Managing Infrastructure Projects in Australia

Abstract

Public private partnerships (PPPs) have evolved as a strategic response to public sector resource deficits and for pooling technical, managerial, and financial resources from the private sector. In this article, we identify the key factors necessary for a collaborative management strategy and analyze the structural and operational issues of two infrastructure projects in Australia. This article explains how a PPP offers a different set of strategic options to deal with complex micromanagement issues and argues that the success of PPPs depends on the processes and actions used to cocreate managerial social capital, building mutual trust by sharing risks, responsibilities, and experience.

Keywords

collaborative management PPPs infrastructure Australia

Introduction

In recent decades, Australian governments have taken a strategic management approach to developing infrastructure projects, replacing the traditional public management approach. Recognizing the importance of public private partnerships (PPPs), which play an important role in building modern infrastructure, governments have taken aggressive initiatives. The assumptions in governments (e.g., Partnerships Victoria, 2009), and studies on PPPs overseas and in Australia (Brown, 2007; Maskin & Tirole, 2008; Newberry & Pallot, 2003; Nisar, 2007a; Yusuf, Wallace, & Hackbart, 2006), reveal that such partnerships increase the responsibility of the partners to share risks inherent in large infrastructure projects in particular, and in general serve to relieve pressure on government budgets. The failure of traditional public management approaches toward service delivery was identified as one reason for this increased collaboration between the public and the private sectors (Jorna, Wagenaar, Das, & Jezewski, 2010). Providing better and quality services has always been challenging for governments (Watson, 2003b); implicit, however, was the recognition that some managerial and technical competencies reside more in the private sector than in the public sector in addressing such challenges. PPPs, then, sought to access this expertise through an effective collaborative approach between partners. In recent years, therefore, governments have widely recognized the necessity of collaboration between the public and the private sectors through which they can share resources to solve the challenges that neither can address individually (Greasley, Watson, & Patel, 2008). This is a strategic response to resource dependency and for pooling technical, managerial, and financial resources as a means of reducing risks and transaction costs and entering into major projects. Governments’ dependency on markets has taken on a new dimension from dependency to moving toward collaboration through PPPs. This new strategic management approach improves efficiency, quality, and innovation to provide building blocks that cement collaboration between partners (O’Flynn, 2009).

The purpose of this article is to identify key factors necessary for a collaborative management strategy. It then investigates the structural and operational issues of two infrastructure projects in Victoria, Australia, to show how a better configured strategic management approach can be instrumental in implementing large infrastructure projects.

The first section of this article briefly reviews the literature to examine the factors that affect the nature of partnerships in managing PPPs. The second section presents the cases, the “EastLink,” and the “Southern Cross Station Redevelopment” projects. Finally, the third section discusses the findings to argue how collaboration as a strategic management strategy affected the outcomes of those two projects.

Literature Review

The 1970s saw a shift toward new public management (NPM), due to significant attention being paid to measurement of individual and organizational results (Bovaird & Loffler, 2003; Jorna et al., 2010). During this period, public management reforms were influenced by cuts in government growth and spending, moves toward privatization and adoption of a market-based approach for the delivery of public services (Hood, 1991). While NPM encouraged the need to cut costs within public service delivery, it was also important for the public sector to discover more cost-effective ways of providing public services efficiently. This was not achieved through NPM. Despite the fact that NPM enabled governments to rationalize public services and focus on outcomes, the approaches of NPM were not without weaknesses (Bovaird & Loffler, 2003). During the 1980s, fiscal crisis and the triumph of neoliberalism “running government business” and “more with less” became dominant themes (Jorna et al., 2010). Bovaird (2004) rightly argues that capital-starved public organizations had to select PPPs as an option for service development. Critics argue that NPM practices led to ineffectual governance, with symptoms that include unbalanced economic gains and chronic weaknesses in delivering public services but without paying much attention to political responsibility and accountability through transparency (Christensen & Laegreid, 2002). Moreover, clear transition from a hierarchical governance mode to market-led horizontal modes of service delivery was not easy within the existing public sector legal context (Bovaird, 2004). These weaknesses led to a further public sector reform movement during the 1990s that focused on public value rather than only on outcomes. Moore (2007) argues that, to address public value, public sector organizations need to orchestrate “a coherent conversation” to determine how to deliver public services. But this was not attainable without private sector collaboration. Although collaboration was at the center of NPM (Kettl, 2005), there has also been much pressure on governments to provide better services through increased participation of private sector and other nonstate agencies focusing on efficiency and cost cutting only. But creating a more market-based service delivery system for public services by reducing government costs due to budgetary constraints was not the main reason for collaboration (Ahadzi & Bowles, 2004; Alam, Teicher, & Van Gramberg, 2006; Joyner, 2007). There were other factors, such as attracting private sector technical and managerial skills and increasing demand for better and quality services in the public service delivery system, that played a dominant role in promoting public–private collaboration.

Over the last decade, despite the introduction of various forms of contracting out of public services, including franchising, privatization, and joint ventures, the role of governments in delivering public services has been criticized. This is because of the failure of traditional public management approaches of service delivery to offer better and quality services. This is consistent with O’Flynn’s (2007) argument that the increasing focus on public demand for better services has led to redefinition of the state’s functions, operations, and management of public service provision. O’Flynn further argues that collaboration between public and private organizations looks to move away from the narrow market approach that was dominant in the NPM era.

