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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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Index

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

Aaltonen, K. 242
ABC News 303
Abernathy, M. 307
accountability 99, 105, 212, 25961
ageing infrastructure 3, 9, 10, 16, 61, 287, 305, 306, 3078
Alchian, A.A. 77
Allen Consulting Group 23
alliance contract 94, 178, 1914, 218, 220, 222, 224, 226, 227, 311
Altshuler, A. 234
American Chamber of Commerce 84
American Society of Civil Engineers 3, 4, 9
ancillary services 117, 127, 128, 132, 176, 214, 229
Ansar, A. 6, 7, 8, 10, 37, 39
appraisal optimism, see optimism bias
Argy, F. 139, 140
Arkes, H.R. 249
Arrow, K.J. 102, 13940, 143, 262, 266
Arslanalp, S. 37
Arthur Andersen 155
Aschaeur, D.A. 19, 34, 36, 38, 39, 40, 41
Ashton, T.S. 52, 53, 55
Asia Today International 298
asset recycling 28892, 296, 31011
Associated Press 306
Australia 11, 14, 23, 51, 61, 70, 71, 73, 78, 113, 1612, 207, 225, 2268, 23841, 2757, 306
automated vehicles 6974, 7980
availability payments 912, 97, 151, 162, 164, 165, 168, 17071
Badzier, A. 6, 7, 8, 10, 37, 39
Barberis, N. 252
Barker, T. 79
Bayesian analysis 264, 265, 2667
Bazelon, C. 141
behavioural economics 2515, 265, 307
Bellas, A.S. 228
Belt and Road Initiative (BRI) 5, 299305
Bénabou, R. 252, 255
benchmarking of projects 15760, 217, 260
see also reference class forecasting
Bennett, J. 228
Bentick, B.L. 175
Berg, S.V. 82
Bernardo, J. 267
betas 160, 162, 163, 164, 165, 166, 167, 176
Biehl, D. 19
Blair, S. 129
Blanc-Brude, F. 106, 108, 109
Blatt, J.M. 1489, 175, 176, 263, 2656
Bleakley, H. 53
Blum, J.M. 125
Blumer, C. 249
Boardman, A. 141
Bom, P.R.D. 36
Bonner, W. 50
Bornhorst, F. 37
borrowing costs 15, 102, 117, 119, 13843
Bradley, R. 310
Brazil 4, 8, 10, 304
Briggs, A. 52
British Columbia 1623
Broadbent, J. 89
‘brownfield’ projects 221, 228, 2378, 312
Bruzelius, N. 39, 256, 259
Buehler, R. 252
Buhl, S. 231, 249, 255
Buhr, W. 17, 20, 25, 30
build, own, operate, transfer (BOOT) 204, 207, 289
bundling 98, 101, 1068, 116, 156, 178, 197207, 212
bundling analysis 21617, 222, 224, 225
business case 117, 118, 167, 215, 221, 245
California 66, 3056, 310
Campbell, D. 169
Canada, 88, 114, 2714
Cantarelli, C.C. 231, 242
capital asset pricing model (CAPM) 162, 163, 166,
cash flows 16061, 164, 166, 167, 174,
Casson, M. 115, 264
Catton, B. 125
Cendrowski, S. 299, 300, 304
Chan, C. 28, 29, 30, 283
Chandler, A.D., Jr 115
Chang, G.G. 309
Chapman, C.B. 146
China 311, 378, 39, 49, 2989
Chiu, B. 64
Chorus, C.G. 69
City Link project, Melbourne 667, 112
Clarke, Cohen, R. 107
commissioning and contestability 1325
comparative costs of government and private finance, see borrowing costs
concessions 12, 5961, 67, 79, 90, 97, 113, 168, 292
confirmation bias 2523
construct only 178, 179, 220
construction management 178, 1857, 188, 213, 220
contract management 167, 16973, 1745
conventional (traditional) procurement 12, 13, 14, 99, 178, 17987, 211, 218, 220, 230, 231
