PPPs – Perfect or Pointless?

Public-private partnerships (PPPs) are agreements between governments and private entities, where the private firm bears risks associated with building infrastructure, and in return receives financial support from the government. [1] Governments have been encouraged to pursue PPPs as a cost-effective means of infrastructure, as large public infrastructure projects have traditionally been delivered over-time and over-budget. [2] Private firms enjoy the certainty that long-term PPP arrangements provide, limiting their exposure to market fluctuations. [3]

As demonstrated by figure 1, Australia is a world-leader in the employment of PPPs, with Victoria  being Australia’s pioneer in PPP implementation. [4] In 2000, the Bracks Government established Partnerships Victoria, a group which catalysed the development of PPPs. [5] In a recent episode of ESSA TV, Steve Bracks mentioned how private-sector financing allowed his government to deliver the infrastructure Victoria needed,  while private-sector expertise allowed projects to be completed more efficiently. [6] However, a 2007 study found issues in 7% of Australian PPPs, a higher rate than the international norm. [7] This begs the question – why do these problems arise if they are such an innovative method of infrastructure delivery?

Figure 1: PPP market maturity curve for the transportation sector.
Sources: Deloitte Research (2006); Public Works Financing (2008) (retrieved from Siemiatycki (2010))

A detailed study of 54 infrastructure projects found that PPPs outperformed traditionally procured projects. Traditional projects ran over budget 30.8% more than PPPs, on average, as substantiated by Figure 2. The study found that the larger the size of traditionally procured projects, the more likely these projects would be completed late. In contrast, there was no such trend for PPPs, thus the larger the project, the more advantageous the PPP. [8]

Figure 2: Comparison of project outcomes: contractual commitments to actual final
Source: Raisbeck et. Al (2010)

Given the superior performance of PPPs, why are some governments and academics still wary of such agreements? Firstly, there is a mismatch between public and private interests – governments want to maximise public utility, while private firms want to maximise efficiency and profit. To resolve this, PPP contracts now stipulate precisely the firm’s duties, to ensure the public aren’t cheated in the pursuit of profit. [9] Further, PPPs are still managed largely at a state level, with Victoria, New South Wales and Queensland having their own infrastructure bodies, despite the existence of the nation-wide Infrastructure Australia. [10] [11]

Additionally, Siemiatycki (2010) found PPPs to be quite successful in the short-term, however the same success was not reflected in the long-term, with lawsuits emerging and noncompetition clauses limiting government flexibility. Siemiatycki proposes that PPPs be evaluated with nine questions to address both their short and long-term fallout. The Australian PPP in his study, Sydney’s Cross City Tunnel, failed in addressing over three-quarters of these questions. [12]  The tunnel’s contract included a private  amendment, which allowed the consortium to charge higher tolls than had been declared, betraying the public’s trust. [13] This is by no means unique to the tunnel – hidden terms can be prevalent in PPP contracts, such as a monopoly over future repairs and guarantees against competition. [14]  Another betrayal of the public’s trust was a revelation that the consortium indirectly paid the government to conduct road closures and detours, directing traffic into the tunnel and boosting their profits! This led to negative perceptions of the tunnel, far fewer users than expected and ultimately the consortium going into receivership. [15]

Although portrayed as more cost efficient than traditional projects, there are several reasons for the sub-optimal cost-efficiency of PPPs, including corruption. The traffic funnelling associated with the Cross City Tunnel is one arguable example of corruption. Further, there are plenty of dishonest accounting loopholes associated with PPPs. For instance, private companies borrow money at low interest rates from governments to fund infrastructure, money that does not need to be repaid unless a certain return is reached. When governments guarantee extremely high rates of return on infrastructure, they end up practically funding the infrastructure anyway by paying firms when these rates are not met by public use. [16] 

PPPs are an efficient means of infrastructure delivery, but they could be optimised with a few key changes. Greater communication between state and national bodies, community engagement and transparent contracts are a simple start. Likewise, the infrastructure’s future use should be forecast by an independent body, with this forecast also limiting the rate of return that the government can guarantee. Levitt and Eriksson (2016), suggest that for PPPs going forward, a non-partisan, expert panel should guide the government’s selection of infrastructure projects for development. The PPP contract, with a clear outline of responsibilities, should then be agreed upon by the government and private entity. As the project is undertaken, the government should review its progress consistently for an optimal outcome to be achieved. This monitoring should continue after the project has been delivered, to analyse the firm’s service delivery and their maintenance of the infrastructure. [17] Likewise, Majamaa et al. (2008) also propose a shift in thinking by turning PPPs into PPPPs – public-private-people partnerships. The public are both customers of the government and the private firm, through infrastructure use, so it only makes sense to embed them in the process. This will make sure that adequate focus is placed on the relationship between the private service provider and the consumers, potentially resulting in a more flexible provision of services to reflect shifting demographics over time. [18]  A well-structured combination of these ideas, along with the changes mentioned above and Siemiatycki’s evaluation model, could optimise PPPs and ensure the most efficient delivery of future infrastructure for Australia.