In recent years, collaboration has become a cornerstone in the PPP debate. A broad body of thought has presented collaboration between public and private sector entities as an important process of partnership (Hall & Kennedy, 2008; Johnston & Gudergan, 2007; Klijn & Teisman, 2003; McGuire, 2006; O’Flynn, 2009; Ysa, 2007). The increasing focus on collaboration in the literature suggests that the diversity of demand from citizens and the increasing costs of public services in the areas of large infrastructure, health, and education have added a new dimension to the complexities that emerged recently. To face such a challenge, PPPs, with promises of increasing efficiency in public service provision, emerged as a management tool for modernizing traditional public administration (Jorna et al., 2010; Sedjari, 2004). The actual practice of PPPs reveals that this partnership arrangement is fundamentally different from traditional contractual agreements.

Although the significance of the collaborative nature has been emphasized in the literature for providing flexibilities in PPPs, the importance of the role of contracting in their formation and operation has also been recognized by another school of thought that mainly focuses on legal and contractual aspects (Andrew & Cahill, 2009; Baxter & English, 2010; Bovaird, 2004; Carroll & Steane, 2000; Hodge & Greve, 2007, 2010). Scholars of this view chiefly focus on the contractual relationships between the public and the private sector to share risks and benefits. This school of thought focuses on the relationship under a rigid contractual agreement.

Theoretically, this observation does not hold water. Due to uncertainty in the market, PPPs need flexibility. But rigid contractual relationships do not provide flexible options for participating parties. Furthermore, in PPPs, the nature of risks is complex and uncertain, and it is therefore challenging to address those risks through a contractual agreement, especially for large infrastructure projects. Clifton and Duffield (2006) express a similar opinion: PPP contracts now require flexibility to ensure that services cited in the contract are achieved. This is also consistent with Broadbent and Laughlin (2004), who argue that the long-term contracting nature of partnerships needs flexibility and adaptability to achieve common goals. This implies the notion that a partnership is more than a contract for services; it represents a long-term relationship between public and private actors where risks and decisions are shared in collaboratively. Hence, discovering a workable and sustainable collaboration between the public and the private sectors that involves key stakeholders is an issue for investigation.

Collaboration refers to any joint activity by two or more organizations that intend to create public value by working together rather than individually (Wood & Gray, 1991). Wood and Gray argue that this interactive process involves an autonomous group of rational actors who use shared rules, norms, or organizational structures to act or make collective decisions. Network building between actors is also highlighted in the literature as a means of collaboration. Mohr (2004) views collaboration as a network of independent public and private actors who come together to form cooperative and interdependent working relationships to provide improved management skills and financial solutions. But the emergence of such networks has introduced a range of procedural issues, including, for example, how to share risks and benefits, how to build relationships, and how to exchange information when two organizations collaborate. These have not been critically examined.

McGuire (2006) adds that this collaboration between sectors is a process of managing relationships. McGuire (2006) further defines collaborative management as “a concept that describes the process of facilitating and operating in multi-organisational arrangement in order to remedy problems that cannot be solved easily by a single organisation” (p. 36). Head (2008) supports the argument that multiorganizational collaborations introduce a wide range of expertise, knowledge, and resources, facilitating innovative thinking about complex issues, which are common in PPP arrangements. Head notes that collaboration may also be helpful in improving the quality and effectiveness of implementation of a PPP project.

Jones and Noble (2008), in their study of seven PPP projects in the United Kingdom and Australia, examine the effectiveness of partnerships at the implementation phase. Their findings suggest that for successful implementation of PPPs projects, both partners need to be flexible. But their study understates the issue that, to be flexible, partners need also to develop an informal relationship through an appropriate communication system.

Previous contact between participating parties or working experiences can be instrumental in developing an informal relationship (Pettigrew, 2003). However, the observable phenomenon in the literature is that building an informal communication system in the organization through which partners can develop a trust relationship is challenging.

Edelenbos and Klijn (2007) argue that development of trust is an important requirement that has a significant influence on the processes and outcomes of PPPs. Skeptics also argue that building trust relationships is very difficult to achieve in a short-term contractual relationship (Armistead & Pettigrew, 2008). A long-term relationship through collaboration is, therefore, essential for developing mutual understanding to achieve common goals. Armistead and Pettigrew (2008) advance the view that, when a relationship extends over time, there is a greater potential for mutual gains through collaboration. This, however, may be difficult to envisage in a rigid contractual relationship. The success of collaboration depends on how the internal and external stakeholders collaborate, but this is challenging under a contractual agreement and it thus requires critical investigation.

While there is a general consensus in the literature that collaboration offers benefits for achieving common goals (Kanter, 2002), a considerable number of researchers raise questions about its challenges and complexities (Milward, Provan, Fish, Isett, & Huang, 2009; Selsky & Parker, 2005; Thomson & Perry, 2006; Weber & Khademian, 2008). Kanter (2002), for example, comments that the benefits of PPPs exceed the boundaries of contractual relationships and move toward a relationship marked by “collaboration.” Commenting on the challenges, Selsky and Parker (2005) note that “when actors from different sectors focus on the same issue, they are likely to think about it differently, to be motivated by different goals, and to use different approaches” (p. 851). Thomson and Perry (2006) argue that organizations enter into collaborative agreements to achieve their own goals and expectations and for self-interested motives. Sharing ideas and exchanging information between multistakeholders are important initiatives for collaboration, but the diverse interests of stakeholders create complexities and challenges for collaboration. The unwillingness of participating stakeholders can hamper decision making because it generates institutional complexity (Edelenbos & Klijn, 2007).

