The advice provided in this paper should be easier to implement in states that are starting PPP programs from scratch rather than in states where many PPPs are already established. One of our recommendations already has been accepted: most recent projects have been assigned by competitive mechanisms.
On the remaining recommendations, government bureaucracies prefer not to change methods that have worked in the past because they fear the new procedures may fail and that they will be blamed by politicians seeking scapegoats. In addition, industry incumbents oppose the changes because of the threat they pose to their established advantages. The capture of the PWA by political interests represents a major hurdle when reforming the public works sector in general, and the PPP industry in particular, with the objective of improving the selection process of infrastructure projects.
Our proposal of using cost-benefit analysis before approving infrastructure projects faces deeply ingrained political mechanisms that favor uncontrolled earmarks at the state and federal levels. The Obama administration, which has promoted cost-benefit analysis in other areas, might be in favor of increasing the scope of programs that use this tool, but state and federal lawmakers value the ability to use earmarks. The separation of roles within governments' PWAs may also clash with well-entrenched interests, but may be workable after a sufficiently large corruption scandal, a recurrent feature of PWAs.
Next, consider the adoption of flexible-term contracts for transport PPPs. Adoption has been slow, given their desirable characteristics. These contracts are opposed by incumbent firms and industry lobbies, which seem to fear that the added transparency of the PVR mechanism will limit their ability to renegotiate contracts, a major source of rents. The PWA tends to support the concession lobby, since its governance structures are oriented toward new projects (and therefore wants to be in good relations with industry) rather than toward supervision and regulation of existing contracts.
By contrast, budgetary authorities favor PVR contracts, since they reduce the need for revenue guarantees. It is not surprising, therefore, that flexible-term PPPs have been adopted when the budgetary authority had the upper hand over the PWA. In Portugal, the first wave of highway concessions that began in 1999 used shadow tolls, which led to massive deficits. Portugal switched to PPPs based on flexible-term contracts and, in 2004, auctioned the €795 million Litoral Centro highway, whose project finance won the Eurofinance prize for project of the year.
In Chile, after the 2001-2003 minister of public works had committed the resources of the ministry for several years in the future, the finance minister managed to make PVR contracts the standard for highway PPPs. Since 2008, six PVR-using contracts have been awarded, amounting to more than $1.2 billion. These international examples, coupled with the dysfunctional outcomes of many recent PPPs, results that were partly caused by the economic crisis, should make stakeholders more amenable to PVR contracts.
PPPs can be expected to become increasingly popular as cash-constrained (local, state, and federal) governments seek means to provide infrastructure services. We have shown that this is not an appropriate motive for PPPs and that such projects should be included in the government balance sheet. This might be difficult to implement, except as the result of public campaigns against "mortgaging the future." There are good reasons to use PPPs, but releasing public resources is not one of them.