Auditor-General's overview

Managing the implications of public private partnerships.

There has been a lot written internationally about public private partnerships (PPPs). Much of this has focused on the upfront structural and contractual arrangements involved, which are central to organising the process and the parties. There have also been many appraisals of PPP projects but their findings are highly specific to particular countries, remarkably polarised, and, taken as a whole, inconclusive.

There has been less focus on understanding the diversity of the approach, the implications for innovation, and what is needed to manage the effectiveness and efficiency of an ongoing programme of PPPs.

Recent events have tested how effective and efficient PPP programmes are. Reports from the United Kingdom's House of Commons Treasury and Public Accounts Committees on Private Finance Initiatives (PFIs are a type of PPP) recognise the added rigour that comes from relying on the private sector to efficiently finance PFIs and manage risk from PFIs. However, these reports also note that "At present, PFI deals look better value for the private sector than for the taxpayer"1 and that, within the current environment, the assumed private sector efficiencies may not be compelling and until they are, PFIs should be used "as sparingly as possible".2

The global financial crisis has taught us that, ultimately, the fortunes of the public and private sectors are mutually dependent. This is also the case with PPPs, the success or value of which depends on whether each sector has the capability, capacity, and institutional structures to support and sustain the venture, the participants, and the process.

Supporting the environment for public private partnerships

In line with the Government encouraging agencies to be innovative in delivering public services effectively and efficiently, it has indicated that it wants to use PPPs as an option to help build infrastructure.

The work of the Treasury's National Infrastructure Unit to marshal expertise and needed resources provides good support for these new central government PPP initiatives. Appropriately, the work, supported by two pilot PPP projects, has focused on developing specific policies, governance, and structures to help achieve the Government's strategic objectives and support the growth of the PPP market.

Part 4 of this paper summarises a review of the PPP environment. It shows that, although the use of PPPs is maturing, a sound platform for an ongoing programme of PPPs still needs to be built. There remain:

  • limited understanding in wider stakeholder and community groups;
  • only partial guidance and support for local government;
  • fragmented public sector skills, knowledge, and information flows;
  • limited diversity in the capital markets and funding base; and
  • a lack of some domestic private sector expertise and capability.

If more PPPs are entered into, careful attention is needed to ensure that innovation continues to be encouraged and the challenges and opportunities that these partnerships present are fully understood, managed, and accounted for. For the public sector, this means broadening oversight and control of the PPP programme to ensure that the public's interest is effectively represented, supervised and, ultimately, satisfied.

Along with managing the risks identified in my Office's 2006 report, Achieving public sector outcomes with private sector partners, and informed by the observations of my Auditor-General colleagues from other jurisdictions, I consider that:

  • public entities involved in PPPs must:
    • properly understand and manage these partnerships strategically, tactically, and operationally; and
    • establish and maintain good ongoing relationships and processes with stakeholder and community groups; and
  • central agencies should consider how best to:
    • provide more co-ordinated guidance and support throughout the public sector, particularly with monitoring and managing these partnerships when they become operational;
    • build a co-ordinated reporting strategy that provides regular and transparent performance information on the portfolio of PPPs; and
    • comment on, and manage if needed, the strategic, sector-wide, issues that could affect the PPP programme, such as perceived limitations in local funding markets and the lack of domestic private sector expertise.

I hope that this discussion paper helps readers to understand the opportunities and challenges that a programme of PPPs brings to the public sector, and encourages discussion and informed debate about that programme. I thank Deloitte for its contribution to this paper.

Signature - LP

Lyn Provost
Controller and Auditor-General

10 November 2011

1:, page 3.

2:, page 3.

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