There is lively debate at present about the allocation of risk between government and the firms it contracts with to construct public infrastructure. In particular, many industry players are unhappy with the risk allocation inherent in proposals going to market: 'John Holland will no longer bid on projects where it believes the risk profile is unacceptable,' its CEO, Joe Barr, said in March 2020.168
Australian governments allocate risks among the parties through the choice of contract type, and the precise terms of the contract. The Public Private Partnership, or PPP, model is widely used because it allocates additional risk to the private sector.169 The risk allocation comes at a cost, of course, the idea being that PPPs can result in lower costs than traditional delivery models if the additional commercial discipline is greater than the higher costs of private capital that PPPs incur.
We have been unable to analyse the impact of contract type on cost outcomes for this report, due to the paucity of data available. There have been very few Australian studies of this question, and those that have been published have been limited by very small sample sizes. Governments should invest more in understanding the patterns of outcomes of different contract types.
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168. Wiggins (2020b).
169. Hayford (2020b, p. 4).