An obvious response to this issue is the development of, and public commitment to, a coordinated forward pipeline of PPP projects (preferably containing a significantly greater number of projects) well in advance of the release of projects to market, thus enabling the development of a more efficient and competitive PPP market in Australia. However, such a commitment is difficult to achieve, given:
• the overall pipeline of infrastructure projects depending on Governments' budget capacity and the need for and priority of projects within overall Government spending
• the Australian federal political system
• each jurisdiction's own political considerations and need to progress with its own projects
• that it could conflict with the Budget funding arrangements of each jurisdiction.
In contrast to some other countries, Australia does not use the PPP model as an alternative approach to funding infrastructure within a fiscally constrained environment (i.e. as a driver to defer capital expenditure and to spread it over a long period). These countries usually measure affordability by their ability to pay the service payment obligations.
By comparison, Australian Governments typically only commence procurement of projects as PPPs following the allocation of capital within the relevant budgetary cycle, and only commit to them when they know their value for money compared to the estimated cost of the most likely alternative procurement method (the Public Sector Comparator). Accordingly, the number of projects that Governments can bring to market is significantly constrained when compared with some other international governments that effectively debt-fund PPP projects.
It is proper for Governments to determine the pipeline of infrastructure projects by their overall budget capacity and the priority of such projects in relation to other Government spending. However, within this overall pipeline (which is outside the scope of this Review), there is potential to increase the use of PPPs where this procurement model is most appropriate.
The Working Group has indicated that a key challenge within Governments is to obtain buy-in and commitment to the PPP model from client agencies. Many other leading international jurisdictions (including the UK and Canada) have made policy decisions to use the PPP model for new investment in sectors where PPP has proven and continues to prove to be value for money, or based on capital value thresholds, unless proven otherwise. In Australia, the commitment to PPPs is weaker, with Governments looking at each project individually.
An early announcement of potential future PPP projects could be beneficial. It would indicate to the market the projects that are under investigation for their PPP potential with their subsequent business cases and procurement analyses demonstrating the procurement methods that would deliver the best value for money. However, the annual budget cycle means that early announcement of projects before any funding for them is in place will be politically difficult and subject to subsequent amendment should circumstances change. In addition, the subsequent reversal of an announcement that a project will be a PPP could lead to lack of confidence in the market. Nonetheless, we recommend:
A. as early as possible announcement of potential future PPP projects.
Initiatives that would improve both the Australian PPP pipeline and knowledge of PPP opportunities include:
B. more consistent and rigorous application of the National PPP Guidelines on the criteria for determining whether PPP procurement is appropriate for a project, maintaining the commitment that projects meeting these criteria will proceed as PPPs unless specific circumstances exist that make PPP procurement inappropriate
C. continued commitment and leadership from politicians and senior bureaucrats within the Commonwealth and each of the various jurisdictions in support of the use of PPPs in appropriate circumstances
D. where possible, continued focus on improving national co-ordination of the release of projects to the market, by greater liaison between jurisdictions, acknowledging the difficulties in achieving this.
The consistent and rigorous application of the criteria within the National PPP Guidelines may see some projects currently procured using Project Alliances or Design and Build contracts instead procured as PPPs.
Infrastructure Australia or the Federal Government could play a role in national co-ordination where they consider projects to be of national significance.
Implementation of the above initiatives would enable market players to make an informed assessment of the potential opportunities within the Australian PPP market, in advance of formal approvals for undertaking projects. Quantifying the impact of these initiatives is difficult but, without them, there is a heightened risk of withdrawals.
Finally, Participants in our consultations have indicated that the tendency for PPPs to be politically contentious has led to unnecessary debates surrounding procurement decisions (even where the Government has determined that a PPP is the most appropriate model) that are highly influenced both by philosophical biases within client departments and by the potential for negative public perception of Governments from a political perspective.
Accordingly, in addition to strong leadership and commitment from politicians and senior bureaucrats, Governments (through the COAG infrastructure PPP sub-group) should consider:
E. developing a communications strategy that demonstrates the benefits achieved from PPP projects and addresses general misconceptions about the PPP model.
This strategy would help raise public knowledge of the PPP model. Individual project summaries, such as those published by NSW and Victoria, are helpful, but a regular (at least annual) review of developments in PPP projects at both State/Territory and national levels (preferably away from the budget cycle, to give it greater visibility) should enable stakeholders to see the benefits and applicability of PPPs more generally.
If Governments are able to address the Australian PPP pipeline issue, the issues relating to procurement efficiency that are described in this report would be less significant. The PPP market would have better information to assess opportunities and respond efficiently by either entering the market or growing existing teams to meet national capacity requirements, as well as better being able to recoup bid costs on future successful transactions.