6.2 Achieving public sector outcomes with private sector partners

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The term “partnering” can be used to describe a wide range of mutually beneficial commercial relationships between the public and private sectors. Examples range from contracts involving private financing and ownership of public infrastructure by the private sector to arrangements where public and private sector organisations work closely together as one team, sharing risks and rewards.

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In general, the power of a public entity to enter a partnering arrangement is subject to any procedural or substantive restrictions imposed by statute. In the case of local government, the only substantive restrictions concern water and wastewater services.

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Local government’s interest in partnering is increasing. A variety of arrangements have been set up already, such as:

• contracts to design, build, and operate facilities;
• joint ventures;
• franchises; and
• project alliances.

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These arrangements can be for a long term, possibly 20 or 30 years, especially if they involve designing, constructing, and operating infrastructure. Few projects so far have involved private financing, though local government appears to be interested in using private financing to deliver projects in the future.

Our report

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We have researched the main issues that need to be considered by any public organisation thinking about entering into a partnering arrangement. Our report Achieving public sector outcomes with private sector partners was published in early 2006.²

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Our report:

• examines overseas jurisdictions’ experiences with partnering, with a view to learning from those experiences;
• identifies existing and planned partnering arrangements in New Zealand, and selects 5 case studies to provide examples;
• discusses various aspects of partnering, such as governance, risk allocation, managing performance, and accountability; and
• sets out our broad expectations in these areas.

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Our report does not advocate or oppose the use of partnering.

Our expectations

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The 2 main expectations that we have for any public entity entering into a partnering arrangement are a high level of expertise and a sound business case to support its decision. The business case should clearly demonstrate how the chosen partnering arrangement fits with, and helps to achieve, the vision and policy objectives of the public entity. It should also show how a partnering approach would result in better value for money compared to other procurement options.

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A value-for-money assessment should consider the benefits of opting for a partnering approach against the costs of doing so. The main issue will be whether the way it is proposed to allocate risks between the parties achieves value for money.

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Public entities are ultimately accountable for delivering public services, which is a responsibility they cannot transfer to the private sector. It will be imperative for the public entity to have robust internal arrangements in place for making the decision to opt for a partnering approach, and for managing its implementation. This will require strong leadership from the top of the organisation to drive the process and ensure proper accountability and control. Roles and responsibilities should be clearly defined, relevant authorities and delegations should be identified, and adequate arrangements for public scrutiny of performance under the contract should be set up.

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It will also be vital to ensure that the process for selecting a private sector partner is fair and transparent, and stands up to public scrutiny.

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The public entity should be aware that its responsibilities do not end once the contract is awarded. It will be important to set up and maintain effective contract management arrangements throughout the life of the partnering arrangement. The responsibilities of both parties will need to be defined in contract documentation, including responsibilities for managing relationships, risks, assets, and performance. Accountability requirements will also need to be clearly defined.

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Our report was prepared with local authorities in mind, and should be of specific interest to the sector. We are aware that a range of different partnering models has been considered and used in the sector. We particularly draw the sector’s attention to the 5 case studies discussed in the appendices to our report, all of which concern local government projects.

2: ISBN 0-478-18149-3.