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Delivery mechanisms

Governments must continually strive for more effective and efficient methods of delivering on objectives. This allows more and better publicly funded goods and services to be produced and delivered, or alternatively to maintain existing levels of service for lower taxes.

Governments have entered into a wide range of arrangements to achieve their objectives. Objectives can be met by regulating private provision, purchasing services, funding or subsidising private providers or directly using public resources. Each of these has a differing set of relative costs and benefits.

Direct provision may require the acquisition of capital assets. This can be achieved through purchase, renting or leasing, or via a public private partnership (PPP) - see Box 5.1 for further detail.

Ownership can provide greater certainty of supply and control. For example, specialised hospital facilities are unlikely to be available for lease when needed. As such, ownership of these facilities may be more desirable. However, ownership is not without risk, as assets can become surplus to need over time. For example, in many provincial towns, the Crown owns social houses and school buildings that are no longer required due to the impacts of demographic change. Ownership also reduces opportunities for savings from utilising contestability between suppliers.

Ownership requires ongoing discipline to ensure its benefits continue to accrue to citizens. This is not consistently present in the public sector. Therefore, ownership should not be seen as the default option for attaining value for money from government assets. Alternative delivery methods can have benefits over ownership. But to assess this requires comprehensive evaluation of the relative costs, benefits and risks.

For the Crown, the Better Business Case methodology, including cost benefit analysis, is the primary tool for assessing the best option for delivering a government objective. However, the Crown needs a further framework for determining the best value portfolio of investments across competing government objectives.

Box 5.1 - New Zealand's approach to PPPs

What are PPPs?

A PPP is a long-term contract between a private sector provider and the Crown for services and typically involves constructing or enhancing a specialised asset. PPPs bring together a range of services under a single contract for the design, construction, finance, maintenance and operation of an asset.

In a PPP, the Crown is buying outcomes, not inputs, and only pays for services when they are available and delivered to pre-agreed performance levels. This allows the private sector provider to make decisions about the appropriate mix of inputs to best meet the outcomes sought by the Crown.

PPPs are common abroad but some have different drivers. The Australian PPP model includes a focus on reducing the whole of life cost of infrastructure investments, while in Canada PPPs are used to incentivise the delivery of a project on time and on budget.

PPPs in New Zealand

In New Zealand, the aim of PPPs is to improve the service outcomes from public sector investment for the same or less cost than traditional procurement or government provision. Projects that make good PPPs:

  • have significant opportunities to improve service outcomes and reduce whole of life asset management costs
  • have real opportunities for performance risk transfer
  • are part of a larger portfolio that can benefit from lessons learned from the private sector, and
  • require significant scale in order for benefits to outweigh additional transaction costs.

The New Zealand model seeks to hold the PPP contractor to account for the effectiveness of the asset or services being provided, rather than simply measuring whether or not they have been supplied. If suppliers do not deliver the required outcomes, their payments are reduced accordingly and their profit is at risk.

Under the New Zealand PPP model, the Crown retains legal ownership of the land and buildings used to deliver the services at all times. Examples of PPP projects that are in place are Hobsonville Point primary and secondary schools, and Wiri prison. PPP projects that are being progressed are Transmission Gully, Auckland East prison, and four new schools.

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