A new tool for infrastructure delivery

Christoph Vojc
Insights Newsletter
16 February, 2024

New Zealand faces a significant challenge: building essential smaller scale infrastructure assets like schools, medical facilities and social housing. These initiatives may not be as grand as the likes of City Rail Link and other mega-projects, but they are equally (if not more) vital for our communities.

Our current approach to infrastructure development, however, is not cutting it for our “small infrastructure” needs. This is where a Community-Based Public Private Partnership (CBP3) approach can play a transformative role.

The last New Zealand Government relied on a centralised, overly bureaucratic procurement process where very little got done. In a nutshell, Government lacked the necessary delivery capability while much of the private sector’s capacity remained unutilised.

At the same time, the traditional Public Private Partnerships (PPP) model, while effective for large-scale projects, posed challenges for New Zealand’s smaller construction firms which struggled with the financial risk exposure and commercial complexities of PPP contracts.

Enter CBP3, a fresh framework offering a balanced solution. It involves private companies in building and maintaining small-scale infrastructure under simplified risk allocation frameworks that are less onerous than PPP risk structures - for example, by limiting the contractors’ exposure to penalties from construction delays that are outside their control, or insulating them from ground risk.

This reduces the burden of risk on these companies compared to what they would shoulder under traditional PPPs, making it more feasible for smaller firms to participate in public tenders. In addition, CBP3 projects work with more generic technical specifications than traditional PPP projects. This makes it more feasible for smaller construction companies that are generally less prepared to engage in complex projects to participate in these types of tenders.

Both factors translate into an increased level of competition while smaller projects get off the ground more easily and more fully utilise private sector delivery capacity - good for taxpayers and good for the end users of infrastructure.

Under CBP3, roles are clearly defined. The Government orchestrates and oversees, ensuring that projects align with national priorities. The private entities take on programme sponsorship and management, design, construction, and maintenance. This division of labour taps into the private sector’s efficiency, broad resources and innovation while maintaining governmental oversight and land ownership as the ultimate taxpayers’ custodian.

The UK’s Local Improvement Finance Trust (LIFT) initiative is a shining example of what CBP3 can achieve. As evidenced in at least two independent studies, it successfully rolled out numerous healthcare facilities across the UK, demonstrating the efficacy of this model in realising community-centric infrastructure.

A similar Australian model, the Housing Investment Fund (HIF) is currently delivering new social and affordable housing via partnerships with private sector developers, investors and construction companies based on essentially the same commercial framework as LIFT.

In a landscape in which small projects are as impactful as large ones, CBP3 offers a nuanced approach. It is about building a network of critical, community-based infrastructure in a cost-effective, timely manner.

It is time for New Zealand to embrace CBP3, ensuring our small-scale infrastructure needs are met, benefiting communities nationwide and ensuring essential services reach every corner of the country.

Christoph has 20 years of experience in infrastructure investment & financing, capital and policy advisory and worked globally on infrastructure initiatives in New Zealand, Australia, the Americas, Europe and the Middle East.

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