Study after study has shown that public sector cost estimates are consistently too optimistic in terms of a project's cost, timeline, and ability to generate revenue.68 This has certainly proven to be the case for both PCCs and and the costs of PPPs.
In order to counter this effect, the initial PCC and PPP cost estimates should be understood as starting points that are likely to rise as the project progresses. In addition, to counteract this effect, PPPs can be constructed to allow for renegotiation as a project progresses.
The good news for PPPs is that although these partnerships also tend to experience a substantially higher cost than originally estimated, this rise is significantly lower than the average rise through traditional government projects. In fact, a comparative study of a representative sample of PPP and traditional government projects in Australia found that PPP contracts typically had a average cost escalation of over four percent after the contract was executed while traditional projects had an eighteen percent cost escalation.69
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68 Eggers, B., Flynn, M., Walsh, I. & Ziglar, J. (n.d.). Partnering for value Structuring effective public-private partnerships for infrastructure. Deloitte. Retrieved April 10, 2011, from www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Public%20Sector/dtt_ps_partneringforvalue_090
69 Duffield, D., Raisbeck, R., and Xu, M. (2008). Report on the performance of PPP projects in Australia when compared with a representative sample of traditionally procured infrastructure projects. National PPP Forum – Benchmarking Study, Phase II, 1-44