B.4.2  Performance and debates

Australia's leading state on infrastructure PPPs has been Victoria. However, New South Wales has also been active in its use of PPPs in recent years, with the overall number of projects delivered now being similar to that of Victoria. With the release of 'National PPP Policy Framework and Guidelines' in 2008, all states moved to adapt a common strategic direction to achieve more consistency. The National policy applies to projects with a capital value over A$50 million, and notes the importance of transparency and disclosure, stating that 'the use of PPPs should not diminish the availability of information on the use of government resources to parliaments, taxpayers and other stakeholders. During 2009, there were 49 PPP projects underway with an aggregate value of some A$32.3 billion.

The University of Melbourne in December 2008 studied the comparative achievements of PPPs and traditional procurement methods in Australia (Duffield, Raisbeck & Xu, 2008). This study differentiated the construction cost and time outcomes of 25 PPP projects, and found that the Australian PPPs experienced average construction cost over-runs of 4.3 per cent compared to 18 per cent for the traditionally procured projects, and the average construction phase delay for the PPPs was 1.4 per cent, compared to 25.9 per cent for traditional procurement. This improved cost and time performance in comparison to traditionally procured projects is a key indicator of the potential benefits from the use of PPP procurement model (Raisbeck, Duffield & Xu, Duffield, 2009).

Governments can use their credit ratings to finance infrastructure projects at lower rates, however, increased borrowing and project risk can affect their credit ratings. The SPV's cost of borrowing may be higher but it only reflects the standalone risk of the project. As is common with the PPP model globally, the higher cost of private financing means that the economic rationale for proceeding with a PPP tender rests on the SPV achieving cost efficiencies (savings) and managing project risk (including on-time and within budget completion) in the construction and/or operation of the project. However, there have been cases where these projected cost efficiencies have not been achieved in the PPP project by the SPV (Hodge and Greve, 2017).

There have been some Australian PPPs where the government has taken the decision to take control of the project or has provided additional financial support to the project because the private sectors failed to meet its financial and/or performance targets. For example, in October 2000, the Victorian Government took control of the Metropolitan Women's Correctional Centre to overcome such a failure by the private sector. In 2006, the New South Wales Government announced it would buy back the contract for the provision of health services at the Port Macquarie Base Hospital to address poor service levels. In each case, the private sector had underestimated the cost of meeting its service obligations and suffered from financial loss.

The PPP model for social infrastructure continues to be supported by jurisdictions because, inter alia, it is seen to provide a greater scope to capture innovative solutions from the private sector, and can deliver the required services at a lower whole-of-life cost.36 However, there is a view that PPPs in suffer from insufficient flexibility when it comes to making changes to a project, due to the constraints of private finance. In particular, negotiating a contract variation requires the agreement of all SPV and financing parties, and this can be a cumbersome process. It is generally thought that social infrastructure projects require the flexibility to make contract variations over a period of 25 years as the needs of the community, and the potential response strategy to these needs, change.