A key benefit of the PPP procurement process is that, once the contract is signed and the design is agreed, the private sector assumes the long-term risk of delivery. The financial incentives to deliver on time and budget under a PPP are significant. This sense of lock down once the contract is signed, gives government agencies security that the costs of the project will not increase further.
Moreover, the PPP model encourages agencies to define and cost the scope of the project in detail at an early stage, reducing the potential for scope creep during the procurement process.
The contractual arrangements of a PPP also help projects stay on schedule, offering incentives for contractors to make up time should projects fall behind. In fact, our interviews identified several projects, driven to tight timeframes by the PPP model, which actually finished ahead of schedule.
"Builders were behind schedule at one of the sites (SA Police & Courts). With the private sector exposed to the consequences of delay and driving the contractual demands, the project was delivered on time. This is a strong example of the benefits of relying on the private sector management over traditional delivery." Ray Wilson, Director, Plenary.
This sentiment is supported by the assessment conducted by Melbourne University and the Allen Consulting Group3 that identified "traditional projects were likely to be completed later than PPPs relative to the budget. For example, between signing of the final contract and project completion, PPPs were found to be completed 3.4% ahead of time on average, while traditional projects were completed 23.5% behind time." This is demonstrated in the table above, comparing the actual completion date with planned completion date for each of the projects surveyed.
Only one project was delayed. The Victorian Correctional Facilities experienced a small delay in achieving operational readiness that resulted in part from time pressure on commissioning. Prisons are complex environments where security is of paramount importance.
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"Now I have someone with the right knowledge and
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Proving that they are operationally ready to receive prisoners is essential and in this environment the small delay is not material.
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3 Melbourne University and Allen Consulting Group, November 2007, "Performance of PPPs and Traditional Procurement in Australia "