2.4  The value for money drivers

The value for money drivers of PPPs include:

•  sufficient scale and long-term nature. The project represents a major capital investment with long-term requirements;

•  complex risk profile and opportunity for risk transfer. There is more rigorous risk evaluation and transfer to the private sector of those risks it is best able to manage, including those associated with providing the specified services, asset ownership and whole-of-life asset management.

A key implication of risk allocation is that government payment begins only when the output specifications are achieved. In practical terms, this occurs when commissioning tests have been passed. Moreover, PPP projects involve government having access to facilities or services. Payment is conditional on the private party achieving key performance indicators and may be abated in the event of failure to deliver;

•  whole-of-life costing. There is full integration, under the responsibility of one party, of up-front design and construction costs with ongoing service delivery, operational, maintenance and refurbishment costs. This delivers improved efficiency through whole-of-life costing as design and construction become fully integrated up-front with operations and asset management.

•  innovation. As the PPP approach focuses on output specifications, this provides a wider opportunity to use competition as an incentive for private parties to develop innovative solutions in meeting these service specifications. Opportunities may include:

bundled services, through a package deal for all non-core services;

upgrades, of associated and complementary infrastructure; and

packaged information systems.

•  asset utilisation. Costs to government are reduced, through third party utilisation and through more efficient design to meet performance (e.g. service delivery) specifications;

•  better integration of design, construction and operational requirements. Ongoing service delivery, operational, maintenance and refurbishment responsibilities become a single private party's responsibility for the length of the contract period; and

•  competitive process. The use of a competitive process helps to encourage the private party to develop innovative means of service delivery while meeting government cost objectives.

It should be noted that the accounting treatment of PPP projects is not a factor in the selection of the procurement methodology and is not considered a value driver.