Another form of private sector involvement is Public Private Partnerships (PPPs) which is defined as a form of government procurement involving the use of private sector capital to wholly or partly fund an asset that would have otherwise been purchased directly by governments. Procurement arrangements are usually managed through long-term relationships and contracts with private sector financiers and service providers.
In most instances this relationship is regulated by contracts that allocate a range of responsibilities, risks and rewards between the parties (Jamieson and Srivastava 2006). In contrast to the usual procurement process where a contractor constructs the facility and passes on responsibility to the operator, under a PPP arrangement the private sector may also take a wider responsibility for maintaining and operating the infrastructure. This may include responsibility for taking the whole-of-life risk of balancing asset quality (up front capital investment) with asset refurbishment and maintenance over the life of the project.
Some water utilities in Australia also have assets that were funded and are operated by the private sector under a variety of arrangements including build own operate (BOO) and build own operate and transfer (BOOT) and other financing models. Seven examples within the urban water industry include:
1. Prospect water treatment plant in Sydney operated by United Utilities
2. Virginia recycled water scheme (SA) operated by Earthtech
3. Yan Yean water treatment plant in Melbourne operated by United Water
4. Power generator using sewage gas operated by Australian Gas Light Company (AGL) at Melbourne's Western Treatment Plant
5. Water treatment plants serving Coliban Water customers in Central Victoria are owned and operated by Veolia
6. A sewerage treatment plant servicing Echuca is owned and operated by Earthtech
7. Eastern irrigation scheme in Melbourne operated by Earthtech
As the urban water industry has gained experience in contracting out, the contracts used have become increasingly sophisticated and innovative. Contracts are generally performance-based with penalties for non-conformance and rewards for exceeding contract key performance indicators. Partnering and alliance agreements are also becoming common with contractors, as this model removes the old adversarial approach often associated with contracts. This approach allows the risks to be identified and allocated it to the party best able to manage the risks.
Some utilities are also bundling up capital works programs for periods up to three years into five or more strategic alliance contracts which provides an incentive for the contractors whilst providing certainty for the utility in the delivery of programs.
The main benefit of these kinds of arrangements to the customer is that services are often cheaper and more reliable. Governments also benefit by working cooperatively with the private sector to harness capital and expertise in the delivery and management of water or wastewater services, which reduces risks and costs.