How long until we see the rise of PPP contracts again?

It feels like some time ago since the 1990s when we saw the age where Public Private Partnership (PPP) contracts really take hold for major project delivery in Australia. A debate subsequently broke out regarding the extent to which the contract model resulted in lack of collaborative behaviour between the parties (and particularly between client and delivery entity) with the suggestion that a move back to more alliancing styles of contracting would “fix” the problem. My belief is that the contract model is not the problem, the industry’s “feast & famine” behaviour is what gets in the way of collaborative behaviour.

If we go back to consider the definition of PPP contracts, it covers a wide range of contract types, but they are differentiated by involving private capital in the investment. With the current era seeing the end of low interest rates, State Governments in Australia, particularly in NSW and Victora traditionally the major investors in infrastructure in Australia are receiving market signals that they are hitting the limits of their ability to fund existing debt in infrastructure and are loathe to stimulate a public debate about revenue raising (read tax increases). In this environment, major project expenditure is very likely going to be procured inclusive of private financing – assuming the Federal Government doesn’t step in and leverage the federal balance sheet. We are likely to see more of the approach adopted in NSW with the delivery of enabling infrastructure and other services for renewable power via private sector procured and financed Renewable Energy Zones (where private entities are being engaged to provide Renewable Energy Zone management services and funding).

It stands to reason that collaborative behaviour does not require a contact to drive it but is reflection of the parties intention in relation to the deal. That is, collaborative behaviour can occur regardless of the contract model. It is fair to say that selection of the contract model is important, in that if the parties sign up for the wrong contract model for the circumstance the inequitable results from application of the contract model can undo collaborative intentions of the parties.

So, our key industry challenge remains to resolve “feast or famine” behaviour the belief that we need to secure any opportunity when it’s available because the work is soon going to dry up. A great challenge for industry leadership to grapple with.

Peter Wilkinson - Director, Sam Wilko Advisory

Author of “The Steel Ceiling: Achieving Sustainable Growth in Engineering and Construction” ?Wiley, 2023