PPPs can be inflexible when it comes to making changes to a project.
The primary reason for this is the involvement of private finance. Any change to a PPP project that affects the rights or obligations of the SPV will not only require the agreement of the contractors to whom those rights or obligations have been passed through, but also the SPV's debt financiers and equity investors. Negotiating a deal that enables the SPV to obtain the agreement of all of these parties is a major challenge for any government that wishes to make a significant change to an asset which is the subject of a PPP contract.
The long-term nature of PPP contracts is another cause of inflexibility. Waiting for contracts that constrain government's ability to make changes to expire is not an attractive option if those contracts still have many years, or decades, to run.
There are steps that parties can take to build greater flexibility into PPP contracts. Some of these are discussed later. Even so, there are limits on the flexibility that can be achieved, given the inherent features of the PPP model. This lack of flexibility is especially problematic when a PPP asset forms part of a broader network. Government can find that the PPP contract not only impairs its ability to make changes to the PPP asset, but it also impairs government's ability to make changes to the broader network. In these situations, government may be better served by a more traditional contracting model that can more easily accommodate future changes. |
| "PPPs are inflexible because they involve many more parties than more traditional contracting models, and because they are long term in nature." |