As in other democracies, Australian governments have endeavoured to make the public sector less costly and better tailored to public needs while providing higher quality services to citizens. This has been reflected in a growing trend toward a range of organisations bringing their specialist skills to bear in order to achieve a common public sector goal in the most effective manner. In regard to the Australian Public Service, the Prime Minister has commented that:
Another challenge is the capacity of departments to successfully interact with each other in pursuit of whole of government goals and more broadly, for the entire Service to work in partnership with other bureaucracies, with business and with community groups as resources and responsibility are devolved closer to where problems or opportunities exist.2
The Prime Minister further commented that: 'Whole of government approaches, collectively owned, by several Ministers, will increasingly become a common response.'3 A recent paper by the Management Advisory Committee noted this trend in regard to Australian Government use of information and communication technology, commenting:
In a devolved management system where the cost of enablers like [information and communications technology] is increasing, a 'federated' governance approach is desirable. A federated governance system is one in which independent agencies work together to achieve an optimal outcome for each other and government as a whole.4
More broadly, there has also been a fundamental questioning of what government should do, and whether there is scope for the private sector to perform roles traditionally regarded as the province of the public sector. Many reformers have advocated using market-type disciplines to provide public services more efficiently, effectively and with greater public satisfaction. Governments have stressed the need for more responsive public services. As the British Prime Minister, Tony Blair, has observed in relation to the current environment:
Distinctions between services delivered by the public and private sectors are breaking down in many areas, opening the way to new ideas, partnerships and opportunities for devising and delivering what the public wants.
and
People want effective government.5
In practice, both the nature and the scale of government business with the private sector have changed, and continue to change. The nature has changed by: adapting, or adopting, private sector methods and techniques; and by direct private sector provision of public services, even those (such as policy advice and determination of entitlements) traditionally regarded as 'core' government functions. It has changed in scale by: opening up to competition areas previously reserved to government, such as telecommunications; by public sector entities contracting private sector suppliers of goods and services in areas such as employment services and information technology; and by transferring, for example, some $A70 billion in Commonwealth assets or business to private sector owners. In aggregate, these changes are often described as the privatisation or commercialisation of the public sector.
PPPs represent a further step along this continuum of procurement options, with governments increasingly turning to the private sector as a source of financing, project management and/or operational skills for major public sector infrastructure projects and the delivery of ancillary services. Professor Mervyn Lewis of the University of South Australia has defined PPPs as:
…agreements where public sector bodies enter into long-term contractual agreements with private sector entities for the construction or management of public infrastructure facilities by the private sector entity, or the provision of services (using infrastructure facilities) by the private sector entity to the community on behalf of a public sector entity.6
Public-private involvement in public infrastructure can take a variety of forms, including:
● Traditional Design and Construction (TDC): Private sector contractors tender to design and construct the project in accordance with a brief set out by the Government;
● Operation and Maintenance Contract (O&M): Involve the private sector operating a publicly-owned facility under contract;
● Lease-Develop-Operate (LDO): Involve a private developer being given an long-term lease to operate and expand an existing facility. The private developer agrees to invest in facility improvements and can recover the investment plus a reasonable return over the term of the lease;
● Build-Own-Maintain (BOM): Involve the private sector developer building, owning, and maintaining a facility. The Government leases the facility and operates it using public sector staff;
● Build-Own-Operate-Transfer (BOOT): Involve a private developer financing, building, owning and operating a facility for a specified period. At the expiration of the specified period, the facility is transferred to the Government; and
● Build-Own-Operate (BOO): Operate similarly to a BOOT project, except that the private sector operates the facility in perpetuity. The developer may be subject to regulatory constraints on operations and, in some cases, pricing. The long term right to operate the facility provides the developer with significant financial incentive for the capital investment in the facility.7
The main users of PPPs for public infrastructure in Australia have been the State governments. For example, as at November 2001, New South Wales had contracted the private sector to build, own, operate and transfer over $5.5 billion of capital infrastructure, covering over 20 projects. The majority of this expenditure, $3.4 billion, has been associated with transport projects, although the new NSW policy and guidelines for privately financed projects (PFPs) extend potential use to a wider range of social infrastructure.8 Prominent examples of PPPs in the States include the Sydney Harbour Tunnel and M2 Motorway9, the City Link project in Melbourne10 and the introduction of privately owned and operated prisons.11
At the national level, the 1996 National Commission of Audit observed that the private sector has a significant capacity for a greater role in infrastructure services. The Commission concluded that the role for government could be reduced and suggested that the identification of good opportunities for private sector investment in infrastructure could assist the goal of increased national saving.12 Accordingly, there has been increasing interest in private financing initiatives in Australia at the federal level, although to date there has been limited actual adoption. In particular, the Commonwealth is yet to undertake a private financing arrangement, although a number of agencies have been preparing for the possible use of private financing, including the Department of Defence and the Department of Transport and Regional Services.
While private sector financing is an important element of PPPs, it is not the only aspect that needs to be considered. For example, it has been said that:
The very essence of a PPP is that the public sector does not primarily buy an asset; it is purchasing a service under specified terms and conditions. This feature provides the key to the viability (or not) of the transaction.13
A successful partnership allows the participants to work together to achieve their objectives for their mutual benefit; the public sector receives a service that represents value for money; and the contractor delivers that service for a reasonable financial return.14 However, it has also been recognised that the use of PPPs raises challenges for the maintenance of transparency and accountability.15 At a conceptual level, in many ways PPPs are not substantially different to other procurement methods, involving significant private sector involvement and long-term contracting, such as outsourcing or contracting out. As a result, the consequences of PPPs for the public sector are, in many ways, similar to those resulting from contracting out.16 However, their scope and complexity do give rise to unique issues and risks for government, particularly where they involve private sector financing and ownership of public assets and very long-term service delivery contracts.
Unlike purely commercial entities, public service providers are required to simultaneously account for (among other things) client satisfaction, the public interest, fair play, honesty, justice, security and equity as well as striving to maximise 'value for money'. The additional requirements derive, ultimately, from the 'political' judgement passed (at intervals, through the electoral process) on democratically elected governments' stewardship of public resources. The range and relative importance of these additional requirements vary at points in time and over time, not least because of changing public perceptions and expectations. However, they remain the distinguishing feature of public sector accountability compared to demands made of the private sector.
Commercialisation and privatisation can strain the thread of accountability between executive government and the elected representatives of the people in parliament. This is an issue that I will expand on later in the paper. The more closely the public and private sectors interact, the more evident their similarities (for instance, management issues and responses) and the more stark their differences (mainly the nature and extent of accountability). While there is an expectation that agencies cannot outsource accountability, the nature of some PPPs at least raises the question as to how that expectation can be practically met, particularly in any absolute sense.