Initially, there was debate about the nature and purpose of PPPs.[13] Was their primary purpose to avoid public debt, or to achieve VFM for the state? Since 2000, as articulated in PPP steering mechanisms, the official rationale underlying their use has been that they deliver VFM; ostensibly, their accounting treatment is not important.
VFM is generally defined as getting 'the best possible outcome at the lowest possible price'.[14] At its most theoretical level, VFM for government arises from the optimal allocation of risks between the state and consortia. It is now recognised that VFM is not wholly a financial concept but can also include non-financial benefits such as innovation and timely construction.
The most compelling source of VFM arises from the bundling of services. This bundling provides consortia with an incentive to deliver services, including the infrastructure asset, more efficiently than the state can because private money is at risk. The obligations to maintain and transfer the asset to the state at the end of the term, and to provide asset-based services over the life of the contract, are additional incentives to minimise whole of life costs. Consequently, the economy and efficiency of service provision is maximised through effective and efficient design and construction and the commissioning of assets on budget and on time, or before the due date. These risks, which are transferred to the private sector, would otherwise remain with the public sector. Thus, optimal outcomes for governments and consortia are achieved through risk transfer, which accounts for and justifies the difference in cost between public and private finance.[15] As noted below, confirming the achievement of VFM savings in the operating stage can be problematic.[16]