core services 117, 1247, 214, 229
Cossons, A. 54, 55
cost–benefit analysis (CBA) 213, 228, 247, 251, 262, 263
cost overruns 7, 230, 2313, 247, 249, 251, 255, 257, 258, 260, 261
cost-plus contract 1914, 21113
Court, W.H.B. 52
Crossrail 2846, 287, 310
Crowley, L. 93
Cyert, R.M. 102
Daniels, R.J. 98, 108
Dasgupta, P. 125
deception and delusion 2559
decision-making in infrastructure 21316, 2512, 253, 254, 255, 2645
De Clerck, D. 104
default 145, 173
Demsetz, H. 76
desalination projects in Australia 2268, 2389
design and construct 178, 17981, 213, 220, 223
design, build and finance (DBF) 178, 197, 199, 201, 202, 204
design, build, finance, maintain (DBFM) 178, 201, 203, 204, 209, 210
design, build, finance, operate (DBFO) 9092, 94, 97, 114, 178, 201, 203, 205
design, build, finance, operate, maintain (DBFOM) 15, 72, 94, 99, 167, 178, 226, 227
design, build, operate, maintain (DBOM) 16, 78, 178, 197, 199, 200, 201, 226, 227
design, construct and novate 178, 1845, 186
design, construct, maintain and finance (DCMF) 130, 132, 213, 219
Detter, D. 10, 61
Diekmann, J. 93
digital disruption in transport 6675
disaster scenarios 263, 264, 265, 266
discount rate 16063, 1637, 262, 265
disputes 98, 169, 170, 245
Dixit, A. 30, 264
Dobes, L. 228
Domberger, S. 88
driverless cars, see automated vehicles
Drucker, P. 156
Duffield, C. 121
early contractor involvement (ECI) 178, 1947, 198
Edwards, G. 44
Egan, Sir John 93
Eisenhower, President Dwight 8, 9, 50, 306, 309
electronic tolling 668, 79, 295
Elekdag, S. 9
Engel, E. 64, 79, 83, 100, 102, 105, 156
engineering, procurement and construction (EPC) 178, 1814, 227
environment 24, 146, 171, 213, 228, 239, 245, 247
Epley, N. 2534
Ergas, H. 228, 289
Ernst & Young 112
Estache, A. 56
Evans, C.A. 68
Fender, I. 176
Festinger, L. 254
financing 24, 33, 43, 85, 956, 100, 26061, 279
Fischer, R.D. 64, 79, 83, 100, 102, 105, 156
FitzGerald, J. 40
Florio, M. 1819, 26
Flyvbjerg, B. 6, 7, 8, 10, 37, 39, 231, 234, 235, 242, 243, 244, 248, 249, 250, 251, 255, 256, 257, 258, 259, 261
Fölster, S. 10, 61
forecasting errors 238, 246, 248, 250, 251, 256, 257, 289
Forwood, D. 28, 29, 30, 283
France 5961, 97, 113, 131
Frederick, M. 7, 49
freeways 5, 89, 50, 66, 79, 9092, 310
Freixas, X. 107
Frick, K.T. 234
Friedman, M. 125, 279
Frischmann, B.M. 1, 30, 35, 41, 57, 63
funding 24, 33, 44, 51, 95, 96, 261, 27996, 3089
Galetovic, A. 64, 79, 83, 100, 102, 105, 156
Gatti, S. 176
Geddes, R.R. 15, 141, 142, 143
Gelber, F. 289
Germany 9, 10, 50
Gibson, M.S. 176
Gilovich, T. 2534
Gino, F. 265
Glaeser, E.J. 9
global financial crisis 2, 89, 90, 227
Goddard, S. 54
Goldman, J.K. 15, 141, 142, 143
gold-plating 241, 246, 307
Goldsmith, H. 47, 48, 50, 106, 108, 109, 260
Goldstone, D. 112
Golub, S. 39
Google 71, 72, 73, 82, 133
Gordon, R.J. 478, 69
Graham, R. 145
Gramlich, E.M. 25, 35
Gray, J. 125
Gray, S. 162
Greenspan, S. 254
Griffin, D. 252
Grimsey, D. 6, 14, 20, 75, 99, 114, 119, 121, 123, 139, 145, 156, 173, 176, 227, 228, 233, 266
Groote, P. 19
Grossman, S. 106
Grout, P.A. 1089, 139
