PPP structures are typically more complex than traditional public procurement of fixed assets, although traditional procurement's apparent simplicity becomes more questionable when proper account is taken of the risks involved. PPP complexity is due to the number of parties involved and, particularly, the mechanisms used to share the risks. The funding costs of PPPs are also higher, reflecting : the impact of the risk being carried by the private sector, the cost of the additional loan structuring, and the private sector's higher financing costs. For the public sector, this is compensated by the private sector accepting a proportion of the risks and, in certain cases, the acceleration of investment programmes otherwise subject to public sector borrowing constraints.
The evaluation found that the underlying physical projects evaluated in-depth were largely completed on-time, on-budget and to specification. This reflected the use of fixed-price, fixed-term turnkey construction sub-contracts. These are common in PPP structures, but could also have been applied to public procurement. There was also evidence on some projects that the standard of the works was better than would have been found on a public procurement project.
In some cases, the Promoter was able to take advantage of a highly competitive construction market at the time of bidding, which produced cost savings. Conversely, restricted competition in one particular case meant that construction costs were probably some 30% higher than necessary. A cost risk which was noted was that implementing a large-scale PPP programme can raise demand for construction services in the short term, increasing bid prices at the given level of supply. This phenomenon has now been recognised as an important issue and administrations are trying to manage the flow of projects to ensure that the market remains competitive.
However, while these findings may be important for the management and availability of public infrastructure they are not critical for the assessment of whether, or when, to choose the PPP mechanism. Assuming that the same economic benefits will be realised, the question is which mechanism will provide the lower whole-life cost to the economy. A Public Sector Comparator (PSC) is intended to answer this question ex-ante but, ex-post, the evaluation could not quantitatively answer the question with an acceptable degree of certainty. The complexity of modelling the ex-post outcomes of the alternatives available ex-ante put this approach beyond the scope of the evaluation. Similarly, despite the EIB's large and diverse project portfolio, it was not possible to identify suitable project pairs to make a direct comparison. Under these circumstances, EV was unable to determine ex-post if the original decision to use a PPP was more cost-effective or not.
The evaluation found that the key impact of the PPP mechanism was that the projects were implemented at all. In all of the projects evaluated in-depth, public-sector budgetary constraints meant that the alternative to a PPP project was no project, or at least no project within the foreseeable future, rather than a public-procurement project. The extent to which government spending limits could have been adjusted to accommodate these projects can be debated, but almost all Promoters clearly stated that there would have been no budget for the projects as they were eventually implemented. In such cases, the use of a PSC may be questioned, and was applied to only a minority of the projects evaluated. However, there is a clear case for examining the underlying rationale of the project to test whether the project should be implemented at all, and carrying out a Value for Money (VfM) calculation to assess the economic efficiency of the proposed solution.