Part 1: Introduction

Achieving public sector outcomes with private sector partners.


Partnering between public and private sector organisations is gaining in popularity overseas as an approach to procuring major infrastructure projects and related services in the public sector. Our overall aim for this report was to look at the experiences of overseas jurisdictions in using partnering and to learn from them.

For the purposes of this report, we have adopted “partnering” as a generic term to encompass a wide range of mutually beneficial commercial procurement relationships between the public and private sectors that involve a collaborative approach to achieving public sector outcomes. These relationships can include “partnerships” in the legal business sense, and other commercial arrangements between the parties where they adopt a collaborative approach.

A public entity can enter into a partnering arrangement to achieve various outcomes – such as building new infrastructure or providing services – and use various means to achieve the outcomes – such as a design, build, and maintain (DBM) contract or a franchise.

We initially set out to identify partnering projects in this country in both the central and local government sectors. We found an increasing interest in partnering. Public entities have set up various types of arrangements for capital projects that involve partnering with the private sector – such as contracts to design, build, and operate facilities; joint ventures; and franchise agreements. There was also evidence of some interest in the public sector, mainly in local government, in exploring partnering as a means of financing and delivering new projects in the future.

We also found that both central and local government are increasingly interested in using “project alliances” (a form of partnering) to procure major capital projects. Project alliances have already been used, for example, to build roads, prisons, and a landfill facility.

Because of these findings, we decided to include within our definition of partnering projects that involve different types of long-term collaborative agreements between the public and private sectors. These include project alliances, and projects that may or may not involve private sector financing.

Our objective

For the public sector, partnering offers both rewards and risks. We have written this report to inform leaders and decision-makers about the partnering issues they need to consider.

Our interest is in the effectiveness and efficiency of partnering arrangements, as well as issues of waste, probity, and financial prudence (see section 16 of the Public Audit Act 2001). It is not for us to advocate partnering, however; nor to advocate one form of partnering over another.

The types of partnering arrangement that we looked at

We have concentrated on partnering arrangements for projects that involve constructing infrastructure, though many of the issues considered in this report will also be relevant to partnering arrangements where no physical works are involved.

Examples of contracts that can be called partnering arrangements include:

  • design, build, and maintain (DBM) (the issues covered in this report are mainly relevant to long-term DBM contracts);
  • design, build, maintain, and operate (DBMO); and
  • design, build, finance, maintain, and operate (DBFMO).

Each of these arrangements may involve the private sector party owning or controlling1 the facility, and possibly transferring legal ownership or control back to the public sector party when the contract or concession period ends. Contracts where ownership is transferred between the parties are often referred to as build, own, operate, and transfer (BOOT) contracts.

The private sector party involved in these contracts can often be a consortium or “special purpose vehicle” made up of the principal contractors and financial institutions.

Instead of using traditional forms of contracts to undertake the activities described in paragraph 1.10, the parties may decide to enter into a special arrangement, such as a joint venture or franchise. We describe these arrangements in the Glossary.

Another form of contracting may be through a project alliance (see the Glossary). Mostly design and construction projects use this form of contracting.2 The governance arrangements and the way that risks and rewards are shared in project alliances differ from the other arrangements described.

We have identified 5 case studies as examples of different partnering arrangements, which are described in Figure 1. A more detailed explanation of each case study is provided in Appendices 1 to 5, including the reasons why the public entities involved decided to adopt this route to procurement, and the lessons learned.

Figure 1
Case studies of 5 partnering arrangements

Project Public entity responsible Brief description
Auckland’s indoor arena (Appendix 1) Auckland City Council A contract to build, own, maintain, operate, finance, and transfer a major entertainment venue (a BOOT or DBFMO).
Auckland’s Grafton Gully road construction(Appendix 2) Transit New Zealand A project alliance established to design and construct a new road in Auckland.
Wellington’s Clear Water project (Appendix 3) Wellington City Council A contract to design, build, maintain, and operate a sewage treatment plant (a DBMO).
Papakura’s water and wastewater services (Appendix 4) Papakura District Council A franchise agreement to operate the water and wastewater services within the Papakura district.
Canterbury’s regional landfill project (Appendix 5) Ten Canterbury local authorities set up the Standing Committee, which made the decision to adopt this procurement route. Six of these councils subsequently became part of the joint venture: Christchurch City Council, and Ashburton, Banks Peninsula, Hurunui, Selwyn, and Waimakariri District Councils. A public-private joint venture set up to establish a regional Canterbury Waste Joint landfill facility, with construction undertaken through a project alliance.

We also describe the use of public private partnerships (PPPs) in Australia (Appendix 6) and the Private Finance Initiative (PFI) in the United Kingdom (Appendix 7).

We have excluded certain types of contract from our research:

  • outsourcing of services – for example, corporate support services such as IT, finance, human resources, and legal; and
  • traditional design and construction contracts.

Our existing procurement guidelines3 cover these types of contract. However, many of the issues addressed in this report will be relevant to the types of procurement that we have excluded.

