4 minute read 6 Nov. 2020
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Where to now for the PPP Model?

Despite PPPs having widespread use and many successes to date, the continuing success of any procurement model is dependent on learning from the past and evolving for the present and future.

The COVID 19 pandemic has impacted the world on a previously unimaginable scale. Infrastructure investment is being viewed as an important stimulus tool by governments to boost economic activity and enhance future productivity.

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The financial costs to governments of the COVID 19 pandemic are likely to be at record levels and when this is considered in light of committed infrastructure investment, the Public Private Partnerships (PPP) model is an option to manage the financial risk in Australia and globally. 

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The financial costs to governments of the COVID 19 pandemic are likely to be at record levels and when this is considered in light of committed infrastructure investment, the Public Private Partnerships (PPP) model is an option to manage the financial risk in Australia and globally.

Infrastructure projects have become significantly larger in recent times, particularly in the transport sector i.e. Sydney Metro and Melbourne Metro Tunnel. Projects with capital costs in excess of $10 billion have become more common. These mega projects that are being delivered as PPPs are highlighting new challenges that weren’t evident in previous projects, including:

  • Mega transport projects are exposed to significantly greater risk profiles, and in particular ground risk, planning and interfaces with other projects being delivered at the same time and the network
  • Flexibility for governments to make cost efficient changes both during construction and also into the future operations
  • Highly complex contractual arrangements that are being challenged in delivery

When things don’t go as anticipated it is all too easy to blame the procurement model. But the truth is that no procurement model is really to blame for poor outcomes. The real challenge is matching the project to the best procurement model, recognising the project’s risk profile, business characteristics and associated market interest and capability. It is also essential to match the project with the requisite skills, practical experience (including post procurement), methodologies and team culture.

The next evolution of the PPP model is upon us in Australia and New Zealand and solutions to the challenges facing the model need to be addressed to ensure that it continues to deliver successful outcomes and remains a viable option for governments in tackling the infrastructure gap. These include:

  • Addressing market capability and capacity
  • Robust project design and development
  • Catering for flexibility
  • Genuine collaboration
  • Appropriately allocating risk
  • Refreshing the PPP model procurement process
  • Optimising packaging solutions

Summary

The PPP model has served us very well in the procurement of infrastructure, including through the Global Financial Crisis. However, we are on the cusp of a second evolution. The PPP model faces challenges given the mega projects now being delivered and solutions are needed to ensure that the model continues to deliver successful outcomes and remains a viable option for governments in tackling the infrastructure gap, particularly in light of significant infrastructure stimulus programs being implemented by governments to tackle COVID 19. 

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