13 August 2013: Despite their critics, Public
Private Partnerships1 (PPPs) still have a role to play in helping
to deliver on Australia's future infrastructure needs –
if they are used on the right projects where they can demonstrate
their true value.
The term PPP describes arrangements in which the public and
private sector work together to achieve an outcome. They usually
involve private sector finance and the bundling of design,
construction, maintenance and sometimes other services into a
single long-term "whole of life" contract. Most
infrastructure in Australia is procured using contractual delivery
models other than PPPs.
PPPs represent less than 10 per cent of total government
infrastructure procurement in Australia, which is appropriate
because traditional procurement methods will deliver better value
for money than a PPP for most projects.
The report's author, Clayton Utz construction and major
projects partner Owen Hayford, said PPPs had been unfairly maligned
due to the very public collapse of toll road projects such as the
Cross-City Tunnel and Lane Cove Tunnel. He said there were many
other examples where the model had worked successfully – both
in Australia and around the world – and which supported the
future use of PPPs for the right projects .
"It is unfortunate that the PPP model has been perceived as
a failure because of toll road projects that have not met traffic
projections – which is essentially a failure of traffic flow
modelling rather than the PPP model itself. The PPP model is
essentially sound, and has proven time and again to deliver greater
certainty of cost and time outcomes compared to traditional
procurement methods – largely as a consequence of the
additional rigour which private sector finance brings to the
management of a project," said Owen.
"That's not to say that the PPP model couldn't be
improved, because it could. For example, governments could engage
in more risk sharing, encourage less aggressive financing
structures, and minimise the additional cost of using private
sector finance while still capturing the risk management
disciplines which private finance brings.
"Governments could structure their tender processes and
evaluation criteria to encourage consortia that are led by those
who will be the long-term owners of the projects – such as
super funds – rather than investment banks and contractors
who are interested only in short-term returns. And to ensure that
government is obtaining the best service solution possible for each
aspect of the project, it could unbundle the PPP and separately
tender one or more of the construction, maintenance or debt
"These potential improvements are, of course, not without
their challenges. However, the industry has shown it has the
ability to innovate when it comes to infrastructure delivery, so I
predict a strong and healthy future for the PPP model."
1There are two basic types of PPPs in
Australia, traditionally described as "social
infrastructure" and "economic infrastructure" PPPs.
The first is more accurately described as a government-funded PPP,
where the main source of revenue or funding that repays the private
sector finance used to build the facility takes the form of a
service or availability payment from government. An economic
infrastructure or "user-funded" PPP is where the main
source of funding takes the form of charges paid by the users of
the infrastructure, such as tolls paid by the users of a toll
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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