Queensland’s Department of Education manages 2 PPP contracts, which have delivered a total of 17 schools, including Burpengary State Secondary College near Brisbane.
Queensland’s Department of Education manages 2 PPP contracts, which have delivered a total of 17 schools, including Burpengary State Secondary College near Brisbane.
Improving how we deliver this “mega-infrastructure” is, however, only one part of New Zealand’s infrastructure challenge. Just as important is how we improve the delivery of smaller-scale and community infrastructure, because assets on this scale have just as much impact on the lives and wellbeing of New Zealanders as multibillion-dollar highways do.
Consider, for a moment, the impact modern classrooms can have on a school’s ability to provide for the educational requirements of its students.
Over the last year or so Infrastructure NZ Zealand has been working alongside our members to refine the Public Private Partnership (PPP) model to ensure it can play an important role in delivering the future infrastructure our country needs.
Getting the PPP model right for smaller infrastructure builds is important because a large portion of the work needed to address our infrastructure deficit in the coming decades will comprise smaller projects, and the reality is we need to get a lot smarter about how we fund, build and maintain them.
Overseas, particularly in Australia, external partnerships with investors have brought forward investment in smaller infrastructure projects such as schools and community-based medical care.
They have also succeeded in bundling projects together to attract investment and achieve efficiencies through standardisation of design elements and whole-of-life procurement methodologies. This has created enviable efficiencies.
By contrast, in New Zealand, our infrastructure delivery efficiency ranks in the bottom 10% of OECD countries.
The demands on our infrastructure are also becoming more complex. An ageing population and greater demand for community-based care means the way we deliver health services is changing. Meeting population growth and delivering education services will require improved ways of delivering schools and other facilities.
Upcoming investment in the justice and housing sectors also provide significant opportunity for us to be smarter about how we meet the need for investment.
Infrastructure NZ’s Funding and Financing Working Group has proposed refining PPPs for small-scale projects up to $200 million using two community partnership models. These models recognise that smaller infrastructure projects carry different risks and require a reduced level of complexity to enable greater participation from the private sector.
These models allow for the flexibility to bundle projects together.
Delivered consecutively, school builds, for example, can standardise design elements across projects to reduce cost and time at each phase of the programme and through the life of the asset. Long-term agreements also allow for lessons to be incorporated in each subsequent project.
From the school’s perspective, less involvement in bespoke design for education facilities reduces the administrative burden and delivers improved value for money, leaving staff to concentrate on the important work of educating our students.
Martina Moroney.
PPP-Lite Model
For smaller core public assets such as education, community health and justice facilities, investment could be facilitated by the development of a PPP-Lite model that includes consecutive project bundling or the ability to add additional projects into the same project agreement over time.
The benefits of this PPP-Lite model for smaller, less complex projects are that they retain the whole-of-life procurement benefits and private sector delivery rigour of a PPP while simplifying contracting and increasing the participation of smaller local contractors.
The PPP-Lite model retains the basic structure of the PPP model. Government retains full ownership of the asset with a concession to be provided to the private sector for the development, maintenance and, in some cases, operation of the asset during the contract term, in exchange for a unitary charge or service payment.
Simplified procurement and project management approaches, with accessible and easier to understand key performance indicators would also reduce cost and simplify the process for Government and industry alike.
We have aimed to introduce flexibility in the PPP-Lite model by allowing for its application to either a single stand-alone project or a group of bundled projects, which would be delivered consecutively.
Consecutive delivery arrangements increase the accessibility of the contract to smaller contractors who may not have the workforce or balance sheet to deliver projects concurrently.
Though the PPP-Lite Model would not be suitable for all small-scale projects, it would be a useful complement to existing, traditional delivery methods.
Long-Term Service Agreement Model
A Long-Term Service Agreement (LTSA) model provides for an even lighter-touch approach for assets with both public and private characteristics. This could include flexibility around land and asset ownership, and delivery and operational requirements.
Local “health hub” developments, social and affordable housing and other quasi-public or mixed precinct projects are a good fit for this model. It is best employed when Government requires an asset and associated services to be built and provided but does not need to own or exercise day-to-day control.
The LTSA Model requires Government to be open to the private sector generating revenue from the asset and/or developing the asset as part of a mixed-use precinct. Government then commits to purchasing all or a significant portion of the services being provided for. This underpins the viability of the project.
Under an LTSA, assets are developed, and may be owned, by the private partner.
This typically occurs on private land, although Government could consider providing the land under a medium-term lease.
The private sector is responsible for delivering the asset and commencing operations by an agreed-upon date.
In Health, mixed-use health hub developments could be built and owned by the private sector but attract commercial revenue streams to support the development of larger and higher quality health precincts than the Government would be prepared or able to fund directly.
In Australia, similar models are being adopted in connection with hospital redevelopments and co-located research facilities, complementary commercial tenancies, and onsite health worker accommodation.
There are already successful examples of LTSAs being used to deliver public-facing assets in New Zealand. Social housing has been delivered under income-related rent subsidy contracts and student accommodation under long-term concession or lease agreements.
Refined PPPs and similar financing models, whether they be for large or small-scale infrastructure, aren’t a silver bullet that will automatically solve New Zealand’s infrastructure challenges.
However, we face a clear choice — continue with our traditional approach to infrastructure investment, allowing for further drift in how we fund and build infrastructure, or implement the necessary reform to encourage external partnerships, improve efficiency and ensure adequate investment over the life of our assets.
● Infrastructure New Zealand is an advertising sponsor of the Herald’s Infrastructure report.
