Public-private partnerships (PPPs) are all the rage. From the Sydney motorways, to the new Perth Stadium – and from Royal Adelaide Hospital to Canberra's $900 million-plus light rail – PPPs are instrumental in literally rebuilding Australia. Apart from sounding like some form of “magic pudding”, what is a PPP? And more importantly, what makes a successful PPP?
Simply put, it is a form of procurement where the public sector contracts with the private sector to deliver a large piece of infrastructure, accompanied by the long term maintenance and occasionally, the services delivery associated with the infrastructure too.
The public sector funds the infrastructure and services via periodic payments over a long-term period, traditionally 20–30 years, and usually gets to keep the infrastructure at the end of this period – much like buying a car complete with a full servicing package on a financing agreement.
But not all PPPs are created equal and a “cookie cutter” approach is not something which lends itself to this style of infrastructure and services procurement. Some are more complex than others and similarly some are more successful than others. So what is it that makes a good PPP?
Fostering innovation in a partnership
In my view, a good PPP is one where the “P” in Partnership is truly embodied and where one of the key hallmarks of PPPs — innovation — is a prime focus. Partnership, by nature, is a relationship where give and take is the norm, however modern-day PPPs tend to gravitate towards highly commercial and rigid relationships where every move is governed by onerous contractual obligations.
Notwithstanding the terms of the contract, the “Partnership” component is fostered where Government and private sector drivers are most closely aligned.
This is not easy to do. Government is driven to improve the lives of its citizens, whereas the private sector is driven by profit and returns to shareholders/investors. Alignment is more achievable when the focus of the PPP is the project outcomes.
With this approach, the means to achieve the output is effectively reverse engineered and innovation is focused on how to most effectively achieve the project objectives. The flow-on effect is that the infrastructure solution is optimised to achieve the outcomes.
A further feature of this service-focused approach is tension: not between client and consortium, but tension within the consortium itself.
The inclusion of the facility manager — known as the FM in the trade — with the design and constructing teams and, in some cases, the operator too within a consortium leads to the inevitable tussle between construction cost versus ease of maintenance and service delivery.
If balanced properly, this leads to the most effective solution which meets not only the service outcomes, but the constructability, operability and whole-of-life requirements.
Outcomes instead of prescriptions and process specification
In the early 2000s, before joining Advisian, I worked with the UK Department of Health on a series of projects to allow private sector healthcare providers to deliver healthcare services to public sector patients.
This ambitious scheme used the PPP model to both introduce new players into the UK market and to create competition and choice between private hospitals and the NHS. In essence, it was an output-based model and by nature ended up being operator-led.
In short, it turned the traditional bureaucratic process-driven mindset upside down by specifying only what had to be achieved, without prescribing how to get there.
Government as enabler
Government has another critical role in enabling the process and that is its own governance compliance and obligations. Often these can be time-consuming and appear convoluted.
Lastly, the focus is often on getting the deal done, but when you are looking at a 20–30 year arrangement, the focus on getting the contract management structure and process correct is incredibly important.