The allocation of design and construction responsibility to the private sector, combined with payments linked to the availability of a service, provides significant incentives for the private sector to deliver capital projects within shorter construction timeframes.
Better risk allocation
A core principle of any PPP is the allocation of risk to the party best able to manage it at least cost. The aim is to optimise rather than maximise risk transfer, to ensure that best value is achieved.
Acceleration of infrastructure provision
PPPs often allow the public sector to translate upfront capital expenditure into a flow of ongoing service payments. This enables projects to proceed when the availability of public capital may be constrained (either by public spending caps or annual budgeting cycles), thus bringing forward much needed investment.
Reduced whole life costs
PPP projects which require operational and maintenance service provision provide the private sector with strong incentives to minimise costs over the whole life of a project, something that is inherently difficult to achieve within the constraints of traditional public sector budgeting.
Improved quality of service
International experience suggests that the quality of service achieved under a PPP is often better than that achieved by traditional procurement. This may reflect the better integration of services with supporting assets, improved economies of scale, the introduction of innovation in service delivery, or the performance incentives and penalties typically included within a PPP contract.
Better incentives to perform
The allocation of project risk should incentivise a private sector contractor to improve its management and performance on any given project. Under most PPP projects, full payment to the private sector contractor will only occur if the required service standards are being met on an ongoing basis.
International interest in PPPs is...
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