Academic journal article The Economic and Labour Relations Review : ELRR

Developing an Analytical Framework for Analysing and Assessing Public-Private Partnerships: A Hospital Case Study

Academic journal article The Economic and Labour Relations Review : ELRR

Developing an Analytical Framework for Analysing and Assessing Public-Private Partnerships: A Hospital Case Study

Article excerpt

Introduction: Understanding Public-Private Partnerships

Public-Private Partnerships (PPPs) (1) are public procurement policies which involve the private sector providing services that are traditionally the responsibility of the government (Broadbent and Laughlin 2004: 4). Infrastructure and fiscal pressures continue to make such arrangements attractive to governments, so it is timely to take stock of their performance. This article revisits an early experience of PPPs in Australia. It examines the real drivers of the first PPP experiment in the health sector in the state of New South Wales--the Port Macquarie Base Hospital (PMBH). It suggests that PPPs had two origins: a macroeconomic policy agenda, driven by a desire to control public debt, and an underlying ideological belief that efficiency would be enhanced by harness ing market competition through private sector bidding. This macroeconomic policy agenda was the main driver for the first generation of PPPs (Quiggin 2005), and remains a strong force motivating the current evaluation process adopted by public agencies. In practice, however, such efficiency gains are far from being automatic--the success of any PPP project depends on an integration of the goals of strategic, tactical and operational levels of authority. Evidence in this study is based on findings from government reports, information gleaned from news releases, and analysis from academic and professional literature. This study shows that ideology, resulting in a dominance of accounting concerns at the strategic level, and conflicting goals among the three levels of players, led to the ultimate failure of the Port Macquarie experiment.

The term 'Public-Private Partnership' is an umbrella term that encompasses a range of financial and organisational relationships between the public and private sectors (Edwards et al. 2004: 17). These relationships are regulated by a concession contract which enables a commercial organisation to finance, build and operate an asset for an agreed period. The concession contract can take many different forms. The typical forms used in Australia are detailed in Table 1.

The most popular form of concession contract is the DBFO (2) where the private sector is contracted to supply a bundled product. This product comprises two distinct elements. The first element is the creation of an asset: namely, the construction of physical infrastructure. Common examples are hospitals, prisons, roads and schools. The second element is the ongoing management of the asset once it is built (WWG 2006: 8). The role that the private sector plays in the second element varies depending on whether we are dealing with social infrastructure projects or economic infrastructure projects. Since the case study is about a hospital which falls under the social infrastructure category, discussion of the private sector's role in the second element is focused on social infra structure projects only. Social infrastructure projects, such as hospitals, schools and prisons, where government retains demand risk (NSW Treasury 2007: 1) are normally funded from State revenue (English and Guthrie 2003: 503). The private sector's operational role requires it to meet a specified threshold level of service that is suitable for achieving stated objectives (Grimsey and Lewis 2005: 346). The delivery of front-line services, such as clinical or educational services to the public, is not part of the DBFO contract (cf. Broadbent and Laughlin 2004; English and Baxter 2007).

In return for supplying finance to build the infrastructure, the public sector partner purchases asset-based services from the private provider through a stream of regular lease payments (Broadbent and Laughlin 2005: 75). The lease payments are structured into two tiers. The first tier involves pre-defined levels of direct government subsidisation to the private partner for the availability of the facility (English 2005). The second tier pays for partial provision of facility-based service (NSW AGO 1996; Shaoul 2005: 446) and is based on specified performance criteria (English 2005). …

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