Why we looked at the subject

Benefiting from the experience of others

In Australia and the United Kingdom, the focus of our overseas research, partnering arrangements involving private financing have gained in popularity over the last 10 to 15 years. There are examples of both successful partnering arrangements and notable failures. New Zealand can benefit from the experience of countries that have effectively applied partnering arrangements.

Economic imperatives

In other jurisdictions, particularly in the early stages, economic imperatives have strongly influenced the use of partnering involving private financing. These imperatives include providing a means of overcoming funding shortages and increasing investment in public sector assets. The United Kingdom, in particular, has used the PFI to more quickly establish or improve its infrastructure.4

Achieving value for money

Our research also revealed that other jurisdictions increasingly see achieving value for money as the principal justification for entering into partnering arrangements. They see that benefits can be gained through, for example: the way that risks are allocated between the public and private sector parties; providing incentives for new and improved approaches such as innovative design, ongoing technological advances, and support; and the need for a whole-of-life approach to capital projects.

The United Kingdom government in particular holds the view that the public sector should involve the private sector more collaboratively in providing infrastructure and services, rather than attempting to achieve all outcomes alone.

It considers that bringing in private sector market disciplines, such as a focus on customer requirements, and business and management expertise, can benefit the public sector. This is particularly so with highly specialised activities, where the necessary expertise may not exist in the public sector.

Another reason given for creating partnering arrangements that include providing ancillary services, such as facilities management in hospitals and schools, is that public sector managers are free to focus on core service delivery priorities.

Partnering arrangements already exist in New Zealand

A number of examples of partnering arrangements already exist in New Zealand – including BOOT projects, joint ventures, and franchises – although few projects exist where the private sector partners have provided finance for building public infrastructure.

There appears to be a particular interest in the New Zealand public sector in project alliances. Transit New Zealand has pioneered project alliances for roading schemes by constructing the Grafton Gully road (see Appendix 2) and the Northern Gateway. A project alliance has also been set up to construct the Canterbury regional landfill site (see Appendix 5), and the Department of Corrections has introduced a form of project alliance for construction projects undertaken as part of the Regional Prison Development Programme.

How we went about it

Our approach involved 3 stages:

  • researching existing and planned partnering arrangements in New Zealand;
  • researching the experience of overseas jurisdictions, mainly Australia and the United Kingdom; and
  • identifying the main elements and risks associated with partnering that New Zealand public entities should address when thinking about adopting this procurement route.

In undertaking our research, we contacted a number of central government policy ministries and local government organisations in New Zealand to establish the existence of partnering arrangements, and to assess future trends.

We interviewed staff in New Zealand public entities that had adopted partnering arrangements, and staff in legal and consultancy organisations with experience of partnering.

We visited the Australian National Audit Office, relevant Australian State Audit Offices, and public and private organisations in Australia that have experience of partnering, and communicated with public sector auditing bodies in the United Kingdom.

We reviewed research papers produced by other jurisdictions that describe the implementation and effectiveness of partnering, along with our own past work on the subject.

We reviewed guidance produced by other jurisdictions, and overseas audit reports of existing partnering arrangements.

How we have structured our report

Part 2 discusses wider issues that governments need to consider at a national level, and describes the existing legislative framework in New Zealand.

Part 3 describes the issues that public entities considering a partnering arrangement need to address. We describe the main characteristics of partnering arrangements, and the matters that need to be addressed in a business case prepared as a basis for the decision. We emphasise that effective decision-making before the procurement route is determined will depend on the public entity having sound governance and accountability arrangements in place.

Part 4 describes the requirements for effectively managing the contract over its life once it has been awarded.

Figure 2 outlines the process that public entities should follow, and identifies where we discuss aspects of the process in this report.

Figure 2
Process that public entities should follow

Governance and accountability
Strong leadership, defined roles and responsibilities, authorities and delegations, arrangements for public scrutiny
Determine service objectives and outcomes to be achieved and identify project to achieve outcomes. Not covered in this report
Establish internal project management arrangements for the processes for deciding which procurement route to choose, for selecting the preferred partner, and for setting up contract management arrangements when the contract is awarded. Part 3
Consider different procurement options for carrying out the project; for example, a traditional contract or a partnering arrangement. Part 3
If a partnering route is chosen, consider the different types of partnering arrangements that may be suitable and choose a preferred option. Part 3
Undertake selection process to choose preferred partner. Part 3
Negotiate with preferred partner and finalise contract documentation that describes principal contract management arrangements that will be required throughout the life of the contract. Part 4
At the end of the contract term, implement arrangements for treating assets and continuing services, if relevant, and review outcomes against objectives of entering into the contract. Not covered in this report

1: Ownership may not necessarily be transferred – for example, the private sector party may be granted a lease or licence to occupy a property.

2: The scope of a project alliance may include meeting consultation requirements and obtaining consents. There is also evidence of other jurisdictions using project alliances for contracts for services (see paragraph 3.9).

3: Procurement – A Statement of Good Practice, June 2001.

4: An early justification for entering into these types of arrangements in Australia and the United Kingdom was to achieve “off balance sheet” financing. However, both these jurisdictions now consider that value for money, rather than the accounting treatment, should be the most compelling justification (see Appendices 6 and 7).

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