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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 9: The problems of large (mega)projects

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

Extract

Megaprojects in infrastructure are marked by considerable time delays and cost overruns. Two studies in 2002 drew attention to these features. For the present chapter, two new databases are added. The transport study has been extended to 1927-2009, covering 806 projects. In the other study, information is given on 172 megaprojects involving PPPs, covering 2000-2016. From our knowledge of these projects, a small number have failed, and some cost overruns and time delays have occurred. These results would seem to confirm Bent Flyvbjerg’s ‘iron law of megaprojects’: over budget, over time, over and over again. Why is this so? He drew much attention to deception and delusion so as to get projects off and running, engineers with a ‘monument complex’, and ‘empire-building politicians’ pursuing ‘vanity projects’, all undeniable. Our contribution in this chapter uses the insights of behavioural economics, and the systematic biases when people form beliefs and make decisions, notably overconfidence, optimism and belief perseverance. To these, from psychology, can be added confirmation bias. Further support comes from ‘groupthink’ and ‘cognitive dissonance’, the latest theories of ‘motivated reasoning’, and the 2016 hypothesis of a ‘psychological multiplier’ and possible multiple social cognitions, creating mental traps whereby benefits are overestimated and costs underestimated. The chapter concludes with suggestions for overcoming these errors. It also returns to the problem of uncertainty, which plagues megaprojects, and what can be done in terms of real options analysis, Bayesian theory and various practical responses.

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