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Global Developments in Public Infrastructure Procurement

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

There is widespread acceptance of the importance of infrastructure, but less agreement about how it should be funded and procured. While most public infrastructure is still provided in-house or by traditional procurement methods – with well-researched strengths and weaknesses – the development of service concession arrangements has seen a greater emphasis on lifecycle costing, risk assessment and asset design as featured in a variety of public private partnership (PPP) delivery models. This book examines the various procurement approaches, and provides a framework for comparing their advantages and disadvantages. Drawing on international experience, it considers some of the best and worst examples of PPPs, and infrastructure projects generally, along with the lessons for improving infrastructure procurement processes.
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Chapter 4: The promise of public–private partnerships

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

Extract

Public-private partnerships (PPPs) were prompted by dissatisfaction with the bureaucratic, dirigiste nature of public provision of infrastructure, and the belief that PPPs could combine the best features of private and public approaches. The chapter examines the mechanics of a PPP and three issues are addressed. One is what a PPP can and cannot do. It can bring private sector efficiency, regulation through competition, economic pricing of services, filter out ‘white elephants’, and free up public (that is, ‘free’) services, but cannot bring in additional finance for infrastructure except in the case of ‘user pays’ tolls and charges. A second issue is the theoretical basis of a PPP. Economic theory suggests that performance differences relative to traditional procurement lie in ownership rights, the bundling of construction and operation into a single contract, and the transfer of risks of design, construction overruns and time delays to the private body. Finally, the third aspect examined concerns the criticisms surrounding PPPs. These arise from refinancing, the drag on government budgets from the unitary charge, incomplete (or no substantive) risk transfer from the public purse, the public’s access rights to tolled facilities, the difficulties of allowing for technological change over the lengthy and inflexible contracts, the significant procurement costs involved in PPP projects and their potential to be ‘gamed’ by some participants (including public sector procurers).

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