Grove, N. 1819, 26
Gupta, S. 37
Hall, J. 162
Hansen, N.M. 19
Harris, A. 111
Harris, D. 169
Hart, O. 106, 107, 108
Held, V. 160
Hellard, R. 93, 94
Hellowell, M. 141, 176
Helm, D. 63
Hicks, Sir John 142
Hieronymi, O. 36
high-speed rail (HSR)
in Australia 2878
in China 5, 6
elsewhere 5, 16, 247, 283, 287
Hirschleifer, J. 264, 266
Hirschman, A.O. 2578
HM Treasury 175, 233, 262
Hodgson, G. 90
Hollingsworth, P. 139, 140
Holm, M.S. 231, 249, 255
hospitals 1289, 166, 221, 222, 225, 23941, 26878, 310
House of Commons Transport Committee 2367
Hulten, C.R. 4041
Hurdle, D. 46
Hurst, C. 35, 36
Iley, R.A. 49, 51, 301
incentive structure 85, 10610, 156, 199, 212
Inderset, G. 24, 25
India 11
Indian infrastructure 11, 26, 28, 38
infrastructure 3, 4, 24
characteristics 18, 19, 20, 21, 236, 426
Chinese case study 378, 39
commercialism 434, 758
construction costs 306, 307
defined 17, 18, 26, 41, 95
economic and social 22, 23, 27, 43, 44
productivity and effects of 11, 3441, 42, 286
public nature of 18, 19, 20, 24, 25, 2633, 61, 64, 65
Infrastructure Australia 162, 294
Infrastructure Australia (IA) Guidelines 163, 166, 176
innovation 47, 83, 84, 1378, 156
International Monetary Fund (IMF) 2, 9, 297
iron law of megaprojects 2434
Jacobs, J. 19
Janis, I.L. 254
Jensen, P. 88
Jochimsen, R. 17
Johnson, L. 280
joint ventures 1914, 2846, 2912
Kahneman, D. 248, 249, 250, 252, 253, 255
Karim, M. 93
Karni, E. 266
Kay, J. 28, 139
Kelsey, D. 264
Kerzner, H. 93, 146
key performance indicators (KPIs) 93, 150, 174, 175
Kiger, P.J. 2989
Kindleberger, C.P. 51, 53
Kirman, A.P. 264
Klein, A. 9, 297, 305, 307, 310
Klein, M. 139, 143
Knight, F. 149, 238, 264
Kranz, J. 1819, 26
Krugman, P. 39
Kujala, J. 242
Kuprenas, J. 7, 49
Lagarde, C. 2, 297
Lal, D. 46
Latham, Sir Michael 93
Laughlin, R. 89
Lepper, M. 252
LeRoy, S.F. 264
Lessard, D.R. 1478, 176, 264
Levinson, D. 56, 60, 68, 79
Lewis, M.K. 6, 14, 20, 49, 51, 64, 75, 99, 114, 119, 121, 123, 139, 156, 173, 175, 176, 227, 228, 233, 266, 279, 280, 301
light railways 46, 79, 246, 283, 287, 298
Lignieres, P. 60
Ligthart, J.E. 36
Lin, J. 53
Lind, R.C. 102, 13940, 143, 262
Linder, S.H. 81, 84
Lindfield, M. 139, 140
Lindley, D. 266
loan cover ratios 174, 177
London underground (‘Tube’) 15, 53, 578, 79, 93, 2358, 2846, 312
Lord, C. 252
Lovallo, D. 252, 255
Luberoff, D. 234
Luft, G. 297, 300304
Lunn, D. 6, 7, 8, 10, 37, 39
Machiavellian behaviour 255, 256, 257, 258
Machina, M. 266
Mackie, P. 79, 2458, 255
Macniel, I. 106
Maddison, A. 50
Makovšek, D. 12, 121, 291
managing contractor 187, 189, 190, 213, 222, 223, 226
March, J.G. 102
Marglin S.A. 262
Marique, Y. 93, 94, 95, 15960
Mascarenhas, M. 253
McCarthy, P.X. 133
Meade, J.E. 35
mega-PPPs 2345, 23841
megaprojects 233, 234, 2424, 258
merit goods 3031, 63
Merna, A. 147
Metronet 2358, 312
Miller, R. 1478, 176, 264
Millward, R. 63
Minsky, H.P. 279
Mizen, P.D. 280
Molin, E.J.E. 242
Moore, J. 106
Morgan, E.S. 125
Mosser, P.C. 176
Moszoro, M.W. 15, 139, 141
motivated reasoning 2535
motorways 246, 248
Mott MacDonald 232, 244, 245, 255
