A key concern with long-term PPP contracts is the level of flexibility that they offer to authorities to make changes either to the use of assets or to the level and type of services offered. As noted above in Section 1.1, our survey findings do suggest that this concern is valid - both in terms of the time and administrative burden of making contract changes and the costs associated with a single tender action with the existing contractor.
On balance the reduced flexibility implied by PPP contracts has probably been a benefit during the construction phase of projects, forcing better up-front specification and reducing cost overruns and delays.
During the operational phase of the contract, the contract inflexibility has a negative impact compared with conventional procurement. Although most contracts provide the option for the authority to use third-party contractors, the costs associated with managing this can be prohibitive. In addition, the introduction of third party providers of services or infrastructure can dilute the extent to which the authority transfers performance risk in practice, or can lead to problems associated with who takes responsibility for ongoing maintenance or renewal (as identified above in the situation where there are different soft and hard FM providers). The costs imposed on the authority by the inflexibility of the contract are likely to vary by sector. In sectors where a larger proportion of final service 'value added' is provided outside of the PPP contract (e.g. health and education) and where the contract interfaces are more complex (e.g. health) our expectation is that the costs will be greater.