Construction cost risk was effectively transferred to the private sector. |
Very few authorities knew the actual construction costs incurred by contractors; only 3 authorities were aware that the contractor's actual costs had been higher than envisaged at financial close. 8 out of the 13 contractors who were prepared to disclose information about outturn costs stated that costs had increased. The most common reasons for construction cost increases were unforeseen ground conditions, environmental issues, weather, public interventions and supply difficulties. Note that these risks were not always transferred under other forms of procurement.
The PPP process is designed to transfer almost all construction cost risk to the private sector and avoid increases to the construction price after contract signature. This was perceived to be a weak area for previous procurement methods. While the survey results indicate that very little open book accounting is taking place14, they provide good evidence that the construction cost risk transfer envisaged in the contract is working.
______________________________________________________________
14 It was not clear whether this reflects the fact that contracts do not allow authorities access to information or that authorities are not exercising their rights.