5 Which is best?

There are a number of benefits associated with the PPP model that can't be fully replicated by the alternative models that we have suggested. The main ones are:

• more rigour from involvement of private sector finance over longer term;

• higher cost certainty for initial project; and

• debt and equity provide a buffer against risk of default/insolvency of the operator.

These benefits certainly make it more likely that a PPP will deliver the best value for money outcome for the initial project.

However, the PPP model creates significant challenges when it comes to securing best value for money on extensions. Whilst there are things that can be done to reduce these challenges, they can't be eliminated without destroying the positive features of the PPP model.

Accordingly, if extensions are contemplated during the term of the proposed PPP contract, serious consideration should be given to alternative delivery models. Even though the alternatives discussed in this paper are less likely than a PPP to provide the best value for money outcome for the initial project, they may provide the best longer term outcome, once the cost of extensions are taken into account.

At the end of the day, the decision probably turns on the likelihood of there being an extension, the relative size/cost of the extension, and the level of confidence that government has regarding its capacity to negotiate a good deal on the extension with its incumbent contractors. Until recently, governments have backed themselves. But the recent delivery model decision for the Parramatta light rail project suggest some lessons may be being learned.