Mountfield, D. 53
Muir, D. 9
multi-criteria analysis (MCA) 213, 228
Munnell, A.H. 34
Musgrave, R.A. 23, 30, 63, 79
National Audit Office 114, 119
National Broadband Network (NBN) 82, 83
National Centre for Social and Economic Modelling 105
National Health Service (NHS) 122, 145, 2689, 310
net present value 158, 159
network effects 28, 312, 111, 210, 262
NSW Public Works 226
New Zealand 1623
Nijkamp, P. 17
North, D.C. 46
Norton, M.I. 265
nuclear industry 244
Obama, B. 70, 72, 74
Officer, R.R. 126
One Belt, One Road, see Belt and Road Initiative
OECD 23
operations and maintenance 878, 143, 197, 201, 203, 226
optimism bias 2313, 245, 246, 252, 255, 263
output specification 85, 90, 155, 212, 233, 312
outsourcing 14, 878, 116, 214
Parkinson, M. 40
partnering 924, 169
Partnerships Victoria 136
payment mechanism 978, 114, 151
performance indicators, see key performance indicators
Picot, A. 1819, 26
Pigou, A.C. 63
Pindyck, R.S. 264
planning 245, 246, 24851, 252, 254, 255, 256, 311
‘dark side’ 256, 257, 258
political influences 242, 246, 247, 256, 258, 259, 288
Pollard, G. 162
Pollitt, M.G. 82
Preston, J. 79, 2458, 255
prisons 13032, 214, 2289
Private Finance Initiative (PFI) 90, 94, 122
private party, see special purpose vehicle
privatization 4, 63, 64, 76, 868
Proctor, W. 228
procurement models 12, 13, 43, 44, 178210, 31113
procurement options analysis 21113, 21325
procurement process 1623, 1948, 241, 311
Productivity Commission 23, 24, 27, 32, 41, 143, 281, 282, 283, 293, 296
project finance 95, 96, 148
property 1378, 282, 283, 284, 285, 2878
psychological influences 248, 252, 253, 254, 255, 307
public goods 2831, 51, 63, 280
public interest, see accountability
public–private partnerships (PPPs)
antecedents 51, 52, 54, 67, 8994, 96
characteristics 845, 98, 106, 312
failures, 15, 1035, 149, 2358, 238, 2889
participants 856, 945, 11819
performance vis-à-vis conventional projects 1214, 233
PPP models 1358, 178, 197207
role of government 8990, 10910, 111, 1247
stages involved 117, 118, 1623
Public Sector Comparator 113, 120, 15760, 176
Quiggin, J. 264
Qureshi, Zia 2, 3
railroads 8, 9, 11, 378, 46, 523, 62, 1756
Raisbeck, P. 121
reference class forecasting 25051, 261
see also benchmarking
re-financing 110
regulatory asset base (RAB) 12, 13, 62, 63, 76, 77, 178, 20710, 29092
rent-seeking 256, 257, 258, 259
Ribault, A. 59, 61
Rietveld, P. 68
Riley, J. 264
Rimmer, S. 88
risk 43, 778, 91, 92, 96, 104, 261, 262, 264
identification 1469, 1534, 155
risk transfer allocation, 1078, 1089, 111, 144, 152, 155, 312
systemic risk 16063, 1637
road pricing 656, 103, 2935
roads 8, 9, 11, 40, 50, 537, 66, 2313
see also freeways; motorways
Rodrik, D. 46
Roller, L.-H. 11
Roman Empire 4852, 74, 260
Romero, M. 56
Roper, H. 28, 29, 30, 283
Rosenau, P.V. 84
Ross, L. 252
Ross, M. 252
Rothengatter, W. 39, 256, 259
Rowe, W. 280
Royal Adelaide Hospital project 166, 235, 23941, 2756
Royal Automobile Association (RAA) 295
Runde, J. 264
Salmon, M. 264
Salt, B. 5, 489
Samuelson, P. 9, 63, 139
Sappington, D.E.M. 115
