Auditing Public private partnership

1
Auditing Public private partnership

• H.B. Kramer NCA

2
PPP in the Netherlands

• many different forms
• bad experiences in the past
• no lessons learned from other countries (e.g.
  USA)
• not always auditing by NCA allowed
• some big DBFM contracts now

3
Focus audit

• Different from NAO
• NCA focus on the policy of using PPP
  Decisionmaking, added value, transparancy, costs,
  supervision, information to parliament, effects
• NAO management, good practices, coördination of
  activities, personnel

4
Focus audit

• different focus different products
• explanation legal setting different, need for
  consensus with auditee

5
High Speed train infraprovider (HSL)

• casus part of the European network, track
  Rotterdam-Belgium.
• DBFM-contract, new instruments
• - Public private comparator
• - Public sector comparator

6
HSL

• First question why PPP?
• Who decides? On what information? Is that
  information correct?
• What are the advantages of a PPP in this specific
  case? What is the added value cheaper? better
  public performance? public-private chemistry?

7
Public private comparator

• Quick scan examines financial viability and
  advantages of PPP over traditional public
  execution of the project.
• (HSL no delays 99 private sector, versus 97
  public sector)
• Interesting point if PPP is more expensive but
  gives better performance that is an important
  element in decisionmaking.

8
Public Private Comparator (PPC)

• Reliability of the PPC is not very high
• Quick scan but go - no go was / (is always?)
  made on the basis of the PPC.
• Auditing it try to find out on what facts it is
  based, who made it, were there drafts? Always
  look for authentic, original material, gather it
  yourself.
• Look for information on added value and its
  influence on the decisionmaking.

9
Public Sector Comparator (PSC)

• Benchmark idea OK
• Complex calculation about costs to make by the
  State over 30 years including Designing,
  Building, Financing and Maintaining, including
  (all) the risks of the HSL
• All brought back to one figure
• Idea if tenders are higher NO PPP!!!

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Auditing the PSC

• there should be only one PSC
• what is included? what not?
• no adjusting, scope change or extra bandwith
  of risks should be added
• highly manipulative if biddings are higher look
  careful to changes made in the PSC

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Audit findings HSL PPP

• decision for PPP was made even before the PPC
• use of PPC and PSC only to convince parliament
  (no way back possible without high costs)
• the outcome of the PPC and PSC had to be positive
  

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What went wrong with the PSC

• biddings were 50-80 higher
• three new/adjusted PSCs were made scope change,
  extra risks added, risk-changes, bandwith added
  extra age, so that in the end PSC was 5 higher
  than lowest bidder.
• 2/3 of the PSC are calculated risks

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What went wrong with the PSC (2)

• still uncomparable age of quality delivered was
  different
• so called sunk costs not added to bidding so
  advantage was far less than 5-10, high learning
  costs
• shift from costs from rails to foundation may
  cost far more
• NCA 1.2 advantage utmost

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Other remarks

• risks on integrity
• contract (English contract under Dutch legal
  system), adjusting contract impossible
• risks remain high for the State (risk allocation
  essential)
• information parliament vs confidentiality
  negotiations with bidders, how to keep personnel
  of good quality
• legal risks depend on object (railway track),
  discussion on quality one bolt multiplies
  enormous.

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Conclusion

• if the added value is calculated in money beware
  motives maybe to buy now and pay later. Influence
  of parliament will be low in the future. Focus
  audit on calculation.
• if the added value is in terms of public service
  political decision. Focus audit on implementation
• Always look at risk allocation