Weber and Khademian (2008) argue that the nature of formal information sharing between actors makes collaboration difficult if there is a lack of scope for informal communication between them. Effective communication depends on informal relationships between actors. These complexities stem from the conflicting nature of the interests of participating parties and stakeholders; they can be overcome if a culture of building informal relationships is established. Hofmeister and Borchert (2004), using a Swiss example, refer to the impacts of lack of communication between partners; they acknowledge that insufficient communication between partners can jeopardize the objectives of PPPs. Collaborative parties may not feel comfortable in exchanging and sharing ideas and information due to a lack of trust, which adds another layer of complexity in building relationships. The notion is that mutual trust facilitates collaboration. Consistent with Hofmeister and Borchert, Jacobson and Choi (2008) highlight the impacts of information sharing on the collaborative process. Jacobson and Choi mainly emphasize the significance of exchanging information between participating actors in regard to risks before the actual works begins. They posit that sharing information between partners helps to specify their respective roles and responsibilities, and thus assists in identifying possible risks beforehand (Jacobson & Choi, 2008). Hence, exchanging information between parties at the implementation phase could assist in reducing risks.

While the literature highlights the significance of trust in partnerships, it is difficult to establish a trust relationship when they have their own self-interest in the project. Forrer, Kee, Newcomer, and Boyer (2010) argue that mutual respect and trust usually do not exist at the very beginning of the partnership. Building a relationship between participating parties takes time; long-term relationships and previous work experience can play a role in building trust, and this has not been studied. Although Edelenbos and Klijn (2007) and Jorna et al. (2010) highlight the challenges and complexities of building trust between actors, little attention has been paid to developing a workable model that clearly demonstrates how such trust can be built between parties with their own self-interest. Hence, informal relationships between parties can play a significant role in building trust within PPPs.

In building collaborative relationships, trust plays a significant role (Nisar, 2007b; Regeczi, 2005; Weihe, 2008). This suggests that, to sustain a true partnership, actors must have mutual trust and respect and share any benefits and risks over the life of the project. Based on a review of American literature on collaboration, Bryson, Crosby, and Stone (2006) explain the process of trust building and claim that collaboration partners can build trust by sharing information and knowledge, and thus can demonstrate competency and good intentions. Sharing knowledge and information without fear and openness needs a relational architecture between partners through which trust can be built.

The underlying assumption of agency theory suggests that developing a long-term, trust-based relationship between a principal and an agent is challenging due to the conflicting nature of interests (Sclar, 2000). As a PPP involves more than two parties, agency theory cannot explain fully the relational architecture between partners in a PPP. Relationships between parties in PPPs require a different explanation. A workable principal–agent relationship can increase mutual understanding and reduce project-related risks if trust is established through collaboration and openness between all parties involved. Milward et al. (2009) state that adopting relational contracting and developing mutual trust allow both parties to share the risks that come from the uncertainty of unexpected occurrences that affect the common goals of both partners. Without this recognition and cooperation, PPP arrangements fail to produce the outcomes specified in the contract (Bagchi & Paik, 2001; Nisar, 2007b).

If a long-term relationship is based on a simple contractual agreement, it is very likely to create a deadlock situation when typical problems arise. This requires an informal communication system to exchange information between participating actors to “unlock” the situation. This new understanding explains why partnerships ought to work better in collaboration than under traditional contractual arrangements in achieving common goals (Lienhard, 2006). Purely contractual agreement between parties fails to overcome conflicting situations. An early observation by Hart (1990) is worth noting: “If the long-term relationship is based on simple relational contract hold-up problems are very likely to occur” (p. 4). A collaborative relationship through PPPs resolves this hold-up problem and fosters efficiency by enabling the private party to have greater flexibility.

This review of the literature clearly indicates that, unlike conventional contractual relationships, PPPs encourage integrated and mutually interdependent responsibilities for achieving common goals that are not attainable through a contractual agreement. Gil (2009) expresses a similar view that purely contractual relationships discourage third-party involvement, relying rather on legal rules and formal documents. It is not surprising that PPPs are in many ways treated in the literature as straightforward contractual relationships between the public and the private sector (Carroll & Steane, 2000). Due to the incomplete nature of contractual agreements, issues such as strategies for managing risks, stakeholder engagement, sharing information, and developing trust relationships between partners have not been appropriately explained in PPP literature. Collaboration is, therefore, an imperative that provides flexibilities for introducing mechanisms for reducing risks, encouraging innovation, and enhancing cooperation between participating actors and stakeholders.

The preceding literature provides legitimate arguments for the adoption of PPPs as contractual and collaborative agreements. However, considering the evolving trends of PPPs, it must be acknowledged that the nature of relationships between the public and the private sector has significantly changed due to the complexities and uncertainties of PPP contracts in the last decade. There are, at least in theory, more interactions taking place between the public and private sectors, and ventures may last longer than the contractual agreement specifies. This is clearly a paradigm shift from efficiency, cost-effectiveness, and value for money (VfM) to more accountable and effective collaboration between these two distinct sectors (Grimsey & Lewis, 2004; Wisa, Seppo, Hemanta, & Emma, 2008).

As most PPP arrangements include a wide variety of stakeholders, it is critical to investigate the mechanisms for collaboration between participating actors and key stakeholders. This is because different stakeholders have their own implicit and explicit expectations, interests, objectives, and perceptions about the project. Koppenjan’s (2008) argument is similar to what was identified earlier by Bryson et al. (2006), who also state that conflict in a collaboration emerges from the differing aims and expectations that partners bring to it.

