PPPs in Australia: Lessons to Learn

Image: Victorian Comprehensive Cancer Centre Pty Ltd

As governments around the world try to implement Public-Private Partnerships (PPPs) and to gain all the value that could be brought to their long-term projects, some governments have had more success than others. And one such country is Australia.

In order to measure, compare and keep track of such successes and opportunities for improvement, The World Bank has created a benchmarking system, where they appraise each country’s regulatory framework regarding PPPs according to “internationally recognized good practices” (The World Bank, 2020).  And according to their benchmarking system, Australia’s framework scores higher than the world average on all the four dimensions that are measured (figure 1).

Figure 1. Australia’s score on the four dimensions of PPP regulatory frameworks (The World Bank, 2020)

Furthermore, the praises that Australia’s PPP framework has received is not just the opinion of The World Bank, Oktavianus, et al. (2018), in their global review of PPP trends, also recognised Australia as being one of the most advanced with regards to Social Infrastructure based on a PPP modality. They also reiterate JETRO’s (2010) report on the country’s PPP modality:

“The Australian market now has a reputation for a clear and transparent procurement process which is being used to deliver infrastructure projects across a plethora of sectors. The scope of services that the private sector provides is quite broad and as a result, there is greater risk transfer through a whole of life approach to project delivery which has resulted in greater opportunities for the PPP model to deliver a VfM (Value for Money) outcome when compared to the conventional form of procurement ,” (JETRO, 2010).

Similarly, Ernst & Young (2008) conducted a survey to determine the performance of PPP projects in Australia and whether they were producing desired outcomes. Their survey concluded that the country’s PPP projects were being delivered on time, as the government had intended and within their budget. The PPPs had ensured high quality and good maintenance of the facilities and allowed the public sector to focus on core services (Ernst & Young, 2008).

With such success, this article aims to put forward the case of PPPs in Australia with special emphasis on the healthcare sector. After a brief overview of how Social Infrastructure PPPs have changed over the years, the article presents one successful case study and then finally summarises some of the lessons that could be learnt from Australia’s regulatory framework.

Social Infrastructure PPPs in Australia

When the PPP industry was first introduced in Australia, it mainly consisted of BOO (Build, Own and Operate) and BOOT (Build, Own, Operate and Transfer) contracts, with the first of their kind being the Sydney Harbour Tunnel that commenced in 1988. Progressively, more and more economic infrastructure projects were added to the industry’s agenda and their success made for a good case in favour of implementing PPPs for social infrastructure projects as well (such as hospitals, schools and mhousing) (Duffield, 2004; Jefferies, et al., 2014).

Social Infrastructure, however, is known to be more complex in nature than economic infrastructure due to its ongoing engagement with the community. Hence, the Australian government have had limited initial success when it came to the health sector. The University of Newcastle (2014) published a theoretical case analysis on hospitals that were made under the PPP modality, namely; Port Macquarie Base Hospital in NSW (built-in 1994) and Latrobe Regional Hospital in Victoria (built-in 1991). The report summarized how the governments could work to improve their contract outcomes for the benefit of all stakeholders involved, identifying areas of improvement, like a lack of due diligence by both sectors and improper evaluation of risk transfer to name a few (Jefferies, et al., 2014).

The suggestions made by experts in the field luckily did not fall on deaf ears. As the state governments increasingly made PPPs the preferred route to deliver public-sector services, while The Partnerships Victoria (DTF, 2001a) policy ushered in the second generation of PPPs in Australia, contract outcomes improved significantly, creating more Value for Money (VfM) for taxpayers.

For example, in a much more recent study conducted by Infrastructure Partnerships Australia (2021), the value and service outcome of Social Infrastructure PPPs were measured. The results were ​overwhelmingly positive; 95% of service providers felt that PPP projects had delivered on services promised by the government and media releases; 95% of them also preferred working within a PPP framework over that of traditional procurement contracts; the level of satisfaction remained high over the years of operation; and the study also showed how the originally calculated VfM was maintained throughout the operating phase (Infrastructure Partnerships Australia, 2021) . In fact, due to its cost- effective nature, when the COVID-19 pandemic hit Australia and threatened to burden their healthcare resources, their chosen response had also been to shore up resources using a PPP project (Department of Health, 2020).

