Public Private Partnerships (PPPs) enjoy a good reputation in Australia for delivering projects on time and within budget. But there have been some high-profile failures, and they remain controversial.
Much hype continues to surround the model. For instance, many of the benefits attributed to the PPP model are not unique to it – such as the transfer of risk to the private sector, efficiencies arising from private sector innovation, and the whole-of-life benefits achieved by bundling maintenance services into the contract. These benefits can also be achieved under delivery models that don’t involve the use of private finance.
Privately financed PPPs do, however, have some unique benefits. The use of private sector debt and equity provides government with a buffer against the certain risks, such as contractor insolvency or contractor default for which liability is capped or excluded. And the additional rigour which the investors and lenders apply to risk assessment and monitoring is perhaps the single biggest factor that explains the superior cost and time performance of PPPs over more traditional contract delivery models, after contracts are signed.
There are of course some disadvantages associated with PPPs. While some are more perceived than real, the loss of flexibility, and high transaction and financing costs, are downsides that must be considered.
Ultimately, the rationale for PPPs should be based on value for money. For the PPP model to survive, it must deliver better value for money for government than the alternatives. This can only occur when the PPP model is used on the right projects, and avoided on the wrong ones. For most infrastructure projects, alternative procurement models will deliver better value for money than a PPP.
Finally, the PPP model must continually evolve in response to lessons learned and market conditions.
This report identifies many steps that governments and industry can take to improve the outcomes of PPP projects. The future of the PPP model looks bright.