Auditing Public private partnership H. B. Kramer auditing PPP NCA 6 -8 november 2006
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 2 auditing PPP 6 -8 november 2006
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 3 auditing PPP 6 -8 november 2006
Focus audit • different focus: different products • explanation: legal setting different, need for consensus with auditee 4 auditing PPP 6 -8 november 2006
High Speed train infraprovider (HSL) • casus: part of the European network, track Rotterdam-Belgium. • DBFM-contract, new instruments: • - Public private comparator • - Public sector comparator 5 auditing PPP 6 -8 november 2006
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? 6 auditing PPP 6 -8 november 2006
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. 7 auditing PPP 6 -8 november 2006
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. 8 auditing PPP 6 -8 november 2006
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!!! 9 auditing PPP 6 -8 november 2006
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 10 auditing PPP 6 -8 november 2006
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 11 auditing PPP 6 -8 november 2006
What went wrong with the PSC • biddings were 50 -80% higher… • three new/adjusted PSC’s 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… 12 auditing PPP 6 -8 november 2006
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 13 auditing PPP 6 -8 november 2006
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. 14 auditing PPP 6 -8 november 2006
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 15 auditing PPP 6 -8 november 2006
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