In the past few years, Australian governments (both state and federal) have considered the use of both public and private sector capabilities in infrastructure development. This is most clearly exemplified in the growth of Public Private Partnerships (PPP), a term which has migrated to Australia from the United Kingdom. While the label may be relatively new, the employment of the private sector in the financing and delivery of Australian infrastructure services is well-established. Federal and state governments are aware of the need for a coordinated policy harnessing private involvement in further development.

THE Australian understanding of such a "partnership" is probably unique in that it entails not only an arrangement between public and private sectors for mutual benefit, but an "alliancing" approach to infrastructure delivery consistent with the dictates of efficiency and probity.
PPPs in Australia may either be identified with certain contracting structures designed to utilise private financing for infrastructure projects, or to engage the private sector in publicly financed infrastructure projects. This article gives a brief overview of the Australian experience in relation to these.

Build, own, operate and transfer (BOOT) projects, which have been employed since the 1980s, are currently seen as the predominant contractual structure for Australian PPPs. Schemes such as the Sydney Harbour Tunnel and urban tollways in Sydney and Melbourne involve a familiar model: the private financing and construction of a facility which is owned and operated by the private investor for a lengthy concession period, at the end of which the asset is transferred to the state. The government can retain ultimate control of the asset while transferring operational risks to the private sector. New forms of PPP which involve private financing (known as Private Financing Initiatives (PFIs)) generally expand or adapt the Build Own Operate Transfer (BOOT) legacy.
The Victorian Government is at the forefront in encouraging private investment in public infrastructure projects. In its Partnerships Victoria initiative, the Victorian Government has adopted an "optimal risk allocation" approach which presupposes that the private party will bear all risks associated with design, construction and operation.
In a similar vein, consultations between the New South Wales Government and the private sector led to the NSW Government’s publication of a Green Paper - Working with Government, in November 2000. The Government proposes to develop a comprehensive PPP policy for the delivery of public infrastructure services which will optimise financial arrangements and planning. The Victorian and New South Wales applications of PPP contracting structures are already encouraging projects in the transport and water sectors and are inspiring other States to follow suit.

A further example of a PFI method used in Australia is the operating franchise, which has been adopted by State governments as an alternative to selling off existing infrastructure. Private investors purchase rights to the ownership and operation of a pre-existing public facility for an agreed concession period, during which revenue goes to the investors. The most sophisticated franchise model adopted to date has been the rail franchises let by the Victorian Government in 1999, which were used to capture private sector skills and efficiencies without locking in a single operator in perpetuity. Franchisees in turn receive financial incentives from the state where pre-defined levels of operational performance are exceeded.

While the PPP methods described above involve private financing, it is generally acknowledged in Australia that "PPP" incorporates delivery methods which, although purely publicly funded, establish a close working relationship between public and private sectors.
Thus, the well-established Design, Construct and Maintain (DCM) contract can be considered a PPP where it is used in the case of a private contractor delivering a public facility and then maintaining it for a significant period of time. An example of a DCM PPP is the private provision and maintenance of the next generation of rolling stock for the NSW State Rail Authority.

Even more illustrative of the partnership between public and private sectors is the use of "alliancing" in the provision of infrastructure. A form of "relationship contracting", alliancing seeks to revolutionise the often confrontational and counter-productive relationships which develop between owner and contractor. It does this by formally aligning the commercial interests of the parties, and by having the parties "contract away" most rights to litigate or arbitrate a dispute. Parties are forced to resolve differences collaboratively, and non-owner parties obtain a profit as a share of savings made against the target price, and as bonuses awarded for outstanding results as against performance benchmarks.
Alliancing is especially attractive to government in the delivery of specific infrastructure projects as it is tailored to the achievement of the owner’s special objectives. For instance, the Northside Sewerage Tunnel in New South Wales was a successful project alliance for the Sydney Water Corporation (SWC). Project alliancing was deemed the method best able to ensure completion before the Sydney 2000 Olympic Games (SWC’s overriding objective), whilst offering flexibility in design.
Strategic alliances may present a more suitable delivery option when contracting for the maintenance, operation or upgrade of existing infrastructure. These are long-term arrangements for the outsourcing of services on a cost-plus basis with commercial drivers facilitating meetings of the government’s objectives. Examples include the Infrastructure Works and Maintenance Services Providers contracts let by the NSW Rail Access Corporation.

Private sector involvement in the provision of infrastructure is well established in Australia. Bearing in mind that private financing may not always be appropriate for the individual project, the Australian experience with PPPs indicates that federal and state governments will continue to look for innovative ways to collaborate with the private sector in the financing, delivery and management of public facilities.

Doug Jones & Frank Bannon
Clayton Utz,
Solicitors, Sydney,
Tel: +612 9353 4221