Cost savings from PPPs typically materialize in several different forms: lower construction costs, reduced life-cycle maintenance costs, and lower costs of associated risks.
Construction savings. Experience from several countries has demonstrated that PPPs cost comparatively less during the construction phase of the contract. The savings typically result from innovation in design and better asset requirements. A report commissioned by the UK Treasury found in 2000 that among a sample of 29 PFI projects for which public sector comparisons were available, the average savings were close to 17 percent.25
In the United States, the costs of completing construction for segments of the Denver E-470 toll road that used a PPP approach came in $189 million below the original cost estimate of $597 million.26 In Australia, eight Partnerships Victoria projects were on average 9 percent less expensive than under the typical procurement process.27
On the other hand, the capital costs can also be higher in certain cases as the private sector tends to take a longer term view of all life-cycle costs rather than a narrow view of the lowest individual costs.
Reduced life-cycle costs. In traditional contracting, the private sector's role is typically limited to immediate construction. This can create a perverse incentive to economize on elements of construction today even though maintenance costs might be higher in the long run. Shifting long-term operation and maintenance responsibilities to the private sector creates a stronger incentive to ensure long-term construction quality because the firm will be responsible for maintenance costs many years down the road. This creates a strong incentive to do preventative maintenance and reduces the risk of future fluctuations in operations costs. This way the public benefits from this life-cycle efficiency. A UK study of benefits flowing from operating PFI projects found that, on average, the government expects to achieve a saving of 17 percent over the whole life cost of services by using the PPP approach, with savings as high as 45 percent in one of the cases.28