PPP Suitability

Projects likely to provide value for money using a PPP delivery method are those with some or all of the following attributes:

■  long term. Contracts tend to be long-term (up to/or more than30 years), and reflect an acceptance of whole-of-life cycle costing risk by the private party;

■  measurable service outputs. Government service requirements should have measurable outputs that can be translated to a performance contract.  Payment mechanisms are generally structured around these output specifications to provide incentives for achieving key performance indicators;

■  innovation.  The project is sufficiently complex to encourage innovative approaches (in design and technology) that can deliver value for money;

■  whole-of-life costing. Full integration, under the responsibility of one party, of up-front design and construction costs with ongoing service delivery, operational, maintenance and refurbishment costs. This delivers improved efficiency through whole-of-life costing as design and construction become fully integrated up-front with operations and asset management;

■  market appetite. The project creates a genuine business opportunity which is likely to attract a sufficient number of private parties and create an effective and competitive bidding process;

■  opportunity for risk transfer. A PPP project needs to be structured to achieve optimal risk allocation. Value for money is a key driver of PPPs and there needs to be scope to allocate appropriate risk to the private sector.

■  bundling of contracts.  In many cases, the provision of a service or capability by the public sector depends on a number of separate contracts with different contractors.  PPPs provide an opportunity to combine related services and an asset into a single long-term contract;

■  non-core services. Contracts are likely to include a requirement for a range of non-core services and support activities to be delivered that currently divert management and skilled staff in the public sector. These services may include accommodation availability, information technology outputs and many other services; and

■  complementary commercial development.  The commercial opportunities that may add value to the project and/or reduce service payments to the private party (where complementary to the project objectives).

Together, these characteristics can create cost savings for government in the competitive bidding process, while giving an opportunity for innovative service delivery and a viable opportunity to the private sector (where complementary to the project objectives). The value-for-money outcomes can produce both quantitative value (through cost savings) and qualitative value (enhanced built environment, environmental achievements and improved contract management disciplines).

While the presence of these characteristics will not always mean that PPPs are a viable or the most appropriate option, their presence does suggest that PPP options should be properly considered as part of any Procurement Options Analysis undertaken.