| A variety of new and innovative PPP infrastructure delivery models have been developed in recent years to address various challenges posed to public-private partnerships in specific situations and sectors. Alliancing. Under this model, the public and private sector agree to jointly design, develop, and finance the project. In some cases they also work together to build, maintain, and operate the facility. Bundling. Contracting with one partner to provide several small-scale PPP projects in order to reduce the length of the procurement process as well as transaction costs. Competitive Partnership. Several private partners are selected, in competition with each other, to deliver different aspects of a project. The contract allows the public sector to reallocate projects among partners at a later date, depending upon performance. The public partner can also use the cost and quality of other partners' outputs as a benchmark for all partners. Incremental Partnership. The public sector contracts with a private partner, in which certain elements of the work can be called off, or stopped, if deemed unproductive. The public sector can commission work incrementally, and it reserves the right to use alternative partners if suitable. Integrator. The public sector appoints a private sector partner, the integrator, to manage the project development. The integrator arranges the necessary delivery functions and is rewarded according to overall project outcomes wherever possible, with penalties for lateness, cost overruns, poor quality, and so on. The integrator has a less direct role in service provision and in some cases is barred from being involved in direct delivery at all. In other cases, the integrator is appointed to carry out the first phase of work, or specified works but is then barred from carrying out subsequent phases of work to remove the potential for conflict of interest between achieving best value for the public sector and maximizing private returns through the supply chain. Joint Venture. A joint venture company is set up, a majority of which is owned by a private sector partner. The public sector selects a strategic partner through a competitive process that includes a bid to carry out the first phase of work. The typical contract is for 20 years. Subsequent phases are commissioned by the public sector partner, but carried out by the strategic partner using the first phase of work as a benchmark to determine the appropriateness of future costs. The United Kingdom has used a variant of this model, called local improvement finance trust (LIFT), for its hospital PPPs. Source: Building Flexibility: New Delivery Models for Public Infrastructure Projects, Deloitte Research, 2005. |
| "Over the last few years we've been investing heavily in the full range of infrastructure projects, including hospitals and schools, freight and transport infrastructure, major water projects and science, technology and innovation infrastructure. And we've learned some lessons along the way. Perhaps most importantly, we've learned the value of not being locked into one model of delivery when it comes to large-scale infrastructure projects." - The Honorable John Brumby, MP, Treasurer of Victoria, Australia37 |
The public sector also needs to be certain about the infrastructure and service requirements before it decides on the right infrastructure approach. If the public sector is not certain about these requirements, then achieving a fair contract price and ensuring that the infrastructure will continue to meet future demands might be difficult.
Uncertainties might be present as a result of latent defects (flaws in the existing infrastructure that are not apparent until work begins), policy changes (implying a change in service requirements), demand risks (resulting from the introduction of user choice, for example), changes in public needs or rapid changes in technology. For projects that are especially vulnerable to these uncertainties, models with increased flexibility and shorter contract periods can improve the likelihood of achieving public policy objectives for infrastructure development.
Fortunately, recognition of these challenges has served to fuel innovation rather than frustrate further development. To accommodate varying degrees of uncertainty about the future and to lower transaction costs, many new PPP approaches have been developed, thus expanding the options available for procurement. Between conventional procurement and full privatization a wide range of financing and delivery options exist. A full understanding of these different types of models-and knowing how and when to use them-can help government agencies choose an appropriate approach and tailor it to meet their particular needs. Two nearby sidebars (Choosing the Right Delivery Model and Hybrid PPP models) provide an overview of a number of these models and how to choose the best one to meet different circumstances. (A more detailed examination of the models can be found in an earlier Deloitte Research paper titled "Building Flexibility: New Delivery Models for Public Infrastructure Projects"). Below we take a closer look at how several of these PPP models work in practice.