The meaning of PPPs, whether they are contractual or collaborative in nature, is questioned by many in the context of long-term infrastructure-type PPP projects (Hodge & Greve, 2010; Johnston, 2010; Wettenhall, 2007). Supporters of the “contractual” view argue that PPPs are long-term infrastructure-type contracts. Whatever view one takes in this debate, it is assumed that the state’s dependency on the market has taken on a new configuration, moving from dependency to collaboration in which both parties collaborate to achieve common goals. The necessity of collaboration is thus a prerequisite for a long-term contractual agreement and long-term achievements.

The literature on collaboration highlights two contradictory issues: first, the benefits of collaboration and second, the challenges of collaboration due to conflicting interests between participating partners and stakeholders. Although the two schools of thought have their own explanations of the nature of PPPs, advocates from both sides agree that PPP approaches increase efficiency in the management of public services, allow both parties to share risks and benefits between them, and provide assets and services (Hodge & Greve, 2005; Regeczi, 2005; Zadek, 2008; Zarco-Jasso, 2005) that may previously have been the sole responsibility of the public sector. The literature recognizes a gap in PPPs that can be caused by a lack of understanding about the complex nature of partnership issues. Discussion here on the “collaboration versus contracting” nature of PPP arrangements has highlighted key features and objectives of PPPs, such as achieving VfM and developing strategies for managing risks and engaging stakeholders. Although studies on these issues highlight the importance of PPPs in public service provision, most have focused on the pre-implementation stages of PPPs. The nature and necessity of partnerships at the implementation stages is underresearched. Factors such as trust relationships between partners, engaging key stakeholders, previous experience working together, and information sharing are the building blocks for collaboration. Edelenbos and Klijn (2007) state that trust, risk, and expectation play important roles in PPP arrangements. But there is a gap in the literature because impacts of these key factors in achieving VfM, such as increasing quality services and providing better and cheaper services that are necessary for a collaborative management strategy, have not been critically examined.

Trends in Australian PPPs

The context of public management reforms has been changing overseas and in Australia. In Australia, with a strong tradition of regulation that has melded not only to a more recent but also strong commitment to management reform in government, the PPP approach was a natural “fit” for modernizing but still retaining an interventionist state. The general understanding of the emergence of PPPs is that they can be used as a means of financing large-scale infrastructure projects in transportation, such as rail systems, highways, subways, tunnels, telecommunications, and so on, where these projects involve substantial investment from the private sector (Brown, 2007; Maskin & Tirole, 2008; Newberry & Pallot, 2003). The early literature also reveals that PPPs were associated with large infrastructure projects, where governments and the private sector joined together in a relationship to deliver the project (Allen Consulting Group, 2007; Hodge & Greve, 2007; Maguire & Malinovitch, 2004; Partnerships Victoria, 2009).

Australia has established itself as a global leader in the financing, construction, and operation of infrastructure through PPPs, despite some failures in Victoria and other Australian states (English, 2004, 2005; Watson, 2003a). From the late 1990s to early 2000s, the rationale behind the adoption of PPPs in Australia relied on efficiency and effectiveness of service delivery or VfM. Advocates of PPPs in Australia claim that the advantage of these arrangements includes the proposition that they provide VfM (Hodge & Coghill, 2007; Maguire & Malinovitch, 2004; Webb & Pulle, 2002). Since 2000, Australia has more aggressively incorporated PPPs into its public policy, and the recently formed Partnerships Victoria has taken the lead role in PPP development. PPPs have been used for delivering projects such as major toll roads (the Sydney Harbour Tunnel and Melbourne’s CityLink), hospitals (the Hawkesbury Hospital, New South Wales; the Mildura Base Hospital, Victoria; and Joondalup Health Campus, Western Australia), prisons, schools, utilities, and sporting facilities. The reason for embracing PPPs is that they provide much-needed facilities, excellent VfM, and much faster delivery than would have occurred if traditional procurement methods had been used. The uniqueness of the Australian PPP is that, as a highly effective method of procurement, it has gained the recognition of independent analysts, government auditors, and, most important of all, the very people who use the infrastructure. For example, Victoria’s major PPP projects were reviewed in 2004 by Peter Fitzgerald, and his official report found “credible evidence of benefits, including innovation, timeliness, certainty of price and a whole-of-life approach to maintenance” (Fitzgerald, 2004, p. 1).

While Australian PPP initiatives were successful in attracting private finance for infrastructure and other service sectors, the issue of stakeholder involvement in policy formulation and decision making and, more importantly, building trust between the clients and the providers have been given little attention as important nonmarket elements for developing a sustainable PPP model. This leads to a lack of citizen trust in infrastructure development through PPPs (Johnston, 2010). Large PPP infrastructure projects are supposed to provide benefits for the community and the government, as well as create a sustainable business for the private sector. However, recent examples of PPPs in Australia have revealed significant governance problems in large PPP-type infrastructure contracts (Hodge, 2004; Johnston, 2010; Johnston & Gudergan, 2007), where issues of accountability and transparency and, more importantly, stakeholder involvement have been neglected. While the literature highlights the role of contracting in the formation and operation of PPPs (Andrew & Cahill, 2009), Baxter and English (2010) note changes in the nature of contracting in Australian PPP models to promote long-term interorganizational collaboration. They, however, stress that lack of trust between parties can lead to difficulties in managing contractual relationships (Baxter & English, 2010).The term PPP is questioned by many in the context of long-term infrastructure-type projects (Hodge & Greve, 2010; Johnston, 2010; Wettenhall, 2007). This does not mean to say that the traditional forms of contractual arrangements are no longer valid or effective for managing large infrastructure projects. However, our argument for this article is that a PPP as a collaborative management approach provides better modes of operation for large infrastructure projects. We argue that the nexus between the state and the market has significantly changed through long-term contractual arrangements. State dependency on the market has taken on a new configuration from dependency to collaboration where both parties collaborate to achieve common goals. The necessity of collaboration is thus a prerequisite for a long-term contractual agreement.

