18. PPPs are just one of a number of options available to governments seeking to build infrastructure or to provide a service. They are usually juxtaposed with traditional public sector procurement where the public sector may contract for the construction of an asset, with the relationship with the private sector builder or contractor ending after construction and the government then operating and maintaining the facility and or providing the service. PPPs are not an end in and of themselves and should be seen in the context of a continuum of delivery options for infrastructure or services. The decision to invest should be based on a whole of government perspective and be separate from how to procure and finance the project (OECD 2012: Recommendation of the Council on Principles for Public Governance of Public-Private Partnerships).
19. It is only after a decision has been made that an infrastructure asset or service is necessary or desirable in light of government's strategic objectives and fiscal capacities that a decision can be made as to the most appropriate method of procurement. Value for money can be defined as what a government judges to be an optimal combination of quantity, quality, features and price (i.e. cost), expected (and sometimes, but not always, calculated) over the whole of the project's lifetime. The value-for-money concept attempts to encapsulate the interests of citizens, both as taxpayers and recipients of public services. PPPs and traditional infrastructure procurement are merely two modes to deliver value for money with the choice between them depending on which delivers the most value for money (OECD, 2011).
20. Detractors of PPPs question how a PPP can deliver value for money given the profit motive of the private sector participant. In theory, government and the private sector should be able to build the same asset or provide the same service for roughly the same cost. When the profit margin, absent in the publicly-procured project is added to this cost, the PPP should be more expensive. Critics also point out that in the case of debt-funded projects, governments can usually issue debt at lower interest rates than private-sector developers4. However, an OECD literature review that compared the ex-post performance of PPPs that had successfully reached completion and traditional infrastructure procurement on actual cost and time required to launch operations found that PPPs outperform traditional procurement in terms of both cost and time overruns, with outperformance on cost being the most significant (OECD, 2011).
21. Some of the factors that allow PPPs to create greater value for money than public procurement are considered below. These factors may also be considered to be among the appropriate reasons to procure by PPP.
| Box 3. Assessing value for money in proposed PPP projects Prior to undertaking a public-private partnership, a government should explore whether or not a PPP will deliver better value for money compared to traditional public procurement. Generally speaking, four methods may be used to assess the relative value for money of the different delivery models: • a complete cost-benefit analysis of all alternative provision methods available to both the government and the private sector - this method is the most complex among the four presented here; • calculation of a public-sector comparator before the bidding process to assess whether or not public-private partnerships in general offer better value for money (e.g. South Africa); • calculation of a public-sector comparator after the bidding process to assess whether or not a particular public-private partnership bid offers better value for money; and • the use of a competitive bidding process alone without a comparison between public and private provision methods (e.g. France). In Australia, Partnerships Victoria uses a public-sector comparator to compare the net present cost of bids for the public-private partnership project against the most efficient form of delivery according to the output specification (a so-called reference project). The comparator takes into account the risks that are transferable to a probable private party, and those risks that will be retained by the government. Thus, the public-sector comparator serves as a hypothetical risk-adjusted cost of public delivery of the output specification of a Partnerships Victoria project. The methodology for preparing the public-sector comparator is published by Partnerships Victoria. Some have contested the robustness of the public-sector comparator, claiming that it is constantly manipulated in favour of public-private partnerships. The United Kingdom, for example, has replaced the public-sector comparator to incorporate quantitative and qualitative factors in a value-for-money assessment. Quantitative factors include a reference project, and value-for-money and affordability benchmarks. Qualitative factors include project visibility, desirability and achievability. Source: OECD (2010), Dedicated Public-Private Partnership Units: A Survey of Institutional and Governance Structure, OECD Publishing, Paris, 2010. |
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4 . Hall D. (2008), Critique of PPPs, Public Services International Research Unit, The University of Greenwich; Hodge G. and Greve C. (2005), The Challenge of Public-Private Partnerships: Learning from International Experience, Cheltenham UK: Edward Elgar Publishing Limited