Figure 2. Perceived satisfaction level of Social Infrastructure PPP Projects (Infrastructure Partnerships Australia, 2021)
Figure 3. Satisfaction levels as expressed by service providers over years of project operations (Infrastructure Partnerships Australia, 2021)

Victorian Comprehensive Cancer Centre (VCCC)

Apart from Infrastructure Partnerships Australia’s study, there are also examples of successful healthcare projects that the government has recently completed that provide further proof of their robust PPP framework.
 
Winner of the Best International Healthcare Project Award, Government Partnership Excellence Award, the PPP Award over Best Operational Project and many more, the VCCC was completed in June of 2016 (Plenary, 2016). The purpose-built centre specializes in cancer, handling research, treatment, education and care (figure 4).
 
It is a 130,000-square-meter facility valued at $ 1 billion with over 200 beds, 8 operating theatres and 8 radiation therapy bunkers. The contract terms are Design, Build, Finance and Maintain for 25 years and has already reached financial closure in 2011 (Plenary, 2016).
Figure 4. The Victorian Comprehensive Cancer Centre has also received many awards for its architectural design (Plenary, 2016)

Lessons to Learn

The Australian Government has undeniably had much success in terms of planning and implementing PPPs. Their policies and approach have demonstrated clear VfM for taxpayers while maintaining high satisfaction amongst other stakeholders. Hence, it is of value to consider what advice they might have to give.
 
The University of Melbourne Professor, C.F. Duffield in 2004 published a report on PPPs in Australia, where he described some of the lessons that the Australian government had learnt regarding PPPs that had a big impact on their projects. The lessons included:
1)Skills: where the participants, both public and private, had to go through a steep learning curve with regards to PPPs, which were quite different from traditional design and construction contracts and where risk needed to be managed specifically for each project.
2)Ownership: there had been instances where the public and private sectors had mismatched objectives, with financers focusing on the achievement of the contract rather than the long-term delivery of the service.
3)Bidding Costs: approaches like standardization of commercial terms, improved communication and shorter negotiation periods were applied as ways to lower bidding costs.
4)Risk and Risk Management: clear risk allocation principles were developed in order to balance them better.
 
Other than the lessons learnt, C.F. Duffield (2004) also made a table of what he considered to be a “Mix Required for Successful PPPs” (figure 4), especially emphasizing the need to gain public acceptance through robust accountability and political leadership.
Figure 6. The Mix Required for Successful PPPs (Duffield, 2004)

Conclusion

Since their commencement in the late 1980s, the Australian Government has increasingly used PPPs to procure and manage long-term projects. And through trial and error, they have created a framework renowned for creating VfM and maintaining satisfaction amongst stakeholders. This article has briefly mentioned how the government’s Social Infrastructure projects have become more and more successful over the years and what lessons can be learnt from this shift.
 
References
 
Duffield, C., 2004. PPPs in Australia, Melbourne: The University of Melbourne.
 
Ernst & Young, 2008. The Journey Continues PPPs in Social Infrastructure, s.l.: Ernst & Young.
 
Infrastructure Partnerships Australia, 2021.
Measuring the value and service outcomes of social infrastructure PPPs in Australia and New Zealand, Melbourne: Infrastructure Partnerships Australia.
 
Jefferies, M., Gajendran, T. & Brewer, G., 2014. Public private partnerships: The provision of healthcare infrastructure in Australia.
University of Newcastle. 
 
JETRO, 2010. Public Private Partnerships in Australia and Japan Facilitating Private Sector Participation, s.l.: Japan External Trade Organization (JETRO).
 
Oktavianus, A., Mahani, I. & Meifrinaldi, 2018.
A Global Review of Public Private Partnerships Trends and Challenges for Social Infrastructure, s.l.: EDP Sciences.
 
 
 

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