The Victorian PPP model in these specific cases offers an opportunity to explain how a collaborative management model through partnerships brings positive outcomes.

Method

We conducted an in-depth qualitative study of two infrastructure projects in Victoria. The main source of data collection was through semistructured interviews, but secondary materials such as published government documents and reports, reports by private consultants, and newspaper articles were also used as important sources of data, as is appropriate in a qualitative research approach (Boyne, 2003). Data were gathered through face-to-face interviews, using semistructured questions with important stakeholders. Thirty interviewees were selected from among key stakeholders and participating parties; senior policy officers from the Victorian Department of Treasury and Finance, and the Department of Transport; project managers from the main concessionaires, the design and construction (D&C) company, and South Eastern Integrated Transport Authority (SEITA), a government authority created for facilitating the EastLink project; local council officials and community groups; users of the facilities; practitioners; and academics. The questions were devised to understand the key issues of collaborative management model and to identify a wide range of project management practices used in the implementation of these two projects. Content analysis was used as the analytical technique for explaining the findings, using NVivo software. By analyzing the transcribed data, we identified several constructs as pillars of the collaborative management model.

Case 1: The EastLink Project

EastLink was the largest road infrastructure project ever constructed in Victoria, at a cost of AU$2.5 billion. As one of the largest PPP projects under the Partnerships Victoria policy, it was seen as setting a new benchmark for delivering major infrastructure projects as a PPP. In 2004, after a highly competitive bid process, ConnectEast (the main concessionaire) was awarded the contract to design, build, own, and operate EastLink for 39 years (SEITA, 2008). ConnectEast was a consortium of Macquarie Bank, Thiess John Holland (TJH), and ConnectEast who put their strengths and skills together. TJH was contracted by ConnectEast to design and construct EastLink. TJH is a major construction company and has constructed numerous major road projects in Australia.

Victoria has a history of establishing special purpose authorities for large infrastructure projects. This is not necessarily been followed across Australia but has been a practice in the state following the success of the previous CityLink Authority and, before that, the experience of the Westgate Bridge Authority. The Victorian government established SEITA for EastLink to provide necessary administrative and regulatory support for the project. SEITA was set up as a one stop service center. The officials at SEITA had a very commercial attitude, and they had people within that organization who had worked in the private sector as well as the public sector. One of the key benefits of this type of single purpose authority was not only to provide proper administration of the project but also to encourage a higher level of confidence within the private sector that they were dealing with a body that was created with expertise from the public and the private sectors to provide necessary support to the project. SEITA had four separate units in engineering, planning, legal and commercial, and communications, each with experienced managers to facilitate the project.

One unique feature of this PPP contract in Victoria was that, unlike in other states in Australia, there was a provision in the contract for an independent reviewer (IR), who had a direct contractual relationship with the state and ConnectEast, but who had no contractual obligation with the D&C company, TJH. The IR’s main responsibility was to certify whether the work had been completed in accordance with the specification in the contract. Generally, in a PPP, there is a provision for a verifier who has a contractual relationship with the construction company and possibly the concessionaire. But in the case of EastLink, there was no option that the D&C party could influence the IR in any way and that made a huge difference compared with other PPP infrastructure projects in Australia.

EastLink was initially intended to be an un-tolled road. However, at a later stage, the state government changed its policy. This created community outrage and much political controversy about the toll decision. Thus, both the public and private parties entered a difficult local political climate, and they needed to take numerous measures to communicate extensively with community members and users following the government’s bold decision to “build.” ConnectEast designed and implemented a comprehensive project plan for fostering community involvement and provided feedback throughout the construction and operation phases. Under this plan, they extensively and regularly consulted with the community, developing links with councils, local members of the parliament, environmental groups, and other important stakeholders. The project management team put all necessary information in the public domain to ensure transparency. During the construction phase, a number of consultative groups from the public and the private sectors were established to provide regular and up-to-date information to the community about progress on the delivery of the project and to obtain community feedback. Unlike other such PPP infrastructure projects in Australia, the EastLink concession deed also clearly outlined a series of key performance indicators (KPIs) that ensured a level of quality service delivery and established an accountability regime for the whole concession period. EastLink was completed on budget and 5 months ahead of schedule (Partnerships Victoria, 2009).

Case 2: The Southern Cross Station Redevelopment Project

Southern Cross (formerly Spencer Street Station) is a major railway station and transport hub in Melbourne. Under the “Linking Victoria” program, a master plan for the redevelopment of Spencer Street Station was released in June 2001. The main objective was refurbishment of the existing rail terminal. This proved to be the major challenge to rebuild the station on an existing facility. The contract was awarded to Civic Nexus Pty Ltd on 27 August 2002 for AU$341 million. The contract specified that Civic Nexus was to design and construct, and commission the transport interchange facility, including rail modifications and a signaling upgrade. In another transaction, Civic Nexus subcontracted Leighton Contractors as the D&C company to complete the construction.

