This audit examined whether prison accommodation services contracted under public private partnerships are operating effectively and providing value-for-money.

Background

Since 1996, the private sector has become increasingly involved in owning, operating and managing prisons through public private partnerships (PPP). A PPP is a long-term partnership between the public and private sectors to deliver a major capital asset and/or services.

The Department of Justice (DOJ) manages several PPP contracts. When the Port Phillip Prison and Fulham Correctional Centre opened in 1997 the Infrastructure Investment Policy for Victoria (1994) applied. The Metropolitan Remand Centre and Marngoneet Correctional Centre contracts were signed in 2003 under a new policy adopted in 2001 called the Partnerships Victoria Framework. The new Ararat Prison contract was signed in 2010 under a later iteration of this framework, one that complies with the Infrastructure Australia National Guidelines (2008).

As two of these PPP prison contracts date back more than 10 years, it is timely to review the operational phase of such long-term contracts. This audit evaluated whether the state is managing PPP prison accommodation services well, whether the services are meeting appropriate standards and whether value-for-money and appropriate risk allocation has been maintained.

Conclusions

DOJ faces significant challenges in managing its long-term PPP prison contracts and recognises the need to further improve its management. Although it has been slow to act in relation to these challenges, DOJ has recently started implementing improvements and rectifying known deficiencies with its contract management and administration.

This is overdue as DOJ has not been able to demonstrate that it is continuing to receive value-for-money in terms of the standard of prison accommodation services it is paying for. Nor is it able to demonstrate that it has taken adequate steps to assure that the prison accommodation assets will be in an appropriate condition when ownership of the Port Phillip Prison and Fulham Correctional Centre assets reverts to the state.

All PPP contracts examined have weaknesses, particularly those developed pre-2001. They do not adequately define accommodation service standards, making it difficult for DOJ to effectively monitor contractor performance. For the post-2001 contracts, DOJ has not fully exercised its rights to monitor contractor performance and to manage service failures. There is insufficient documentation to explain the rationale for DOJ’s approach, or the decisions made by contract administrators.

DOJ’s administration of the PPP contracts can also be improved. It needs to demonstrate appropriate management of the risks allocated to the state to avoid a deterioration in the value-for-money premise on which the contracts were based. Recognising this, DOJ has recently commenced a review of its governance structure and to better document its contract management practices.