To PSP or not to PSP — joint venturing and collaboration with the private sector

LG Leader March 2019

With the increasing pressure on local government budgets and, at the same time, increased demand for quality services and facilities, we are seeing an increase in the number of councils that are working to identify opportunities for the private sector to become involved in developing a community facility or service, to the mutual benefit of the community and the private sector partner (“PSP”). This, of course, raises the question of what is the best way to encourage such participation by the private sector, and what structures are available to councils to facilitate it. On the other side of the ledger is consideration of any hurdles that may exist which might prevent such a project from proceeding.

As a starting point, it must be understood that providing a PSP with an opportunity to participate in a project like this should be undertaken having regard to a Council’s procurement policy, or its sale and disposal of land and assets policy (depending on the nature of the project). It may be that the PSP approaches the Council by way of an unsolicited bid, in which case the Council would need to also ensure that its unsolicited bids policy is complied with. Depending on the scope of the project, it might be necessary, or desirable, for the Council to consider a prudential report for the purposes of Section 48 of the Local Government Act 1999.

Planning for a project of this nature will ideally involve an identification of what the Council wishes to achieve and what assets, capabilities or other identifiable advantages it could contribute to the project. This will help the Council to determine the best structure for the conduct of the project with the PSP. It should be noted that the Local Government Act does not permit councils to participate in the formation of companies or to hold shares, so a company is unlikely to be the best vehicle for a project. As a result, we have advised councils on other potential structures, including unit trusts, unincorporated joint ventures and incorporated associations as vehicles for projects.

What is the best structure and vehicle for a project will vary from case to case, and may depend on accounting or other advice, or the particular needs of the PSP. It may be that after undertaking the relevant analysis, the best option for the Council is for the Council to undertake the project itself, or to outsource it to the private sector in a more traditional way. If that is the outcome, then it won’t be a loss – the Council will know that it is the best outcome for that project.

If you would like to discuss potential structuring of any upcoming projects or approaches from the private sector, please contact us on 08 8113 7110.