Sawyer, J.E. 258
Sayers, C. 28, 29, 30, 283
Schlesinger, A.M., Jr 125
science and technology 9, 478, 52, 6675, 78, 112, 298
secular stagnation 1, 2, 297
Seldon, A. 125, 126
Sendt, R. 289
Shackle, G.L.S. 262, 263, 265, 266
shadow tolls 91, 97, 114
Shaoul, J. 176
Sharma, R. 10
Sheehy, R. 107
Silk Road Economic Belt 298, 300, 302
Silk Road Fund 4, 5, 304
Simon, H.A. 253
Singell, L.D. 264
Small, K.A. 68
Smetters, K. 141
Smith, A.F.M. 267
Smith, A.J. 54, 59, 60, 92
Smith, N.J. 147
Smith, R.C. 146
Smith, S. 307
Solow, R.M. 102
Songer, A. 93
special purpose vehicle (SPV) 16, 95, 99, 145, 168, 170, 173, 201, 203
Stampp, K.M. 125
Starr, P. 867
Stern, J. 291
Stimson, B. 139, 140
Stone, T. 99
Strong, J. 56
Sturm, J.-E. 19
Summers, L.H. 1, 2, 3, 4, 48, 297
Survey of American Homeowners 249
Sweden 2745
Taleb, N.N. 243
taxation 27980, 282, 30910
Taylor, S. 79, 129
Temin, P. 51
Tesla 70, 72, 74, 288
Thaler, R. 252, 253
Thames Tideway Tunnel Project 2912
Thobani, M. 146
Thompson, P. 228
Threadgold, A. 32
time delays (overruns) 227, 230, 233, 235, 255, 312
Timmermans, H.J.P. 69
Tinbergen, J. 17
Tirole, J. 21112, 252, 255
Toakley, A.R. 176
tolls 14, 29, 33, 53, 547, 87, 103, 105, 238, 279, 290
Torrisi, G. 21, 39
Tsuji, M. 82
traffic volumes 7, 8, 1035, 114, 146, 149, 238, 249
Transactions Database of InfraDeals 234
transport 58, 82, 2312, 234, 238
Trebilcock, M.J. 98, 108
triple bottom line 213, 228
Trujillo, A. 107
Trump, President Donald 229, 305, 306, 310
Turkey 26970
Turvey, R. 102
Tversky, A. 248, 250, 253
Twenty-First Century Maritime Silk Road 299, 300, 302, 303
Uher, T.E. 176
UK Treasury 84, 168
UK Treasury Taskforce, 1998 158
uncertainty 1489, 238, 243, 2616
unitary payment 168, 204
United Kingdom 14, 20, 26, 38, 49, 52, 545, 78, 81, 934, 97, 113, 120, 161, 207, 209
United States 8, 14, 16, 46, 49, 567, 81, 97, 257, 282, 3067, 311
Urban Development Investment Corporations (UDICs) 8, 16, 308
Urban Land Institute 3, 8, 9
urbanization 2, 5, 9, 46, 489, 50
Uren, D. 297
US Government 262
US Army Corps of Engineers 612
Valila, T. 106, 108, 109
value capture 56, 28088, 310
value-for-money 96, 110, 118, 11920, 126, 192, 218
criticisms 120, 15960, 176
determinants 1234, 144, 152, 155, 156, 157, 15860
van Wee, B. 242
Varian, H. 71
Vecchi, V. 176
Veryard, D. 12, 121, 291
Vickrey, W. 102, 139
Victoria, Australia 667, 105, 120, 132, 176, 207, 209, 226, 2289
Victorian Auditor-General 143
Von Hirschhausen, C. 17, 76
Voss, C.A. 47
Wach, S.M. 2567
Wall Street Journal Custom Studios 299
Walter, I. 146
Wang, Y. 37
Ward, S.C. 146
Waveman, L. 11
water projects 52, 5961, 2268, 2389, 2912
Weber, R.A. 265
WeChat 10, 16
Weinstein, N.D. 252
whole-of-life cycle 15, 100, 116, 145, 156, 241, 311
wider economic benefits (WEBs) 56, 2846
Wiggin, A. 50
Williamson, O.E. 115
Wilson, R. 93
Winston, C. 40, 64, 68
Wong, P. 3045
Woodward, C.V. 125
World Bank 7, 8, 10, 176, 230
World Economic Forum 42, 43
Wu, B. 37
Xi Jinping, President 5, 298, 301
Xu, M. 121
Yeaple, S. 39
Yescombe, E.R. 176
Zerbe, R.O., Jr 228
Zweig, J. 253