The Government has today released a refreshed Public Private Partnership (PPP) framework that provides a blueprint to the market outlining how the government will approach future PPP transactions.
Infrastructure Minister, Chris Bishop said refreshing New Zealand’s PPP model was an important part of the Government’s plan to deliver, maintain, fund, and finance infrastructure in smarter ways, and attract international capital and expertise to New Zealand projects.
“Considering the use of PPPs is a Government priority, and was committed to in the ACT-National Coalition Agreement,” said Mr Bishop.
Parliamentary Under-Secretary, Simon Court, has been overseeing the work being led by the Infrastructure Commission.
“There has been extensive engagement by the Commission with Treasury, public sector agencies, and the broader infrastructure sector. I am also pleased that Labour Spokesperson for Finance and Infrastructure Hon Barbara Edmonds has written a foreword for the document,” said Mr Bishop.
“PPPs in New Zealand are not new. Eight PPP projects have been developed since 2011, including three correctional facilities, two Roads of National Significance state highways, and three bundles of primary and secondary schools. The service delivery outcomes achieved through these projects to date have been positive, in many cases outperforming similar projects delivered using other methods.”
Standardised or modular designs from PPP projects and asset management lessons have also begun to be implemented elsewhere, he said.
“PPPs, when done well, drive better performance because they have strong contractual incentives. Compared to traditional approaches, projects using a PPP model will have a greater focus on whole-of-life outcomes, meaning projects are more likely to be well planned, delivered on time and on budget, provide high-quality services, and be maintained throughout their lifespan,” said Mr Court.
“Some of our deteriorating education and health assets provide a stark illustration of the consequences of neglecting maintenance. PPP asset management discipline delivers the long-lived, reliable infrastructure the likes of our educators and health professionals deserve, and frees them up to focus on what they do best.”
He said creating new PPP opportunities will be important for attracting high-calibre international infrastructure expertise and capability to help deliver the significant pipeline of infrastructure projects needed to grow the economy and improve New Zealanders’ prosperity.
“New Zealand’s PPP approach has a strong focus on greater outcomes rather than lower cost. This is achieved through the strict use of a ‘willingness to pay’ Affordability Threshold, based on the modelled net present cost of delivering the same service outcomes using non-PPP delivery methods. This means that any PPP proposal is expected to and must be able to outperform the counterfactual of non-PPP infrastructure delivery for a commensurate net present cost. This will continue in the new framework,” Mr Bishop adds.
There are several key elements in the refreshed Blueprint for PPPs:
- Risk transfer – an expectation that risks should sit with those best-placed to address them, recognising wholesale transfer of risk to private partners has undermined private appetite for new projects.
- Bid cost recognition – guidance for agencies on how to lower the time and cost burden involved in bidding to enhance competitive tension.
- Collaborative tendering – enhancements to the Interactive Tender Process to enable bidders to work better with the client to develop solutions that better fit the ask.
- Affordability Threshold and Public Sector Comparator – provision for a more reasonable non-PPP delivery comparison, and for reasonable price validation, acknowledging previous examples of unreasonable estimates.
- Claims and dispute resolution – an improved process for managing disputes to combine with other changes aimed at reducing dispute incidence (e.g., better attribution of risk, enhanced collaboration, and a more realistic affordability threshold) to drive better relationships and outcomes.
- Crown resourcing and capability – a recognition of the importance of having an informed and engaged client and robust centralised PPP capability for good project outcomes.
Infrastructure New Zealand has welcomed the release of the framework.
“It’s good to see the fast pace the Government has set on this,” says Chief Executive Nick Leggett (pictured, right).
“We need to get projects going, and in an environment where the Government doesn’t have much coin in its back pocket, PPPs make absolute sense for certain projects.”
Mr Leggett says the framework sets out the right incentives and accountability mechanisms to enable PPPs to play an important role in meeting New Zealand’s future infrastructure needs.
“To overcome our infrastructure challenges New Zealand must embrace private sector expertise across the design, construction and management phases of our assets.”
“Our spending on infrastructure is comparable with other developed economies, but the value we get from that investment is in the bottom 10% of the OECD. PPPs are a key tool by which we can improve this.
“It is pleasing to see the Government take on board a number of the concepts and recommendations developed by Infrastructure New Zealand’s Funding & Financing Working Group to better refine the PPP model for New Zealand’s circumstances.
“Assessing whether a PPP offers value for money over other delivery methods, ensuring risk is more appropriately allocated and providing for increased innovation, including through the bundling of design, construction and management requirements, are features of the Framework that the industry identified as driving better procurement decisions and ultimately leading to improved project outcomes,” he said.
The Blueprint for Future Transactions can be found here.
