Development focuses on whether the asset can be built at the cost and in the time planned

Some of the questions private financiers consider with respect to design and construction are the following:

∙  Is there a company with which I can contract to deliver all of the construction works under a single agreement?

∙  Is the contractor competent to perform the work required? Can the contractor show me examples of completed work?

∙  How long will it take to complete the work?

∙  What recourse will I have if the contractor fails to complete the work on time?

∙  Is the design tried and tested or is there something novel about it?

∙  Can I make changes to the design along the way?

Figure 1: Illustrative application of new infrastructure to project characteristics

Source: World Economic Forum analysis

These questions are not just about trying to establish whether the proposal entails construction risk but also who will manage it.

A recent review of the delivery of construction contracts in the United Kingdom's Private Finance Initiative (PFI) sector showed that nearly 70 percent of construction was completed on time; a variety of reasons was cited to explain the 30 percent that were behind schedule: poor project management, failure of construction contractor, design changes, and latent defects, to name a few.2 What this report does not highlight is who paid for the consequences of the failure to deliver on time. The expectation is that the construction contractor paid for this failure; equity holders likely "lost" earnings during the delay period, and the impact on debt was probably limited to increased surveillance costs.

Even extremely complex construction can be privately financed, as in the case of the recently closed Port of Miami Tunnel project (see Case Study 8), which is technically complex, and involved boring of a 5 kilometer tunnel. In fact, one of the reasons the State of Florida decided on the public-private partnership route was to bring on partners experienced in this type of construction. When there are well-established design approaches, competent and experienced contractors of sufficient size and willingness to share construction risk, and well-understood materials and construction methods, the fact that construction is involved should not in itself deter private finance.