PPPs have grown in significance and prevalence in the last 10-15 years as both a funding alternative and an alternative procurement model for public authorities across the world. In the Australian context, PPPs have played into the politics of government intervention at both the state and federal level. In the state of Victoria, the use of PPPs was refined and expanded after the election of the Bracks Labor government in 1999 following a prolonged period of Conservative rule. Despite some of the existing literature claiming that PPPs are just privatisation by another name, in the context of Victoria, the increased use of PPPs actually represented a winding back of the explicit privatisation of public services that had taken place during the 1990s. At the federal level of Australian government, the Conservative Howard government (1996-2007) made little if any use of the PPPs during its tenure. It was not until the election of the Rudd Labor government in 2007 that PPPs began to feature in a big way in the policy agenda of the federal government, particularly in relation to the nation building platform upon which the Labor government campaigned and was elected.
In the Australian context there is significant political capital invested in the success or failure of a PPP - perhaps more so than in any other OECD country. The experiences of the NSW government in the past 3 years in relation to the failure of the CCT and LCT PPPs will in all likelihood lead to the Labor party losing office at the 2011 state election. Although there are several other issues that have damaged the public's confidence in Labor (including factional infighting and various political scandals) the PPP failure issue has proven to be one of the most politically damaging issues undermining the credibility of the government. Issues such as competence, value for money, putting the interests of private contracting parties ahead of the public have all fed into an image of an out of touch and commercially incompetent government - even if in reality such a negative reputation is not entirely warranted.
What can be learnt from this Australian case study is that transparency is vital to minimising the political costs associated with a PPP failure. There is a populist strand that is immune to the tribulations of a private sector failure, but at the same time, is quite sensitive to public involvement in such a failure. Even if the public is left with a new piece of infrastructure at minimal cost to the taxpayer, the disingenuousness of the government will mean that any positive political gains will be magnified into a serious political cost. Political considerations, however, must not cloud Value for Money evaluations or the calculation of the Public Sector Comparator (PSC). Furthermore, even the most detailed risk profile cannot account for the consequences a government is liable to suffer if the dissolution of the PPP is not managed professionally and transparently. In a sense, the government is ultimately exposed to a greater extent than the private sector if the building and operation of the PPP project is not carried out in a manner that is acceptable to the public. So called 'buck passing' cannot be realised when a government invests its political capital into a project to the extent that the NSW government did in relation to both the CCT and the LCT.
The investment in a PPP by a consortium or private equity firm under the guise of a newly created entity somewhat shields the private counterparties from the political fallout from any failed venture. A government, on the other hand, has a much more enduring reputation to uphold. This places the private contracting party at a significant bargaining advantage in the context of dissolutions. If certain matters remain to be resolved at the final dying stages of a PPPs life, the threat of 'creating a scene' and making the dissolution as politically painful as possible for the government, gives the private contracting party a stronger hand in negotiations. Alternatively, if the government is able to play up the populist political perspective and emphasis and communicate to the public that the private sector is somehow trying to make the taxpayers pay for its own corporate mismanagement and failure, the government can carve out a certain degree of political immunity. Taking account of the political costs associated with the dissolution of a PPP is an important consideration for all sides involved in this hybrid form of public procurement and investment from day one of any such venture.