3.9.2  Qualitative VfM Assessment

The following is an illustrative list of key Value for Money drivers for PPP delivery:

  Complex risk profile and opportunity for risk transfer: Large, complex projects often have complex risk profiles, and risk management is best performed by allocating some portion of that risk to the private sector, who might be better equipped to handle it;

  Lifespan costing: As the whole service delivery process (including construction, operation, monitoring and asset management phases) turns into the responsibility of one Private Party during the concession period, lifespan costing becomes evident and results in more systematic service provision;

  Innovation: As PPPs focus on deriving Value for Money and reducing fiscal burdens, and allow the private sector to design its own works within the framework of stated output specifications, there is a great incentive for the private sector to provide innovative solutions that deliver the service at specified standards but at lower prices, deriving value through improved productivity as a result; and,

  Measurable outputs: As the government emphasises precisely the outputs it requires as part of the contract, PPPs allow for measurable outputs and alignment of the achieved results with what was stated and agreed upon, creating a performance-based contract.

  Long term budgetary certainty: The fixed price nature of service payments under a PPP structure generally provides greater budgetary certainty than payment arrangements under traditional procurements, as a result of which service quality remains largely constant and unaffected by exogenous budgetary shocks.

  Timeliness of delivery: As a result of contractual stipulations, the private sector partner is compelled to deliver the Project on time, and can also be incentivised to do so before the deadline, by structuring the payment mechanism in an appropriate manner. The loss of income that the Preferred Bidder faces on a PPP Project as a result of delayed delivery is likely greater than that a building contractor faces in additional penalties under traditional procurement.

In summary, the PPP Project Team should justify that risks can be properly assigned to the private sector; that the Project has the potential to utilise the private sector's expertise and that the private sector is experienced in achieving quality and timely delivery on similar projects; that there is a competitive market that will ensure a variety of high-quality bids; and, that the risk transfer will be achieved within the PPP framework in a timely manner.