"The project just doesn't stack up commercially for us if we need to make it financially rewarding for government too..." These words from a private sector developer looking at a potential urban renewal project in the CBD of a major Australian city, where the State Government is a landowner and occupier, again highlighted to me the contrasting perspectives of the public and private sectors. I was reminded of a statement once made to me made by my ex-colleague, the Hon. Carl Scully, who captured the essence of this dichotomy well (and I paraphrase): "The public sector and the private sector have fundamentally different drivers, often opposing each other. One is motivated to improve the lives of its citizens, whilst acting as the steward of public interest, while the other is driven to provide returns to their shareholders – it's that simple."
The misalignment between these drivers can be a challenging hurdle to overcome, particularly in collaborative endeavours where the Government has a stake, necessitating their involvement as a key development partner. Various contracting mechanisms, such as PPP or PFI, Alliance contracting, and innovative collaborative hybrids, have been devised to incentivise mutual engagement. However, they often fall short of embracing the fundamental reality that the two parties are propelled by conflicting motives when interacting with one another.
Rather than viewing this divergence as a problem, we should recognise its potential as a solution. By harnessing the respective strengths of the public and private sectors, we can achieve outcomes that surpass the capabilities of either side alone. This is precisely why these seemingly opposites often attract one another.
When the private sector takes the lead, the focus is predominantly on maximising financial returns while minimising risk. On the other hand, when the Government proposes a project, navigating a maze of red tape and overcoming a range of prescribed hurdles becomes necessary to safeguard public interest and to transparently demonstrate Value for Money.
To navigate this intricate interface within the realm of infrastructure projects, adopting a "Backwards is Forwards" approach proves most effective. Starting with the end outcome in mind and working backward allows us to identify how the strengths and contributions of both the public and private sectors can be leveraged to accomplish the desired goals while acknowledging their respective drivers. While both sides share the desire to develop and deliver projects, their motivations differ significantly. While the private sector consistently seeks returns, the Government often pursues broader benefits with longer-term economic benefits.
In the case of the aforementioned project, understanding and aligning with these divergent drivers may pave the way for a win-win scenario.
As a business specialising in facilitating collaboration between the public and private sectors within the infrastructure space, embracing these differences is paramount to successfully advising our clients, regardless of which side they represent.