The higher contractual certainty of cost and time outcomes on PPPs is also a result of the additional effort government agencies invest when preparing PPP projects relative to more traditional contracts. There are many reasons for this, including the long-term nature of PPP contracts, their high value, and the involvement of treasury departments.
The long-term nature of PPP contracts makes government think more carefully about the service outcomes that a project should achieve. Why is the infrastructure required? What problem is it solving? Are there cheaper solutions? How will success be measured?
Consequently, the tender documents for PPP projects tend to be more output-focused - they specify the services that government want delivered, rather than the means by which those services are to be delivered. Infrastructure should be focused primarily on the service outcomes to people and business, rather than the establishment of physical assets which may or may not continue to serve the needs of stakeholders and the wider community over time.
The end result is that government's objectives, requirements and specifications for the project are better developed at the time when tenders are called. This, in turn, results in fewer government-initiated contract variations after the contract is awarded. The level of risk assessment by government agencies prior to contract award is also much greater on PPPs for the same reasons. The risk analysis that underpins the government's cost estimate tends to far exceed the risk analysis performed by government for cost estimates for traditional procurements. This additional analysis makes the government agency a more informed purchaser, better able to interrogate the pricing and risk assumptions of bidders. |
| "The level of risk assessment by government agencies prior to contract award is much greater on PPPs."
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In theory, there is no reason why government agencies cannot put the same effort into the preparation of output-focussed tender documents, and risk and cost assessments, for traditional procurements. However, while the best practices developed on PPPs are slowly being applied by Australian governments to traditional procurements, PPPs still tend to set the benchmarks in terms of project scoping and risk assessment by government, given the higher levels of expenditure involved.