There is no all-encompassing definition for Public Private Partnership (PPP) (Department of the Parliamentary Library 2003, p.2; New South Wales Parliament 2006, p.9) within general discourse or scholarly literature (English 2008, p.2; Urio 2010, p.26). There is, however, a plethora of characterisations. Some highlight the transactional nature of PPP, whereby contracts are entered into between the public and private partners, with consortia typically providing design, financing and/or construction and the delivery of services in exchange for publically-owned assets or user fees (Bloomfield 2006; Leiringer 2006).
Other interpretations, whilst acknowledging the transaction base, broaden the scope to include a 'working together approach' that relies upon co-operation to meet objectives in return for mutual gain through the sharing of risks, costs, resources and responsibilities (Klijn and Teisman 2003; Koppenjan 2005). For this paper, PPP is characterised as a collaborative endeavour (Smyth and Edkins 2006) involving public and private partners, developed through the expertise of each partner in order to meet identified public needs through appropriate resource, risk and reward allocation (Canadian Council for Public Private Partnerships 2009).
The Public Sector Comparator (PSC) is a hypothetical financial model used by governments to test the advantages (if any) of using private finance (Department of the Parliamentary Library 2003, p.7; National Audit Office 2009, p.46). The PSC estimates the total cost of a project's construction and operations (Allen Consulting Group 2006, p.19) against the expected costs of using other procurement methods (Grimsey and Lewis 2004, p.137) to determine the best Value-for-Money (VfM) proposition (Infrastructure Australia 2008, p.35). It is based on the most efficient (New South Wales Government 2001, p.45) and/or recent (Partnerships Victoria 2001b, p.6) method of determining VfM proposals (New South Wales Government 2001, p.45). Discounted cash flow modelling, usually through the calculation of Net Present Value, is normally the predominant quantitative tool for analysis, but qualitative assessment is not excluded.
PSC assessment, which is undertaken alongside the development of a project brief, contract and project specifications (Partnerships Victoria, 2001b, p.6), takes account of the likely project risks that are expected to be transferred to the private partner as well as those anticipated to be retained by the public partner (New South Wales Government 2001, p.45; Partnerships Victoria 2001b, p.7). In terms of operations, this means operating risk is transferred to the private partner. Willingness to accept these risks by the private partner may be encouraged through the use of incentives (Commonwealth Department of Administration and Finance 2006, p.2) such as defined quarterly service payments, or reducing royalty payments for higher levels of user demand. At the completion of the PSC test, if the PPP option is deemed to be cheaper in comparison with alternative procurement models, a PPP concession will be awarded to the private consortium that makes the best bid.
Broadly speaking, Western governments are advanced in the design and delivery methods of PPP as a viable, alternative form of procurement, thought to be suitable for a range of large-scale economic and social infrastructure projects. Whilst advanced in the early phases of the project lifecycle, most Australian state governments (since PPPs tend to be secured at state, rather than at federal level in Australia) are still developing effective approaches to achieving VfM outcomes during the operational phase of PPPs. To date, this has proved difficult because of the long-term nature of these arrangements (typically lasting upwards of 20 years) and the fact that few contracts have yet reached maturity in terms of the original concession period.
To achieve VfM outcomes during operating phase, PPP contract oversight (governance) must be prudently managed by the public partner. Although it is the responsibility of the private partner to deliver agreed service(s), the public partner is ultimately responsible for ensuring that these services are actually carried out and that they (at least) meet minimum standards. Effective ongoing partnership relations between the public and private partners are important for dealing with unforeseen issues as and when they arise.
Other types of uncertainty are inherent in PPP. For the public partner, one of the main benefits sought from PPP is risk transfer - or more explicit allocation of risks between the public and private partners; however, not all operational risks can be transferred in practice. Therefore, governments should accept and manage their risk positions. PPPs are also expected to deliver real benefits to communities throughout their operational performance. The public partner should be pro-active in taking necessary and timely corrective action to encourage better private partner performance when necessary to ensure that planned outcomes are achieved in practice. The active management of private partner performance, by the public partner during the operational phase of PPPs, is thus important.
Following this introduction, a short literature review provides contextual background. This is followed by an account of the interview administration and interviewee demographics. The findings are then presented and discussed. Recommendations are made for public sector governance practice for the operating phase of PPP.