The redevelopment was supposed to be completed by April 2005; however, construction progress was slow, and it became apparent that the construction company would not be able to complete the construction within the time frame. The D&C company complained about limited access to platforms. Moreover, during the same period, various components of the construction works were clearly well behind schedule due to additional works that were required. This increased significant time delays and cost overruns. It was evident by July 2004 that the project had fallen behind schedule and was over budget by AU$200 million. The project experienced construction costs substantially above estimates and encountered technical and design challenges that posed timing challenges, resulting in the project being completed 15 months after the originally contracted completion date. Due to lack of access to the construction site, the company ultimately made a claim to cover its losses on the project. The D&C company publicly announced a forecast loss on the project of AU$122.6 million. This was covered in the media and fueled intense debate on the use of the PPP model for the project.

A Global Settlement Agreement (GSA) was put in place to mitigate cost overruns associated with timing overruns. This also allocated additional costs to the appropriate parties. Legal proceedings associated with the project and additions to the project scope resulted in additional costs for the Victorian government and the consortium. The Southern Cross Station Authority (SCSA) incurred AU$135 million in total costs, as of June 30, 2007, AU$32.25 million of which was additional costs incurred through legal settlements. The project was finally completed in July 2006.

Findings and Discussion

It is clear from the cases that the projects were implemented in very different contexts. Whereas EastLink was a new facility, the Southern Cross Station Redevelopment was built on a live-rail network. However, the project management teams in these two cases also followed different strategies, which resulted in varied outcomes.

Distribution of Tasks and Responsibilities

Collaborative vision drives innovation to inspire participating parties to exceed minimum standard set by the contract (Schauder & Gerschman, 2006). In the EastLink case, the construction contractors at a very early stage started looking at the project in an innovative way as to how they could deliver it. They divided tasks and responsibilities between participating parties, and broke down different sections into different regions. There were five sections; each section was like a mini project. There were project directors, on-site design teams, and project community groups, all coordinated by a central project group. The distribution of tasks and responsibilities delivers a collaborative synergy by combining resources from participating parties (Gulati, Nohria, & Zaheer, 2000; Lasker, Weiss, & Miller, 2001). These construction strategy and management plans greatly reduce project costs, enhance cooperation, increase information sharing and facilitate dispute resolution (Larkin, 1994), and provide better modes of operation for large infrastructure projects. This collaboration between participating parties in EastLink increased cooperation and developed a culture of sharing responsibilities in reducing risks even within a formal contractual arrangement. A respondent explained,

You can have similar set of contracts but the outcomes can be different on the basis of that collaboration. The relational architecture established during project implementation made EastLink a success.

In the case of Southern Cross Station, sharing risks was not a project management strategy. Transferring rather than sharing risk between participating parties was the main concern. The state mainly emphasized the contractual agreement and wanted to transfer all project-related risks to the private party without considering whether the latter had the capability to manage them. The relationship architecture between the project parties and other key stakeholders was wholly based on a formal contract. Neither party had taken any initiatives outside of the contractual agreement. A respondent from the public sector explained it thus as follows:

Since we had no contractual relationship with the D&C company, therefore it was the responsibility of the main consortia to make sure that the D&C company knew the risks of getting access to the construction site. It was not state’s responsibility to get permission from the rail operator, even though the state had a franchise agreement with the rail operator. There was a strict occupation regime set out in the contract and it was mentioned in the contract that the design and construction company needed permission from the rail operator and it would be their responsibility to negotiate with the rail operator.

Whereas the EastLink project management strategies generated an informal relationship between the participating parties through collaborative efforts, the Southern Cross Station project management team was lacking in that regard. The project management team in the case of Southern Cross took no strategic initiatives outside the contractual agreement.

The synchronized project management approach through distribution of roles and responsibilities between parties helped the smooth functioning of the construction phase. This management strategy also provided a sense of belonging to the parties, and developed a strong commitment toward fulfilling each participant’s own responsibility, which is a key factor for collaboration. Whereas the EastLink case demonstrates that task distribution between parties added value by providing solutions on the spot in managing risks, in the case of Southern Cross Station, risk management issues were neglected or deferred, with resultant adverse consequences. The strategy of risk management practices in EastLink demonstrated that challenges can successfully be addressed through distributing roles and responsibilities between participating parties. This collaboration between partners enables them to share resources to solve challenges or create opportunities that neither could address individually.

Transfer of Skills and Experience

The collaborative management model requires a relationship architecture to share knowledge and information through effective collaboration between all parties. Exchange of project-related information and sharing knowledge are the key to the collaborative management model. In EastLink, there were extensive weekly formal meetings in accordance with the contract. However, as part of its coordinated feedback meetings and a live line contact, the EastLink project team members introduced a culture of informal “coffee” meetings every Monday morning throughout the construction period for all key stakeholders. These informal meetings built a strong relationship between major parties and helped solve many issues before they were placed on a formal agenda. Transferring and sharing information between parties encouraged innovative ideas and increased efficiencies in dealing with complex issues. Although the D&C company had no contractual relationship with the state, they were also invited to the meetings so that they could understand the concessionaire’s and the state’s expectations. This tripartite relationship between the state, the main concessionaire, and the D&C company encouraged a culture of sharing ideas that helped speed decision making and assisted project completion on time and within budget. Sharing of information and understanding at formal and informal meetings promoted a relationship of mutual trust that created an intangible value network between the partners; this in turn helped successful completion of the project.

