Overview by the Auditor-General

“Partnering” in its various forms is gaining in popularity in other countries as a means of building new infrastructure and delivering public services. There are also signs of increasing interest in this approach to procurement in the public sector in New Zealand, particularly in local government.

Examples of partnering range from contracts where the private sector finances and owns public infrastructure to arrangements where public and private sector organisations work closely together as one team sharing risks and rewards.

It is not the purpose of my report to advocate the use of partnering. My principal aim is to inform leaders and decision-makers about the key issues they need to consider across the public sector and for individual projects. My report draws on the experience of overseas jurisdictions, mainly Australia and the United Kingdom, and provides examples of partnering arrangements that have been entered into in this country. My report is not legal advice and is only a general overview of the issues.

The experience of other countries suggests there is a need for clear government policy and direction if partnering is to be used to any great extent. Governments in other countries have also expressed clear views about certain public services that are not suitable for delivery through partnering.

New Zealand is a small market for partnering arrangements compared to countries such as Australia and the United Kingdom. Projects here may not be large enough in size or number to attract significant private sector interest. However, there is evidence that small projects have attracted interest in some service sectors, and it is possible that New Zealand could take measures to increase that interest.

In general, the Crown has executive power to enter into partnering arrangements. In each case, however, the power of a public entity to enter a partnering arrangement is subject to any procedural or substantive limits imposed by statute. There are only 2 substantive limits, which concern water and wastewater services, and prisons management.

Public entities choosing to use partnering will need a high level of expertise and a sound business case to support their decision. The business case should clearly show 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 than other procurement options.

A value-for-money assessment should consider the benefits of opting for a partnering approach against the costs of doing so. A key issue will be the value for money achieved by the proposed division of risks between the parties.

Public entities are ultimately accountable for delivering public services, which is a responsibility they cannot transfer to the private sector. The public entity must have robust internal arrangements in place for deciding to opt for a partnering approach, and for managing its implementation. There will need to be strong leadership from the top of the organisation to drive the process and ensure proper accountability and control. There should be a clear definition of roles and responsibilities, identification of relevant authorities and delegations, and adequate arrangements for public scrutiny of performance under the contract.

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

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

I thank the organisations that have contributed to the research that we undertook to produce this report. These include public and private sector organisations; audit offices in Australia and the United Kingdom; and central and local government, legal, and consultancy organisations in New Zealand. I particularly thank the New Zealand public entities that willingly co-operated in providing case studies.

K B Brady
Controller and Auditor-General

7 February 2006