More recent government attempts to justify the dominance of PPP in large-scale capital investment have focused on the model's ability to deliver projects "on time and to budget". For example, the Treasury (2003) states: "[our] research into completed [PPP] projects showed 88% coming in on time or early, and with no cost overruns on construction borne by the public sector. Previous research has shown that 70% of non-PFI projects were delivered late and 73% ran over budget" (p.43).
After repeated Freedom of Information requests for the Treasury's work on cost and time overruns, officials confirmed that no research report exists. Accordingly, the 88% figure quoted above cannot be validated. Meanwhile, the "previous research" noted refers to two reports from the National Audit Office, Modernizing Construction and PFI Construction Performance. But neither of these studies compares relative performance under different procurement routes. The first is based on interviews with industry about the scope for improved construction. The second is a census of 38 project managers. Indeed, the latter report states: "it is not possible to judge whether these projects could have achieved these results using a different procurement route" (NAO 2003).
In any case, comparing PPP and non-PPP projects for post-contractual price increases (what the Treasury appears to mean by "time and cost overruns") is not a valid method for testing overall value for money. Under a PPP, the risk of cost and time overruns is transferred to the private sector, so it has little flexibility to increase its price during capital works unless major problems emerge. Instead, under PPP, the private sector increases its price before contracts are signed. It is assisted in doing so by the preferred bidder stage - a post-competitive phase of PPP procurement in which the public authority enters into a long and exclusive negotiation process with a single consortium.14
During this period, the private sector can 'hold-up' the public authority, using its advantageous bargaining position to increase prices and reduce the extent of risk transfer. Meanwhile, the scope for public authorities pulling out of such negotiations is limited by the non-availability of other financing routes. In proposing that post-contractual price certainty can be taken as an arbiter of overall efficiency, the Treasury is setting up a comparison which is bound to favour the PPP method. A project that is delivered to time and to budget (in post-contractual terms) may represent very poor value for money if the price paid for the risk transfer that led to that outcome was too high.
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14 According to the National Audit Office (2007), the average length of preferred bidder negotiations for projects that signed between 2004 and 2006 was 15 months.