Collaboration between the public and private sectors potentially brings together a wide range of expertise, knowledge, and resources that enables new thinking about complex issues for understanding the problems and formulating solutions (Brian, 2008). We see a similar picture in the case of the EastLink project, where they stepped outside of the contractual boundary, took a pragmatic approach for the sake of the project, and built a true partnership through transferring ideas between them. One respondent from the EastLink project management team stressed the benefits of such collaboration:

It does not really matter what you have got in the contract, but rather the personal or informal relationship between parties. We were lucky to have that relationship built on long associations. On a project like that we need to develop and have got to have a good relationship with all partners. There was a very effective and formal and informal working relationship between the IR and the two clients. We did that by “Coffee Meeting” every Monday morning.

This culture of sharing information and knowledge transfer drives an innovative management approach that leads to increasing efficiencies (Edwards, 2002). The EastLink case represents a valid instance of this. The Southern Cross case, however, was the reverse. Although there were formal meetings, there were hardly any informal meetings on complexities of construction works in the initial 18 months. A respondent from the SCSA commented,

The main consortia had one project director who used to come to the meeting but never said a word or made any comment in the meeting. They wanted to be just a shadow and thought it was only the design and construction company’s responsibility to deliver the project on time because they had a contractual agreement to do that. It was not expected in a PPP.

Sharing knowledge and information needs a similar mind-set among the people who are involved in a collaborative partnership. Interviewees indicated that the top-level policy makers of the participating parties had previous working relationships. The people in key roles believed in the relational architecture that was well established at the start of the construction works through extensive meetings and informal discussion. A participant from ConnectEast said,

You can have similar set of contracts but the outcomes can be different on the basis of a relational architecture. The relational architecture through sharing information established during the project implementation made EastLink a success.

This comment emphasizes the benefits of information sharing that also help build strong collaboration between parties. It can therefore be argued that the PPP unlocks the long-traditional dichotomy between the public and private sectors through openness and fearless exchange of project-related knowledge and information, and also builds trust between them. All parties applied their collective wisdom through collaborative efforts, and this collaborative partnership approach by both parties made the management system more intuitive and effective, which is difficult in contractual relationships.

Mutual Trust and Respect

The EastLink experience reveals that mutual trust between participating parties synthesized collaborative efforts, which reduced the amount of formal relationship and harmful conflict between partners. The project management approach of EastLink provides a new benchmark of how a large project can be implemented on time and on budget. The mutual trust between major parties and key stakeholders is an intangible element that influences the functional outcomes in project management (Edkins & Smyth, 2006). The EastLink case demonstrates that developing trust relationships through informal meetings was an important factor for developing a collaborative strategy that provided an opportunity to leverage innovative ideas through openly discussing issues in seeking for synergistic solutions. This collaborative effort to come to a consensus on building a common platform assists effective problem solving (Hardy, Lawrence, & Grant, 2005). The EastLink case demonstrates that all participating parties were able to build a common platform, which was to complete the construction works within the time frame and budget. This suggests that consensus on achieving common objectives of all participating parties helped to overcome conflict of interests, which is prevalent in principal–agent relationships. Hence the collaborative mind-set of both parties sets examples of fostering a collaborative culture through developing informal relationships, which strengthened collaboration and simplified the contractual relationship. A culture of trust and knowledge sharing evolved, facilitating the development of a collaborative governance structure.

In the EastLink case, SEITA worked very much in collaboration with the participating parties, even though there was clearly quite a strong formal contractual agreement between the parties. The philosophical approach was that SEITA was created to help the private actors get the job done. The management practices in the EastLink case were such that they allowed all project parties to attend regular monthly meetings even in the absence of a contractual relationship. In contrast, empirical evidence from the Southern Cross Station case reveals that the absence of proactive support by the state and lack of initiatives in building collaborative relationships between partners negatively impacted on project outcomes, causing delay and increasing overall project costs.

Whereas the EastLink case demonstrated a collaborative partnership through developing informal relationships between parties, the Southern Cross Station case presents a different picture. The analysis of the Southern Cross Station case reveals that the relationship between the state and the concessionaire was completely contractual. Informants from the public sector also acknowledged that the SCSA and Civic Nexus only had formal meetings according to the contract; moreover, these meetings were unproductive, as Civic Nexus was reluctant to discuss construction-related issues. In the EastLink case, despite the absence of contractual agreements between SEITA and the D&C contractor, SEITA and the contractor nonetheless held informal meetings. However, there was no such behavior in the case of Southern Cross Station. The Southern Cross Station case reveals that, despite knowing that the D&C contractor was struggling to find a solution to problems of access to the site, there was no initiative from the SCSA to intervene, because the SCSA assumed that it was not its contractual obligation. Hence, this created a lack of coordination and misunderstanding between the project parties.

Timely completion does not only depend on the uniqueness of technical capabilities but also on whether project parties can work through their differences constructively and collaboratively. This is a challenging task in managing a PPP project, but the EastLink case demonstrates that building informal relationships between project parties through informal meetings and discussions, mutual trust, and respect fosters the collaborative process.

Collaboration requires trust. Here, however, lack of mutual respect and trust between the major parties resulted in cost overruns and delayed project completion. Mutual trust between major parties enhances confidence building because stakeholders develop productive relationships and become comfortable with their joint endeavors (Braithwaite & Levi, 1998; Leach, Pelkey, & Sabatier, 2002). While this argument was true in the case of EastLink, we see a much less satisfactory result in the Southern Cross Station case.

