Australia: PPPs - Closing the Gap in the Triple Bottom Line: People, [Planet,] Profit

Projects Insights
Last Updated: 20 September 2010
Article by Emily Griffiths

The future of Public Private Partnerships (PPPs) will increasingly include a fourth "P" – Planet. Serious bidders for PPPs can not think that the innovation required to gain a competitive edge doesn't extend to addressing sustainability, including by incorporating clever environmental solutions in a bid.

While governments are currently in the process of transforming sustainable ideals into concrete laws, policies and strategies, a competitive edge for bidding and winning PPPs may be gained by offering something more than just meeting minimum sustainability requirements.

Emerging policies in Europe

Europe will soon have thorough legislative requirements for sustainability that will raise the bar on sustainability requirements for major PPPs.

The European Commission's 2008 voluntary instrument, Green Public Procurement (GPP), aims to have clear and ambitious environmental criteria for procurement of products and services across the EU member states.

The European Commission distinguishes:

  • green public procurement as being where public authorities seek to procure goods and services with the aim of reducing environmental impact through the life-cycle of the goods or services; and
  • sustainable public procurement as being where public authorities seek to achieve the appropriate balance between the three pillars of sustainable development - economic, social and environmental - when procuring goods, services or works at all stages of a project.

The GPP recommends setting common environmental criteria for the whole European community. Once such common environmental criteria are adopted, they are likely to have a flow-on effect in environmental requirements around the world. As providers in Europe are required to meet these standards when tendering for government projects, other government bodies around the world are likely to be influenced to adopt similar standards and the private sector is likely to be driven to develop greener technologies and products.

At the moment there are a number of obstacles in achieving this aim to formulate minimum technical specifications. Examples include insufficient information on lifecycle costs of products, poor awareness of the benefits of environmentally friendly products and services and a lack of political support.

The objectives of the GPP, however, are not unachievable and provide some guidance for both those who set tenders and those who tender for PPPs when considering minimum environmental requirements.

Changes in the UK

Changes that are evident in the UK show an increasing emphasis on sustainable public procurement and the incorporation of environmental and sustainability criteria in PPPs.

In the 2008 publication, "Strategy for Sustainable Construction", the UK Government aims to procure more sustainable properties and infrastructure, achieve greater use of design quality assessment tools to ensure that buildings, infrastructure and public spaces are fit for purpose, resource efficient, sustainable and resilient, as well as utilise the construction industry's capacity to innovate and increase the sustainability of both the construction processes and the resultant assets.

Other changes noticeably shaping tender requirements in the UK include:

  • changes to what is required of public bodies and the buildings that house them;
  • bespoke accreditation processes (such as BREEAM) which are tied to Kyoto protocol-related legislation (similar to Australia's Green Star and NABERS rating systems);
  • revised building regulations requiring new buildings to meet minimum sustainability requirements; and
  • guidance from Treasury to public bodies on how to negotiate changes in service agreements to enable existing PPP projects to meet rolling legislative demands around climate change.

These significant changes to legislation, policies and strategies are strong indicators of the change in direction of the public sector to build more sustainable projects. The flow-on effect will be that those in the private sector tendering to build these projects will need to meet these ever-increasing requirements.

New South Wales

Economic appraisals of new public infrastructure by Government agencies should now explicitly include an evaluation of climate change, according to the NSW Government Guidelines for Economic Appraisal, updated by NSW Treasury in September 2010.

Climate change considerations in such economic appraisals should evaluate the estimated benefits (expressed as damages avoided) compared with the cost of asset adaptation for new and existing assets, where adaptation refers to adjustments in response to actual or anticipated climate changes or their effects.

The updated Guidelines emphasise that climate change uncertainty should be explicitly acknowledged and built into decision-making processes in connection with the procurement of new infrastructure. Tenderers can expect that their bids will also need to specifically consider climate change.

The Public Accounts Committee, as part of its report on the NSW Government's request for an inquiry into Public Private Partnerships (published in 2006), recommended that NSW Treasury, agencies and private sector partners in PPP bids be required to address social and environmental considerations more fully in project objectives at the commencement of PPP contracts and reflect these considerations in project specifications and monitoring of outcomes. To date however, the NSW Government publications specifically relating to PPPs do not contain specific sustainability requirements.

It is interesting to note though, that agencies such as the Transport Construction Authority (formerly TIDC) are already setting short, medium and long term sustainability targets. One of TCA's long term targets is to ensure that the cost-benefit analysis process used at the project feasibility stage considers whole-of-life costs and makes adequate provision for community benefit and sustainability ("Sustainability Targets" publication (2009)). This may indicate that sustainability requirements are likely to be seen in at least some NSW agencies' tender requirements.

How much of this should a bidder care about?

Sustainability requirements are forming a greater part of tendering, not only as a reaction to legislative and policy changes, but also as a reaction to the environment around us.

Real project risks relating to the environment, for example, climate (extended and unpredictable dry and wet periods) and weather (severe storms, flooding) and the market (carbon trading, rise and fall of costs of natural resources) are transforming because of the changing nature of the planet. These risks are now being considered during the bid phase in greater depth - public bodies are requiring more definition and risk allocation on such risks that were previously simply "acts of God" or "changes in law". The private sector will need to consider how to address these risks.

Holistically, the potentially negative impact that design and construction of the built environment has on other important long-term economic effects, is a key reason to strive for sustainable growth and development. The construction industry depends on both numerous natural resources and the built environment itself to support it. By building sustainable projects, not only will the environment benefit but also the construction industry itself.

Can an innovative approach to sustainability boost profitability?

Until tougher sustainability requirements become minimum requirements in tendering documentation and/or legislation, bidders need only comply with what is set as the minimum.

However, to stand out from other bidders, investing in sustainable options analysis could generate good returns in the long run.

  • Consider investing in research to develop environmental strategies in line with new and future demands set by international standards.
  • Look at, for example, alternative costing options which identify alternative sustainable targets, such as:
    • climate change
    • waste minimisation
    • use of materials from sustainable resources
    • energy and water use
    • integrated supply methods, or
    • a project carbon footprint.

These alternatives may give a bidder an advantage where the tender prescribes minimum or "nice to have" sustainability requirements. Even if such alternatives are not put to use first time around, the investment in sustainable thinking now will not be wasted in the long term.

Change towards building more sustainable projects is well underway with government agencies already beginning to include their own tough sustainability requirements in tenders. However, these demands are only in their infancy. The private sector will be well served by anticipating where the sustainability market is heading and being innovative with green ideas when bidding for PPPs. The leading edge is no longer just about the best technology, best skills, best experience or best price but also about what's best for a sustainable future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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