Significant transaction costs can be incurred by public entities procuring a PPP, with PPP arrangements tending to be highly complex. Transaction costs are incurred by both public sponsors and potential private sector providers at the procuring stage while preparing and negotiating a PPP. When a PPP is awarded, additional costs maybe incurred to monitor performance to ensure that a PPP agreement is being adhered to.
The impact of transaction costs can be reduced by providing the private sector opportunities to participate in projects that have scale, in terms of time and expenditure. Public agencies in Australia vary in their views of the appropriate minimum project value required before a PPP becomes worth pursuing. The Victorian Treasury recommends a project value of at least A$10 million while New South Wales Treasury recommends a project value of at least A$20 million. On the other hand, the Queensland Government considers A$250 million as a minimum.
The impact of transaction costs can be mitigated through a variety of methods: decreasing administration complexity, standardizing PPP procurement procedures, combining a series of smaller scale projects, and increasing the lease period of a contract.