omit government financing and other costs associated with PPPs, including pre-contractual costs and costs associated with other obligations undertaken by governments to get PPP projects up and running. It is also possible that PPPs entail greater post-contractual monitoring costs than other procurement models. For instance, the Sydney Cross City Tunnel included pre-contractual costs incurred by the Roads and Traffic Authority of $ 100 million and the cost of changes to surrounding roads: Darren Goodsir, 'What the Fine Print Said - Force More Drivers Through the Tunnel', The Sydney Morning Herald (Sydney), 11 October 2005, 1. Problems associated with determining the true cost of PPPs to governments are further illustrated by the fact that government websites and the reports of auditors-general provide different costs for some projects.
[31] It is likely that costs assigned to PPPs on government websites are also calculated on a net present cost whole of life basis as this is the approach adopted in PPP steering mechanisms. However, it is not possible to check that assumptions underlying net present cost calculations are identical.
[32] Nevertheless, both the Commonwealth and ACT each have PPP policies. Moreover, the Commonwealth Department of Defence is, at the time of writing, shortly expected to finalise a PPP for the Headquarters Joint Operations Command Project: see Department of Financing and Administration, Commonwealth Policy Principles for the Use of Private Financing (2002) <http://www.finance.gov.au/GBPFAU/docs/PF_Principles.pdf> at 15 October 2006; Department of Finance and Administration Financial Management Group, Commonwealth of Australia, Commonwealth Procurement Guidelines, Financial Management Guidance No 1 (2005) <http://www.finance.gov.au/procurement/docs/CPGs_-_January_20051.pdf> at 15 October 2006; Australian Capital Territory Government Procurement Board, Implementing Private Provision of Public Infrastructure Projects in the ACT, Procurement Circular 2003/03 (2003) <http://www.basis.act.gov.au/basis/manactp.nsf/alldocs/638C906981AD7A8C4A256D38007BBE6D/$File/PPPI_May03.doc> at 15 October 2006; Department of Treasury, ACT, Statement of the Objective and Principles for the Private Provision of Public Infrastructure <http://www.treasury.act.gov.au/documents/pppi_obj_principles.pdf> at 15 October 2006; ACT Government Procurement Board, Private Provision of Public Infrastructure in the ACT - The Public Sector Comparator: An ACT Government Procurement Board Tool (2003) Buyers and Sellers Information Service <http://www.basis.act.gov.au/basis/manactp.nsf/alldocs/46C82B33FC4A1A1F4A256DA900004E77/$File/PSC%20Guide%20June03.pdf> at 15 October 2006; ACT Government Procurement Board, Private Provision of Public Infrastructure in the ACT - Risk Allocation and Contractual Issues: An ACT Government Procurement Board Tool (2003) Buyers and Sellers Information Service <http://www.basis.act.gov.au/basis/manactp.nsf/alldocs/58C34B5CE56197EC4A256DA80082AA83/$File/PPPI%20Risk%20Guide%20June03.pdf> at 15 October 2006.
[33] Lee D Parker and Graeme Gould, 'Changing Public Sector Accountability: Critiquing New Directions' (1999) 23 Accounting Forum 109; Pat Barrett, 'Accountability and Permanence in a Riskier Public Sector Environment' (Speech delivered to Senior Western Australian Public Sector Executives, CPA Australia, Perth, 27 November); English, Guthrie and Parker, above n 2, 23.
[34] Broadbent and Laughlin, above n 13; English and Guthrie, 'Driving Privately Financed Projects', above n 6; Jane Broadbent, Jas Gill and Richard Laughlin, The Private Finance Initiative in the National Health Service: Nature, Emergence and the Role of Management Accounting in Decision Making and Post-Proj ect Evaluation (2004); Edwards et al, above n 16.
[35] Greve and Hodge, above n 1, 1, 8 ff.
[36] English and Guthrie, 'Driving Privately Financed Projects', above n 6, 502 ff.
[37] E L Normanton, The Accountability and Audit of Governments: A Comparative Study (1966) 1 ff.
[38] English, 'Investigating Performance Auditing', above n 4.
[39] The purpose of performance audit is to determine whether programs and policies have been implemented economically, efficiently and effectively. It has evolved in response to the introduction of new public management ('NPM') and it has been influenced by and influences NPM implementation: ibid.
[40] Australian auditors-general undertake a range of audits. The performance audits reported here are those identified as such by auditors-general and are published in stand-alone reports.
[41] New South Wales Auditor-General, Performance Audit Report: Roads and Trafic Authority: The M2 Motorway (1995) was initiated by a Legislative Assembly resolution carried on 22 November 1994: see New South Wales, Parliamentary Debates, Legislative Assembly, 22 November 1994, 527. New South Wales Auditor-General, Performance Audit Report: Review of Eastern Distributor (1997) NSW Auditor-General's Reports <http://www.audit.nsw.gov.au/publications/reports/performance/1997/edist/contents.htm> at 15 October 2006 was initiated by a Legislative Council resolution carried on 17 April 1997: see New South Wales, Parliamentary Debates, Legislative Council, 17 April 1997, 11150-1. New South Wales Auditor-General, Auditor-General's Report to Parliament - Review of M2 Motorway Documentation (2000) vol 3 followed a Legislative Council resolution carried on 21 October 1999: see New South Wales, Parliamentary Debates, Legislative Council, 21 October 1999 (Richard Jones).
[42] Victorian Auditor-General's Office, 'Victoria's Prison System: Community Protection and Prisoner Welfare' (Special Report No 60, Victorian Auditor-General's Office, 1999).
[43] New South Wales Auditor-General, Private Participation in the Provision of Public Infrastructure: The Roads and Trafic Authority (1994).
[44] Lee D Parker and James Guthrie, 'Performance Auditing: The Jurisdiction of the Australian Auditor-General - De Jure or De Facto?' (1991) 7 Financial Accountability and Management 107.
[45] English, 'Investigating Performance Auditing', above n 4.
[46] There is general agreement in the performance audit literature that substantive audits are preferable to systems-based audits because they provide independent assessment of the effectiveness of the implementation of government policy and, sometimes, of the effectiveness of the policies themselves. Systems-based audits tend only to address economy and efficiency, but not effectiveness. See English, 'Investigating Performance Auditing', above n 4.
[47] Ibid.
[48] A recent article by Scheherazade Daneshkhu ('PFI Figures Are a "Step Forward in a Murky Area"', The Financial Times (London), 21 September 2006, 27) suggests that in the UK, at least, there is still controversy over the accounting treatment of PPPs, which indicates lingering doubt about their nature and purpose. Daneshkhu reports that, after five years of deliberation, the UK Office of National Statistics ('ONS') has valued PFI debt at £4.95 billion, which it added to public sector net debt. However, controversially, the ONS excluded debt associated with PFI hospitals, which, in some cases, appears neither on government nor on consortia balance sheets. The total capital value of PFI projects signed by March 2006 was £48 billion, £23 billion of which is recognised as government debt. The balance is off-balance sheet because of a HM Treasury judgment that the risk is in the hands of the private sector.
[49] English and Guthrie, 'Driving Privately Financed Projects', above n 6, 505 ff.
[50] English, 'Investigating Performance Auditing', above n 4.
[51] English and Guthrie, 'Driving Privately Financed Projects', above n 6, 495.