Public Private Partnerships are a key form of procurement for the delivery of major infrastructure projects throughout Australia. The current PPP model had its genesis in the Sydney Harbour Tunnel project in the mid 1980s. Although initially focusing on economic infrastructure and full private sector provision of public services, Governments have used PPPs over the last decade to procure social infrastructure assets and associated non-core services, with the public sector delivering core services.
The primary considerations driving PPP procurement in Australia have been the ability to achieve:
• value for money
• significant design innovation
• appropriate risk transfer
• superior whole of life outcomes.
These considerations contrast with those of some other international jurisdictions, where one of the key drivers for the use of PPP procurement models is the provision of an alternative funding source when public infrastructure capital is scarce. Partly as a result, such countries' procurement processes often are different from those in Australia and hence are not directly comparable.
Australian jurisdictions typically only commit to a project following the allocation of its full capital cost within the relevant Government budgetary cycle. If Government chooses PPP as the preferred model, it allocates that capital allocation to cover the future stream of service payments.
This approach (assuming there are capital constraints) can constrain the number of projects that Governments can fund at any one time when compared with some other international jurisdictions. The Australian approach can, therefore, delay the implementation of projects (and the accompanying improvements in service delivery) in comparison with the alternative approach though, in theory, it should not reduce the longer-term flow of projects.
The UK and some other jurisdictions that use PPP delivery as the default procurement model for certain projects often do not require the allocation of the full capital cost within the budgetary cycle. Rather, they assess the affordability of future service payment obligations and only allocate those payments in forward budget estimates.
Australia's budget approach is beyond the scope of this Review and we do not recommend any changes to it.
The benefits that Australia seeks to obtain from PPPs result in them being complex, needing to integrate design, construction, operation, maintenance and finance. They require extensive legal documentation, although the development of standard commercial principles by the key jurisdictions of NSW and Victoria, now incorporated within the National PPP Guidelines, have reduced legal costs considerably.
Australia's federal political system leads to further complexity, with different laws, regulations and standards between States, although the National PPP Policy and Guidelines, adopted by the Federal Government and the States and Territories, have standardised PPP processes. In addition, Australia has a complex tax system, not least because of the split between the Federal and State Governments. This complexity of itself places demands on the skills of Participants' teams and Government evaluation teams. Although taxation in relation to PPPs is less complex following the replacement of inefficient capital allowance provisions in the old tax law, there continue to be important tax issues that require careful management.
From 2005 to September 2009, Australia closed 29 social infrastructure and transport projects4 of which the majority were in Victoria (9) and New South Wales (10). Victoria and NSW have constantly refined their procurement processes, with the development of the Interactive Tender Process Guidelines and a range of other updated guidance material as examples.
Individual Governments each provide guidance and information relating to procurement processes within their respective jurisdictions. In 2004, Australian Governments formed the National PPP forum amongst State, Territory and Federal Governments in recognition of the need for a national and co-ordinated approach to ensuring a competitive and efficient national market. Since then, COAG announced a new national approach to planning, funding and implementing the nation's infrastructure needs, with the Infrastructure Australia Act coming into effect in April 2008. This recent legislation facilitates the harmonisation of policies relating to the development of, and investment in, nationally significant infrastructure projects.
Since its establishment, Infrastructure Australia has published the National Public Private Partnership Policy and Guidelines. It undertook this work together with all jurisdictions to facilitate the harmonisation of PPP procurement processes nationally, encourage consistency and achieve efficiency for both Governments and market participants.
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4 Infrastructure Journal project database and KPMG analysis of data. The period of analysis included 1 January 2005 to September 2009. We have not included social housing and student accommodation projects in the analysis.