It is often proposed that major public infrastructure projects should be carried out as "public private partnerships" (PPPs), under which the government franchises a private sector group to finance, build and operate the project over a substantial part of the infrastructure's economic life (often 30+ years).
The main benefits usually attributed to PPPs are accelerated provision of infrastructure projects as a result of using private sector finance, and better value for money due to private sector innovation and whole-of-life cost minimisation, than can be obtained under conventional private sector procurement.
This paper argues that
• There are other ways of obtaining private sector finance without having to enter into a PPP;
• most of the advantages of private sector construction and management can also be obtained from conventional procurement methods (under which the project is financed by the government, and construction and operation are contracted out separately);
• the advantages of PPPs must be weighed against the contractual complexities and rigidities they entail. These are avoided by the periodic competitive re-tendering that is possible under conventional procurement.
The paper concludes that PPPs are worthwhile only if all three of the following conditions are met:
1. The public agency is able to specify outcomes in service level terms, thereby leaving scope for the PPP consortium to innovate and optimize.
2. The public agency is able to specify outcomes in a way that performance can be measured objectively and rewards and sanctions applied.
3. The public agency's desired outcomes are likely to be durable, given the length of the contract.