Even though the reviews of the benefits of the PPP in the literature vary, there is certainly room for improvement in their planning and execution. The improvements can be facilitated using different governance models as well as lessons learnt from numerous previous and recently-established PPPs. A major issue that arises is that of risk allocation between partners.
One of the proposed mechanisms for future improvements of PPPs is alliance contracting which is defined as 'an agreement between parties to work cooperatively to achieve agreed outcomes on the basis of sharing risks and rewards' (Clifton & Duffield 2006: 4). The following key alliance principles can add to the concept of VFM if implemented in PPPs: risk transfer, innovation and management skills (Clifton & Duffield, 2006). Clifton and Duffield (2006) also found that the key alliance principles and techniques have been used in the PPP projects in the past without implementing a full alliance. Similarly, from a survey distributed to 15 leading PFI/PPP procurers in Australia, it has been concluded that a number of alliance principles have been utilised in the projects they undertook even though they were not identified as alliance contracts in the project brief. However, there are two issues that need to be addressed before managers consider utilising the alliance contracting techniques on PPP projects: availability of suitable projects and financiers' willingness to open-ended financial exposure.
There are many discussions and analyses from different authors with regard to improvement of risk allocation in PPPs and how this can affect their success. In several case studies and surveys it has been found that the finance market is currently unwilling to accept the risk profile of a full alliance regime (Clifton & Duffield, 2006). On the other hand, risk allocation policies have an objective to allocate the risk to the party that is best able to manage it for the least cost (Hodge, 2004; Clifton & Duffield, 2006; Nisar, 2007). These policies need to be adhered to especially in the case of major infrastructure projects (Johnston & Gudergan, 2007). However, according to Teicher et al. (2006), there is an expectation that partnerships would shift risk to the private sector while public agencies would gain knowledge, new management skills and innovative best practices. In addition to this, there are numerous case studies which suggest that the cost savings achieved in PPPs were attributable to risk being transferred (not shared) from the public to the private sector (Hodge, 2004; Nisar, 2007).
Noble and Jones (2006) define PPPs as 'a commitment ... of some durability, in which partners develop products together and share risks, costs and revenues which are associated with these products' (p. 892). One of the key phrases in this definition is share risks. Despite the fact that sharing of risk between the partners is an important aspect of the PPP success, Australian PPP examples confirm that the risk is usually shifted to the private sector (Keating, 2004; Jones, 2005). PFI/PPP projects transfer as much risk as possible to the private partner in an endeavour to gain budget surety and sometimes overlook the maxim 'place the risk with the party best able to manage it' (Clifton & Duffield, 2006).
The need to develop project relationships has been recognised by PPP/PFI patrons and financiers, and the next step is for them to recognise the need to change the risk management approach and develop a more appropriate scheme for risk allocation and sharing. Furthermore, some authors argue that the financial consequences of the company should be capped at certain levels (Jones, 2005). If an effective risk allocation is not achieved in the future PPPs, suppliers may stop bidding for PPPs or they may incorporate higher risk premiums in the bid, therefore increasing the overall project costs (Hodge, 2004; Keating, 2004; Clifton & Duffield, 2006).