Public private partnerships (PPPs) are contractual relationships governing a long-term public sector acquisition and private sector provision of public works and services. PPPs play an important role in bringing private sector competition to public monopolies in infrastructure development and service provision and in merging the resources of both public and private sectors to better serve the public needs that otherwise would not be met. However, many PPP projects suffered disastrous consequences because of construction cost/duration overruns, changing market demand, depreciation of local currencies and/or reduction in tolls/tariffs. Some of them had been postponed or abandoned by the sponsors and others had to be bailed out by host governments. Substantial controversy and criti...[ Read more ]

Public private partnerships (PPPs) are contractual relationships governing a long-term public sector acquisition and private sector provision of public works and services. PPPs play an important role in bringing private sector competition to public monopolies in infrastructure development and service provision and in merging the resources of both public and private sectors to better serve the public needs that otherwise would not be met. However, many PPP projects suffered disastrous consequences because of construction cost/duration overruns, changing market demand, depreciation of local currencies and/or reduction in tolls/tariffs. Some of them had been postponed or abandoned by the sponsors and others had to be bailed out by host governments. Substantial controversy and criticism exist in many countries over whether PPPs have achieved value for money. This situation calls for improved methodologies and practices to enhance the value for money (VFM) of PPP projects.

A comprehensive framework is developed in this research to integrate different stages in the delivery of PPP projects and systematically address the key issues in each stage in order to continuously improve VFM. This framework is based on worldwide best industrial practices and lessons from unsuccessful projects, aimed at public–private win–win outcomes, and justified by public procurement principles. A validation process has been conducted to justify the proposed framework and evaluate its potential application in the industry. This framework integrates four broadly divided stages in the infrastructure and service delivery process, including (1) design of a workable concession, (2) competitive concessionaire selection, (3) project regulation of the selected concessionaire during the concession period, and (4) periodic concession rebidding to allow new entry for the concession. The public procurement principles and public–private win–win solution act somewhat as guidelines or constraints for decisions made in each of the four stages of the framework, which repeat over time possibly as long as the product/service is needed. The four-stage framework takes into account the requirements of public services, realignment of responsibility and reward among multiple participants in PPPs, the monopolistic rights of the concessionaire, and the wide range of risks and uncertainties in the long concession period. The design of the right concession forms the base on which other stages are implemented in addition to planning the project and allocating risks for enhanced efficiency. The project regulation allows the government to address changing conditions and regulate the concession for efficient operation with due discretion, whereas the competitive concessionaire selection and periodic re-concession and rebidding play an important role in achieving innovation, efficiency and cost effectiveness through direct competition. In addition, varying competition elements are incorporated in each of the four stages for continuous performance improvement of the concessionaire in the delivery of infrastructure and services.

VFM has been used in many countries as an indicator to evaluate the performance of PPP projects from the government’s perspective. However, the industry has been criticized for the methods used in assessing the VFMs of PPP projects. In addition, there are great variations in the VFMs of international PPP projects due to a number of factors affecting the setting and attainment of the VFM. There is a need to improve the VFM assessment methodology in view of different types of PPP projects. An empirical approach has been taken, in which a total of 397 PPP projects in Japan have been examined to identify key influencing factors and evaluate their impacts on VFM. A data-preparation task has been undertaken, in which projects with incomplete and/or unreliable information are removed after careful examination of each project and 207 projects remain. A statistical analysis of the 207 PPP projects has shown that there are significant correlations between VFM and the four influential factors: assessment time, project sector, market dependence, and investment scale. These outputs would provide some insights on the improvement in the VFM assessment of PPP projects. Improved VFM assessment would allow a suitable VFM to be determined for a particular PPP project in accordance with its specific operational environment, balance the interests of both the public and private sectors, and promote the participation of the private sector in the timely provision of necessary public works and services.

VFM is highly dependent on the performance of the concessionaire. A workable concessionaire selection process is very important in ensuring the selection of a competent concessionaire. International experience has revealed that inherent weaknesses and drawbacks in the traditional tendering system, coupled with a poor understanding of the special features of the selection procedure for PPP projects, result in a concessionaire selection process fraught with confusion and pitfalls for both private investors and public clients. Through literature review, 35 factors that impede the concessionaire selection process are identified. Consequently, a structured questionnaire survey has been conducted, in which respondents were requested to judge the significance of each of the 35 impeding factors on a six-point scale. Through statistical analysis, nineteen factors are found to be critical factors. The results of the Mann-Whitney U test indicate that there is no statistically significant difference between the academic and industry sectors’ perception of most of these factors. Both the Kaiser-Meyer-Olkin test and the Bartlett’s test of sphericity support the conclusion that the survey data are adequate for factor analysis. Consequently, the critical factors are further categorized into four components by a factor analysis: “opaque and weak legal and regulatory system,” “lack of skills and experience in concessionaire selection,” “weaknesses inherent in traditional tendering,” and “unfavorable local circumstances.” These results should help contracting authorities determine the key managerial implications and remove the impeding factors and policy-makers and planners determine the most crucial areas that require improvement. These actions will definitely contribute to an improved concessionaire selection process to enhance VFM of PPP projects.