Is it Time to Rebadge Whistle Blowing? 2

Tuesday, June 10th, 2014
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Australia is undergoing an extraordinary period of governments transferring the provision of public assets and services to the private sector.

The 2014 Budget heralded incentives for the states to intensify the recycling of public infrastructure via the sale of assets considered unnecessary for public ownership and, leveraging the money raised to help fund new public and social infrastructure. These projects are forecast to run into the hundreds of billions of dollars. Public off-balance sheet debt will grow commensurately.

The private sector has an insatiable appetite to provide new infrastructure assets and services. There are huge amounts of debt and fees involved. This conversation is not about the ideological benefits of either government or the private sector being best able to deliver; it’s about transparency, it’s about value for money assurance and it’s about getting what’s being paid for. It’s about understanding the economic and functional flexibility of these arrangements during the often 30 to 40-year life of these concessions.

The public will not find the private sector proponents for these projects pressing for greater transparency and accountability, but the public has a right to know. These project and service procurement models have significant implications for them, and questions about these implications are of public interest.

The increasing trend toward private sector provision of public infrastructure and services is transforming how governments can deal with expenditure and charging. Once, taxes were the main revenue stream for funding public infrastructure and the provision of services. Outsourcing these provisions to the private sector opens new ways of raising revenue via user pays mechanisms and shedding recurrent expenditure. Examples of this include the growing use of tolled roadways and the methods used in absorbing future provisions for maintenance in new school PPPs at the expense of other retained schools.

Private sector provided hospitals are another example where the provider is paid rent, and paid for services on an availability basis. These costs as they rise may challenge a government’s future capacity to afford to invest in health service delivery more generally across the wider community without resorting to user co-payment mechanisms or as is now being discussed, the potential of broadening the GST revenue base.

It’s in the public interest that not only are the results of the Public Sector Comparators (PSCs) used in explaining the public benefit of a particular infrastructure provision published, but along with these results, the material commercial terms and assumptions applied to those calculations should also be published. There is no public interest in shielding this information behind commercial and confidential barriers.

In many instances, the provision of privately procured public infrastructure and services leads to monopolistic or at least oligopolistic market advantage for some proponents. Airports, power stations, water supply and ports exhibit these tendencies. A lack of contestability in these circumstances has led to gold plating, in some instances causing over-investment and in others bringing about disappointing outcomes for the public. The revenue opportunities for the proponents by raising new debt or through self-appointed management fees for these investments can arguably create a tension with public interest and should not be overlooked.

In NSW, the independent regulator IPART is tasked with bringing balance to this equation, but it often gets involved after the horse has bolted, or it has limited capacity to challenge the powerful lobbyists representing private proponent interests. Nationally, the Productivity Commission inquiry into Infrastructure has observed the concentrated ownership of companies which dominate the infrastructure market. In the Commission’s draft report, the language used to summarize this is not encouraging, especially if you are a taxpayer and/or user payer.

The Commission talks of inconclusive evidence in regard to benchmarking Australia’s construction productivity with comparable peers. One would assume such a peer is the US, where construction productivity is reportedly at a 20-year low. The report talks of significant recent increases to Australian construction costs and almost deals this away with a conclusion that the market appears to be ‘workably competitive.’ Hopefully, some credible benchmarking ideas will prevail in the Commission’s final report.

There is no evidence, for example, in recent Enterprise Bargaining Agreements negotiated by some of the larger infrastructure contractors that any real pressure is on for the pursuit of real productivity in the Australian construction industry. It seems easier to just sign up to soft new wage agreements and to pass these rising costs on to their clients and taxpayers without contest or exposure. The status quo prevails and the opportunity to drive down unchallenged construction costs by at least 20 per cent is ignored.

Overlaid on these challenges are the processes of consenting, regulating and assuring the compliant delivery of infrastructure projects where mechanisms such as ‘projects of state significance’ can dilute the accountability of the private sector to self-regulate or cloud the transparency of the processes involved. In NSW, the consent authority is often the regulator. There is considerable potential for government and private proponent conflicts of interest, and there seems to be examples of systemic weaknesses for both.

Regulators and certifiers contribute to these systemic weaknesses. Their ineffectiveness for whatever reason is contributing to non-conforming infrastructure being accepted and falsely paid for by government. It’s leading to so-called independent certifiers attesting to the wrongful fitness for purpose and occupancy of some projects. It’s also leading to a blind eye being turned to some contractors making false declarations about the proper disbursement of progress payments to sub-contractors and suppliers, and non-payment in the case of insolvency without effective accountability despite even the weak laws prevailing.

All of these issues affect the cost and integrity of infrastructure projects. They are of public interest.

Self-outing in an open and transparent theatre here by either responsible government agencies or private sector deliverers seems improbable. Public interest takes a back seat in this situation.

In the case of government, there appears to be an increasing risk that their informed buyer capabilities have become so reduced that the capacity to effectively administer these complex contracts becomes questionable. Further offending this prospect is the unlikely probability that a responsible agency or bureaucrat will step up to the plate and admit error or maladministration, but it’s happening.

So where does public interest advocacy sit, and how do the interests of the public become assured?

Is it time to recalibrate the label of ‘whistle-blower’ to ‘Public Interest Advocate’?

Whistle blowing in this context seems more suited to a fast moving game of sport, where judgements and decision making occur in an instant. Those decisions happen with immediate public transparency. There’s no hiding, it’s there for all to see, often over and over via endless replays. That’s not the case when public interest transparency is tested for the dealings of government and private enterprises these days.

From my experience, outing of issues of public interest or concern off the sports field such as those discussed here normally follows frustrated attempts to get to the facts, and mostly after careful consideration by the outer. Whistle-blowing in this context calls on a high degree of integrity, fortitude and experience with the subject matter, but the stigma of non-sporting whistle blowing hangs heavily over the head of the outer. This must change.

A first step would be the establishment of new protocols for protected disclosures to apply for members of the public who may bring genuine, evidence based matters forward. This is not currently the case.

Going beyond this is the need to look to overseas examples of best ‘whistle blower’ practices such as those which exist under the US False Claims Act (FCA). This act allows individuals to litigate on behalf of the US government to prosecute those who falsely claim on the government. The FCA is now one of the most important public-private partnerships in the US, a partnership between the government and whistle-blowers. This would seem to be an appropriate rebalancing of the ‘informed buyer weaknesses now becoming evident at various levels of Australia’s Commonwealth, State and Local Governments.

It may even be relevant to large publicly listed corporations with similar weaknesses.

As the lines between the public and private delivery of public infrastructure become less distinguishable, this is a discussion that’s sure to continue and bring forward many examples to test this proposition.

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  1. roger gyles

    Very pertinent and very timely.

  2. Jeff Gilbertson

    I agree with Roger. Whistleblowers are imperative to public accountability and with all this emphasis now on PPPs, we need a national debate as to how they are protected.