KEY POINTS:
The country's largest construction business has challenged the value of public-private partnerships.
Fletcher Construction says many projects are too small to make the method work and questions the costs involved.
Fletcher made a submission to a steering group established to examine options on the Transport Agency's $1.7 billion
Waterview project in Auckland.
The transport project is the last link in the Western Ring Route which will create an alternative motorway between Manukau and Albany.
Fletcher acknowledged that its experience in the area of PPPs was in Australia, and the market had not really developed in New Zealand.
The prospect of PPPs has been raised with this month's election of a Government keen on private sector support for a massive infrastructure spend which could amount to $70 billion in the next decade.
Bill English, the new Infrastructure Minister, said the Government was urgently bringing forward projects, such as housing and roading, but wanted the private sector to come forward with its own plans.
Mark Binns, chief executive of Fletcher Building's infrastructure division, said the comments made in the company's submission were still pertinent.
If the aim was to bring projects to fruition quickly, making them PPPs would be a retrograde step, as so much time is involved in setting up the legal framework between participants in the project, he said. He also questioned whether private sector funding would be viable in the current credit environment without Government guarantees, which nullified the transfer of risk to the private sector.
Some of Fletcher's biggest roading projects this decade have been building the $300 million Northern Busway and upgrading Grafton Gully and the Central Motorway Junction.
The submission said New Zealand was too small to make the formula work other than in a handful of projects.
"Fletcher Construction formed the view years ago that there were few roading projects in New Zealand that would have the traffic volumes to justify the full transfer of risk to the private sector," the builder said.
Sometimes benefits of transferring the risk of PPP projects to the private sector were illusory, it said, citing the British Government's bailout of Metronet, the private operator of the London Underground.
Binns suggested that if the transfer of risk was not complete, the true benefits of PPPs came down to an analysis of the funding costs, and there was a strong argument that the Government would be better off just raising debt, potentially through infrastructure bonds, to do the project using other traditional methods of contracting.
The builder also cited major "upfront paperwork and contractual costs" on PPPs, saying the time and cost involved in this phase was significant and tended to counter any savings in the design and delivery phase.
The steering group on the Waterview project was led by Sir Brian Elwood as an independent chairman and had representatives from the Treasury, Ministry of Transport, New Zealand Council of Infrastructure Development, Business New Zealand and the Auckland Chamber of Commerce.
The giant building firm, which has a $1.3 billion backlog of work, said few firms in New Zealand were large enough to bid on PPPs because the cost of bidding was significantly higher than on other forms of contract.
The risks assumed by contractors in the form of price and programme are significant, with large liquidated damages for time overruns. While large companies can price this risk, smaller companies cannot, Fletcher said.
It said its experience in Australia suggested that firms bidding for PPPs needed to win at least one in every three projects bid for, just to stay ahead of the costs.
While Fletcher has misgivings about the efficiency of the model in a New Zealand context, Binns said that if the Government wanted to adopt the model, the company would compete vigorously for projects.
He said he just trusted that the new Government would critically review the ability of PPPs as a procurement model to meet its policy objectives, including the need to bring projects to market sooner rather than later.