Strategic Priority for Stakeholder Involvement

Key stakeholder participation in the implementation stage and in building trust between clients and providers is important for developing a sustainable collaborative management model. However, this has been a challenging issue for greater stakeholder engagement in the decision making and implementing process when a PPP is being established (Alam & Kabir, 2010). The EastLink project team demonstrated that the challenges can successfully be addressed through distributing roles and responsibilities between participating parties. The collaborative management practices that the EastLink project management team developed through a well-devised framework highlighted that the extent of the relationships between the stakeholders and the project parties was a key driving factor for successful completion. The wider interaction with key stakeholders cemented the relationship between stakeholders and project parties. Project managers developed new skills to work in a context of a collaborative process. All project parties brought together their managerial skills, financial resources, and innovative ideas, focusing on future benefits. This strategy of involving stakeholders developed a strong confidence among the project parties, engendered trust, and established a long-term relationship between project parties and stakeholders.

All participating parties, therefore, had to put major effort into stakeholder engagement throughout the project before and after completion. The situation with this PPP case suggests that the massive scale of construction completed on time was supported by a sustained communication effort to keep the community and other stakeholders informed as well as involved at the various consultation stages. EastLink project teams took special measures to increase community involvement. Through consultation, the project consultation group (PCG) devised operational strategies, arranging 48 meetings with community groups, and consulted with nine municipal councils, Melbourne Water (an authority) and the Transport Users Associations, and business communities in neighborhood suburbs. The PCG took initiatives to directly engage 40,000 people through displays and shopping center-based discussion forums addressing concerns. These initiatives helped to create a sense of awareness among community groups about the long-term benefits of this project. Noise reduction, creek management, local traffic movement, benefits to small businesses, and employment opportunities in suburban areas were the issues that the PCG successfully communicated to 500 key stakeholders. As a part of a campaign, 180,000 letterbox drops were directed to households in affected areas to provide advance notice of construction. Hundreds of one-on-one meetings were held with residents for more than 39 months during construction. The PCG distributed 600,000 leaflets in the area. Both parties had taken massive initiatives to involve different stakeholders, as revealed by one interviewee:

You could deliver any project ahead of time and on budget by completely disregarding the community and just barrelling through, but that wouldn’t necessarily be seen as a success, because you’ve antagonised and created a whole range of disaffected people, whereas we managed to do both, we managed to deliver the project ahead of schedule, but we actually also managed to generate a whole lot of community enthusiasm and support for the project. (Senior Manager, ConnectEast)

The collaborative management strategies that the EastLink project management team developed through a well-devised framework clearly signifies that the extent of the relationship between the stakeholders and the private party was a key driving factor for establishing a collaborative management process. This indicates a new phase of a relationship that is based on mutual trust and respect between participating partners and key stakeholders, and aims to achieve a common target. This strategy of involving stakeholders developed a strong confidence among the project parties, engendered trust, and established a long-term relationship between project parties and stakeholders. Continuous interactions with key stakeholders over a long period of time through meetings, displays, and leaflet distribution promoted the development of a strong social network and, most importantly, a long-term collaborative relationship. The management strategy to ensure stakeholder participation had positive impacts on the timely completion of the project, because successful completion of construction depends on the way stakeholder interests are addressed (Bryson, 1995). Hence, the EastLink case suggests that the mechanisms for collaboration developed by the project team to involve stakeholders reduce project risks, increase efficiency, and strengthen accountability. In contrast, the findings from the Southern Cross Station project reveal that failure to manage stakeholder increases conflict between project parties and stakeholders, slows the progress of construction work, and hence delays the project and increases project cost.

Conclusion

The EastLink infrastructure project demonstrates that a new pattern of collaboration has evolved, based on mutual trust and respect and sharing of roles, responsibilities, knowledge, and information between participating partners who aim to achieve a common goal. However, the empirical findings of the Southern Cross Station Project demonstrate that the collaboration between participating parties was not strategically operationalized due to lack of coordination, trust, and an absence of a risk management strategy.

Our research findings reveal that mutual trust and respect between participating actors, sharing of knowledge and information between major players, and, most importantly, stakeholder engagement in the management of the project build a strong relational architecture between key stakeholders. This article argues that PPPs as a collaborative strategic management approach can ensure better quality in the public service delivery system through making use of the private sector’s innovative managerial skills and expertise that the traditional public management model has failed to deliver. The article shows how a strategic approach through collaboration can increase efficiency at the micromanagement level, engage key stakeholders in project implementation phases, and develop management practices to provide quality services. This article demonstrates how a collaborative management strategy generates synergetic value activities within the partner organizations to make the traditional contractual project management approach more effective and value adding. It also reveals that failure to cocreate value through collaboration can bring negative outcomes.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Author Biographies

Quamrul Alam is a senior lecturer in the Department of Management at Monash University, Australia. He received his PhD in development administration from Flinders University in South Australia and an MA in economics from Manchester University in the United Kingdom. His research and teaching interests include public governance, public private partnership, globalization, and the internationalization of Australian business, corporate social responsibility, and social capital and supply chain performance. He has published articles in Public Administration and Development, Public Management Review, and International Review of Administrative Sciences.

Md Humayun Kabir is a deputy secretary in the Ministry of Public Administration, Government of Bangladesh. He has worked as a PhD research fellow in the Department of Management at Monash University, Australia. His research interests are in the field of public management, public private partnership, and field administration.

Vivek Chaudhri is an associate professor and deputy head of the Department of Management at Monash University. He has worked as a visiting professor at the School of Management at Yale University and previously worked at the Melbourne Business School. He has an active research agenda spanning the domains of environmental economics, industrial organization, finance, and business strategy, and has published in international journals in these fields.

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