Australian governments are proceeding full-steam-ahead with PPPs, with Victoria emerging now as a world-leader. Whilst there are many future possibilities, Australian governments should ensure that they optimise the governance, implementation and accountability of PPPs, to ensure that, regardless of how they are employed, they’re as efficient as possible.





[1] English, L. M. (2007). PERFORMANCE AUDIT OF AUSTRALIAN PUBLIC PRIVATE PARTNERSHIPS: LEGITIMISING GOVERNMENT POLICIES OR PROVIDING INDEPENDENT OVERSIGHT?. Financial Accountability & Management, 23(3), 313-336. doi:10.1111/j.1468-0408.2007.00431.x

[2] Ibid

[3] Malone, N. (2005). The Evolution of Private Financing of Government Infrastructure in Australia—2005 and Beyond. Australian Economic Review, 38(4), 420-430. doi:10.1111/j.1467-8462.2005.00385.x

[4] Ibid

[5] English, L. M. (2007). PERFORMANCE AUDIT OF AUSTRALIAN PUBLIC PRIVATE PARTNERSHIPS: LEGITIMISING GOVERNMENT POLICIES OR PROVIDING INDEPENDENT OVERSIGHT?. Financial Accountability & Management, 23(3), 313-336. doi:10.1111/j.1468-0408.2007.00431.x

[6] ESSA – Economics Student Society of Australia. (2017, July 24). ESSA TV Ep 4: The Hon Steve Bracks AC on Employment, Infrastructure and more! [Video file]. Retrieved from https://www.youtube.com/watch?v=1YbEdfD6VOo

[7] Johnston, J. (2010). Examining ‘Tunnel Vision’ in Australian PPPs: Rationales, Rhetoric, Risks and ‘Rogues’. Australian Journal Of Public Administration, 69S61-S73. doi:10.1111/j.1467-8500.2009.00660.x

[8] Raisbeck, P., Duffield, C., & Ming, X. (2010). Comparative performance of PPPs and traditional procurement in Australia. Construction Management & Economics, 28(4), 345-359. doi:10.1080/01446190903582731

[9] Levitt, R., & Eriksson, K. (2016). Developing a governance model for PPP infrastructure service delivery based on lessons from Eastern Australia. Journal Of Organization Design, 5(1), 1-8. doi:10.1186/s41469-016-0009-3

[10] Ibid

[11] Johnston, J. (2010). Examining ‘Tunnel Vision’ in Australian PPPs: Rationales, Rhetoric, Risks and ‘Rogues’. Australian Journal Of Public Administration, 69S61-S73. doi:10.1111/j.1467-8500.2009.00660.x

[12] Siemiatycki, M. (2010). Delivering Transportation Infrastructure Through Public-Private Partnerships: Planning Concerns. Journal Of The American Planning Association, 76(1), 43-58. doi:10.1080/01944360903329295

[13] Ibid

[14] Murray, C. K., & Frijters, P. (2017) GAME OF MATES, HOW FAVOURS BLEED THE NATION. Brisbane, Australia: Cameron Murray.

[15] Siemiatycki, M. (2010). Delivering Transportation Infrastructure Through Public-Private Partnerships: Planning Concerns. Journal Of The American Planning Association, 76(1), 43-58. doi:10.1080/01944360903329295

[16] Murray, C. K., & Frijters, P. (2017) GAME OF MATES, HOW FAVOURS BLEED THE NATION. Brisbane, Australia: Cameron Murray.

[17] Levitt, R., & Eriksson, K. (2016). Developing a governance model for PPP infrastructure service delivery based on lessons from Eastern Australia. Journal Of Organization Design, 5(1), 1-8. doi:10.1186/s41469-016-0009-3

[18] Majamaa, W., Junnila, S., Doloi, H., & Niemistö, E. (2008). END-USER ORIENTED PUBLIC-PRIVATE PARTNERSHIPS IN REAL ESTATE INDUSTRY. International Journal Of Strategic Property Management, 12(1), 1-17. Retrieved from http://www.tandfonline.com/