| There is little reliable empirical evidence about the costs and benefits of PPPs. This paper has therefore made a qualitative assessment. It concludes that the more complete transfer of risk that is possible under a PPP, results in better project evaluation and stronger incentives to innovate and minimize whole of life costs. But these advantages must be balanced against the large contract negotiation costs, the inflexibilities of a long-term contract and the reduced competitive pressures on performance after the contract has been entered into (compared with a situation where the contract is re-tendered periodically over the life of the infrastructure). The decision whether to proceed with a PPP rather than with a conventional procurement process turns principally on the following three questions: 1. Is the public agency able to specify outcomes in service level terms, thereby leaving scope for the PPP consortium to innovate and optimize? 2. Is it easy for the public agency to specify outcomes in a way that performance can be measured objectively and rewards and sanctions applied? 3. Are the public agency's desired outcomes likely to be durable, given the length of the contract? If the answer to any of these three questions is "no", then conventional procurement is likely to be preferable to a PPP. |