First, we believe that the Scottish Executive is right not to place undue emphasis on differences between the net present value (NPV) cost of the public sector comparator (PSC) and the NPV cost of payments to the PFI service provider. While a comparison of bid prices with the PSC is clearly one important element of the decision process, a full evaluation needs to be considerably wider. We would note, in particular, the importance of ensuring strong competition so that risk transfer is properly priced.
Second, we believe that a nuanced assessment of PPP needs to consider the different components of services separately. We note that much research (and therefore the available factual evidence) into the performance of PPPs has focused heavily on construction costs and construction cost risk transfer rather than the costs and benefits to the parties over the full life of the contract. This is certainly understandable given: (i) the significance of this issue in terms of overall costs, and the poor historical performance of conventional procurement; (ii) that most PFI contracts have only been operational for a small proportion of their 25-30 year contract lives; and (ii) the inherent difficulties associated with measuring service quality, life-cycle asset management performance, and the costs of loss of flexibility3. But it does leave a clear gap in Government's knowledge.
In what follows we offer observations on: design; construction; operations (including both hard and soft facilities management); and life-cycle of the assets. It is important to recognise that the performance of PPP can, and we believe does, vary across sectors.
We also note that there are limitations to the methodology used in this broad study. For example, we received significantly fewer responses in the health sector, where there appear to be more post-completion tensions4. It is also important to note that interview responses always have the potential to suffer from interview bias, especially when the respondents have a vested interest in the projects.
Third, we believe that it is important for research to seek to distinguish between the impact of PPPs that is (i) attributable to the specific nature of the procurement structure (e.g. the involvement of private finance and the attempt to create incentives for whole-life costing by transferring operational risks5); and (ii) attributable to improvements in public sector procurement practice, regardless of the procurement structure used. Part of the problem with achieving this, as we and the Scottish Executive have observed from the outset of this work, is the ability to identify convincing counterfactuals to PPP. In particular:
• There are relatively few large-scale non-PPP projects in Scotland against which to compare PPP procurement, except perhaps in the schools sector. It is not ideal to compare new PPP assets with the vast majority of other public assets since it is very difficult to establish how far the benefits perceived by those using the buildings derive from the method of procurement or the fact that the assets are new.
• There are few examples of alternative procurement approaches such as 'Design, Build and Operate (DBO)' contracts.
It should also be noted that due to the broad scope of this study we have not been able to investigate conventional procurement projects in the same depth as PPP projects. There would be some merit in considering additional, in-depth research in this area in the future.
______________________________________________________________
3 In contrast with operational risks, construction risks can be measured more easily in terms of whether the assets were delivered to time and budget.
4 The low response rate may also reflect the possibility that some of the smaller projects are not considered by authorities to be 'true' PPPs.
5 Although note that we believe that it should be possible to procure using 'Design, Build and Operate' structures using public finance and gain some or all of these benefits.