What is a Public Private Partnership (PPP)?
A PPP is a long-term contract between the public and private sectors covering the financing, construction and operation of a public infrastructure and services. Full ownership of the public infrastructure remains with the public sector.
What are the benefits of PPPs?
PPPs allow large and complex projects to benefit from private sector innovation and funding which can increase certainty of delivery and drive better value-for-money. There are also savings to be had on all aspects of the project - design, build, maintenance and operational management. PPPs are typically used for large-scale infrastructure projects where risks can be effectively identified and transferred to the private sector. The NZ Transport Agency aims to use successful ideas and innovations that come out of the Transmission Gully PPP across other motorway projects and the wider transport network.
Why choose a PPP procurement model to deliver the Transmission Gully motorway?
The 27 kilometre Transmission Gully motorway project had the size and complexity, which made it a good candidate for a PPP. The project met the government’s value-for-money criteria, and offered opportunities for private sector innovations in design, construction, maintenance and operation that the NZ Transport Agency can then apply across the wider transport network. Specifically, this project has a significant number of structures and geotechnical challenges where private sector innovation can drive greater value for money than is possible by traditional public sector procurement. Financing and building Transmission Gully motorway as a PPP has allowed the NZ Transport Agency to move ahead with certainty to begin construction in 2014 and open the road by 2020, thus delivering the economic, travel and safety benefits to New Zealanders sooner.
Under a PPP, who will own the Transmission Gully motorway?
Full ownership of the Transmission Gully motorway remains with the public sector. While a private sector consortium will be responsible for financing, designing, building, maintaining and operating the motorway for up to 25 years, the motorway will remain a public asset – it is never owned by the PPP consortium.
Is there any difference between the PPP model used for the Transmission Gully project and that used on overseas PPP motorway infrastructure projects?
Many overseas PPP motorway infrastructure projects have passed demand (i.e. traffic) risk back to the private sector (i.e. revenue from tolls was used to pay for the private finance). However an availability PPP model was chosen by the NZ Transport Agency for the Transmission Gully project which means that the PPP consortium will be paid for constructing and keeping a safe road open and available to traffic. Payments are not linked to the volume of traffic using the road - with incentives for the private sector to achieve quality levels of service through commercially-incentivised performance targets.
How has value been achieved on the Transmission Gully project?
The PPP procurement process has seen a competitive tendering process which resulted in the net present contract price for the Transmission Gully project being less than if the project was procured through conventional means.
In addition, value for the project has also been achieved in many other ways:
- The Wellington Gateway Partnership has designed a motorway that is wider, straighter and safer than the Transport Agency’s previous scheme. The conditions of the PPP contract encourages the Wellington Gateway Partnership to continue to reduce safety risks once the Transmission Gully motorway is operational.
- The Wellington Gateway Partnership is commercially encouraged or incentivised to deliver consistent outcomes over the 25-year concession period. These include:
- High and sustained safety
- Reduced travel time
- Travel time reliability
- Route resilience
- High and sustained customer satisfaction
- Transfer of innovative solutions and better ways of working across the wider transport network.
Can you elaborate on how the Wellington Gateway Partnership will be encouraged to further minimise safety risks once the Transmission Gully motorway is operational?
The Wellington Gateway Partnership will be incentivised to continually invest in and adopt international best practice for the benefit of road users through the imposition of considerable financial penalties in the event that a safety issue is identified.
Are there any other incentivisation provisions in the PPP contract?
Yes. Under the PPP contract’s ‘Performance Regime’, the NZ Transport Agency’s quarterly payments to the Wellington Gateway Partnership are linked to the performance criteria which include:
- Minimising the time that the Transmission Gully motorway (or specific lanes) is not available, including measurement of the free flow of vehicles on the road.
- Service performance outcomes such as safe travel, the performance of key interchanges, environmental performance and customer satisfaction.
Are there any benefits from the Transmission Gully PPP project that can be applied to the wider NZ Transport Agency or local authorities’ roading network?
There are expected to be benefits to the wider transport network from sharing innovations applied on the Transmission Gully motorway. Examples of these include:
- New approaches to overall design and construction to optimise capital and operating costs, and incentives to incorporate ‘best practice’ throughout the life of the project.
- Developing a better understanding of whole-of-life risks, and appropriate allocation and management of these risks.
- Adoption of technology solutions such as the proposed weather monitoring, poor visibility detection and automated visual incident detection and seismic monitoring. This application of technology is expected to set a new benchmark in monitoring state highways of strategic importance.
How confident is the Transport Agency that the PPP contract is the best way to deliver the Transmission Gully project?
The Transport Agency is confident that the Wellington Gateway Partnership will deliver the Transmission Gully project outcomes in terms of safety, travel time, reliability of that travel time and customer satisfaction to a level equivalent, if not better than the Transport Agency could expect to deliver through traditional procurement, and at a reduced cost.
Will PPPs be used to deliver other key NZ Transport Agency projects?
The Transport Agency will consider PPPs for other projects that have characteristics such as large scale and complexity that will permit better value-for-money to be achieved by using a PPP approach. The Puhoi to Warkworth project north of Auckland was recently procured through a PPP process.
How are stakeholder interests catered for under a PPP procurement model?
The Transport Agency remains committed to the effective management of its relationships with stakeholders of the Transmission Gully project. That commitment does not change under a PPP and the Transport Agency is taking an active role in ensuring that the PPP consortium effectively manages stakeholder relationships throughout the duration of the PPP contract.
At what point can local businesses get involved in the PPP?
Local businesses are encouraged to approach the consortium and show interest in being involved in the project, as the consortium members may need to hire local people or acquire local services as part of the construction phase.