Defense PPPs: Challenges and Solutions

Challenges

Uncertainty over future demand. Changing user requirements and land values that may be subject to factors beyond government control make specifying long-term requirements and negotiating contract provisions with the required precision difficult.

Rate of technological change. The high rate of technological change and complexity involved in information technology projects in the defense sector requires considerably more flexibility than many traditional PPP models can accommodate.

High upfront costs. Traditional PPP models can be unsuitable for projects unless the contract lasts long enough to achieve value for the money needed to initiate the project.

Solutions

In noncompetitive situations, renegotiating and extending an existing contract may be an option. The government needs to be sure, however, that the contract extension improves the contractual terms, lowers costs, and delivers better services.

As in other sectors, alliancing and incremental partnership models work well when demand is uncertain because these models break the PPP work into phases. The integrator model could also be used to meet this challenge, as in the case of MoDEL in the United Kingdom. Under this model, the private sector partner has responsibility for project development and takes significant project risk but has a less direct role in service provision. The integrator is appointed to carry out the initial phases of work but is barred from direct delivery and from carrying out the subsequent phases.

To overcome the high levels of uncertainty in information technology projects, an alliancing strategy may be used, provided that the public sector is able to retain the significant project risks and has the requisite negotiation and project management experience.