"We weren't in this to pay as little for an asset as possible or to solve issues in the procurement process around budget or timeliness," says Mules.
"We were in this to try to produce better social and economic outcomes over the life on an asset. The Government is going to pay the same for an asset as they would in any other event, but using the PPP model we can remove some of the risk from the taxpayer and ensure that the assets are producing the desired outcomes over their entire lifetime."
After successful tenders were awarded for a range of social infrastructure projects, the Government stepped up the scale and will use the PPP model to deliver the Transmission Gully motorway.
Payment for the $1 billion project will be made over 25 years, during which time the private partners will be responsible for running and maintaining the road. The amount of the payments will be determined based on an availability model -- taking into account how often the road is open for public use in addition to a number of other KPI's such as travel time.
"One of the key objectives of the programme was to introduce private sector efficiencies in a very transparent way, so that the public sector could learn from them. We are trying to apply the learnings from PPP and take them into more traditional procurement processes.
"Making use of whole of life asset management and costing practices, and learning how the private sector approaches that was a major factor, so the different departments could then take those learnings and multiply the effects across their portfolios.
"The objective was never to use the PPP programme for delivering everything or have the PPP programme exist on its own," says Mules. "This was always just designed to be one tool which can be used for procurement under the appropriate circumstances."
Fletcher Construction CFO, Carl Munkowits was a driving force behind the Secure Future Consortium - the successful bidders for the Wiri Prison PPP - the first prison to be outsourced to the private sector. He says the PPP framework is a big plus for driving future public infrastructure development.
"Accepting the premise that the Government can't afford to pay for everything that's needed right now -- the PPP framework is a good model in terms of a funding mechanism, because it brings together participants who want to play in this space for the long term.
"The really clever bit was the fact that, apart from the availability model, it was an outcome-focused approach. That was quite unique, and I think even the UK participants in the PPP market didn't quite get that either."
The construction of Wiri Prison was the first of the PPPs to get off the mark, Cabinet giving the stamp of approval to initiate the process back in 2010. Munkowits says it's been a positive experience for all involved so far, but keeping a steady flow of opportunities for private sector involvement will be key from the perspective of the private sector.
"We always said we would participate in this game, but it's all about deal flow when you're spending millions of dollars to put together a bid. You can't afford to keep losing bids; if you're not winning two in three or at least one in three, it's going to get pretty hard to take," he says.
"It certainly was a concern from a Fletcher perspective, because PPPs are very hungry on resources. When you've got the risk profile of a hard money bid, you really have to put a lot of time and effort into understanding the deal.
"There are not many players in a market of this size that can do that, and keep doing that. There are not many players in the Australian market that can keep doing it either."
In an effort to promote further competition and sustained interest, the Government is understood to be offering avenues for recovery of costs for unsuccessful bidders. That's an important factor, says Munkowits, who says Fletcher will continue to compete for PPP deals.
"We were a bidder for the Transmission Gully project and will bid in the Puhoi to Wellsford PPP. Now that we've actually gone through the process of bidding we can see value in the model -- and I think that being a significant player in the industry we can see the benefits for all. We would certainly be interested in pushing up the value chain a bit further, ultimately as an equity participant as well as a design-build contractor."
New framework
The NZ Treasury developed a new framework for public private partnerships after the National Government decided to explore alternate procurement methods for major infrastructure developments in 2010. Expanding the scope of traditional PPPs, Treasury developed a framework for exploiting opportunities for the private sector to become involved in asset procurement.
It's possible the PPP framework will change if the Government changes after the September 20 election.
