The first step is to survey the statutory landscape and identify any laws that may affect the types of partnership structures the government can consider. In this case, the public sector organization has the authority to involve the private sector in part or all components of the project. The public sector can involve the private sector in the finance, design, construction, service operation and ongoing maintenance components of the project if doing so provides good Value for Money.
Next, the analysis considers public perception of different partnership structures. It is possible that some special interest groups will oppose private finance in the project. But the Authority can easily mitigate potential opposition by developing a sound business case and conducting effective public outreach. In addition, the retention of ownership at all times assists in dealing with this issue. Thus, subsequent phases of the analysis focus on the following partnership structures: design-build; design-build-operate-maintain; and design-build-finance-operate-maintain. In each case, each structure is compared to the traditional procurement structure where each element is procured separately.
Table C.1. Partnership options under consideration
| Partnership structure | Description |
| Traditional procurement | • The government owner contracts with a design engineer to develop the project design documents (drawings, quantity estimates and specifications). • The construction contractor is selected through a competitive tender, with the contract awarded to the lowest bidder. Ongoing operations and maintenance are managed and provided either directly by the public sector or by subcontractors |
| Design-build | • Design and construction are bundled together and tendered as a whole. • Contracts are usually awarded based on lowest price, but "best value" evaluations are also possible. • The two key reasons to choose this approach over traditional procurement are to reduce capital costs through innovation in a competitive process, and to gain certainty by transferring design and construction cost risk from the public sector owner to the private partner. Similar to traditional procurement, post construction services are provided separately by the public sector. |
| Design-build-operate-maintain | • The private partner is responsible for designing, building, operating and maintaining the asset over a long period of time (such as 25+ years) • The motivation behind this type of partnership structure is to transfer the full life-cycle and operating cost risk of the asset to the private partner. The operations element needs to be of an appropriate scale to drive a real performance penalty regime because all construction funding is provided by the Authority in advance of operations |
| Design-build-finance-operate-maintain | • Similar to a design-build-operate-maintain model, with the additional provision that the private partner finance all or part of he capital cost. • The repayment of the capital cost, financing costs and operating costs are rolled into a series of performance payments made by the public sector owner to the private partner over a long period of time. • Capital costs are not paid to the private partner when they are incurred but rather are financed and paid back over time, much like a lease payable based on performance. • Full life-cycle cost risk is borne by the private partner. |