One of the key benefits of PPPs is that it adopts a life-cycle approach aimed at preserving the function and usability of an asset for the contract period which generally corresponds to its useful economic life. This avoids the difficulties that public sector authorities have in balancing annual revenue constraints with the need to continue to invest in ensuring long-term cost effectiveness. Hence, assets (over the medium and long term) are potentially in better condition in PPP-type arrangements than in conventional procurement.
One clear way to testing these benefits would be if there were stricter standards for regular reporting on the condition of public infrastructure. Traditionally, accounting standards have been reluctant to report on provisions for deferred maintenance, presumably because these provisions do not constitute liabilities as such.35 However, from the perspective of VfM, a strong case can be made for budgeting what it may cost to maintain, repair or upgrade an infrastructure. These costs should reflect the amount needed to maintain the public infrastructure at a sufficiently high standard that reflects current needs and expectations36.
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35 Walker, R.G., Dean G.W. and Edwards (2004), "Infrastructure Reporting: Attitudes of Preparers and Potential Users", Financial Accountability & Management, 20(4), pp. 351-375.
36 Indeed, some accounting standards already exist that potentially make reference to infrastructure condition. For instance, the Federal Accounting Standards Advisory Board (FASAB) and the Governmental Accounting Standards Board (GASB) in the US, and the UK's Accounting Standards Board (ASB) introduced these standards. The FASAB requires disclosures on the condition and estimated cost to remedy deferred maintenance to property, plant and equipment, whilst prohibiting inclusion of dollar values of these estimations in any financial statements. The GASB for its part in State 34 introduced options to accounting for infrastructure by American states and municipalities, which were either to value and depreciate infrastructure assets, or demonstrate that an infrastructure was being maintained at or above conditions set by government. In the UK, the Auditing and Standards Board introduced FRS 15 (1999), which permits but does not oblige the use of renewals accounting of infrastructure assets when (a) the infrastructure asset is to be maintained at a specified level of service standard, (b) the annual charge is calculated from an asset management plan, and (c) the asset (or network of assets) is mature or in a steady state. In these cases the level of annual expenditure needed to maintain the operating capacity of the infrastructure may be treated as depreciation charged against the carrying amount of the asset (Ibid.)