Efficiency of PPPs: The Case of Australia

A new report from the University of Melbourne, Australia carried out a comprehensive comparison between traditional government and privately delivered projects.  Its overall conclusion was that PPPs provide superior performance in both the cost and time dimensions, and that the PPP advantage increases (in absolute terms) with the size and complexity of projects.  Some of the main points were:

• PPPs demonstrate clearly superior cost efficiency over traditional procurement when measured from project inception and also from contractual commitment through to the final outcome.
• In absolute terms, the PPP cost advantage was found to be economically and statistically significant: for PPP projects the net cost over-run was virtually zero while traditional procurement projects had significant net cost over-runs.
• Approximately $A400 billion is likely to be spent on Australian infrastructure over the next decade.  If PPPs were to continue to account for a 10-15 percent share of this, the study concluded that PPPs would generate approximately $A6 billion (net of bid costs) in potential benefit to the community.  This potential benefit was seen likely to be even greater because:
  
  
  • There is a benefit from completing projects on time and enabling the community to have access to the infrastructure facilities sooner.  A valuation of this benefit was not included.
  • The PPP framework imparts another level of competition for traditional procurement.  The lessons learned by governments participating in the PPP process with respect to risk analysis, rigorous structured project initiation through the use of business cases and other tools, have been partly transferred to the management of traditionally procured infrastructure projects.
  • The study did not include benefits arising from PPPs’ integrated provision of management, construction and ongoing operations which were another major source of potential advantage for PPPs over traditional procurement.  The de-coupling of management/construction and operations phases in traditional procurement projects created additional sources of inefficiency.
• On time over-runs, on a value-weighted basis, the study found that traditional projects were likely to be completed later than PPPs relative to the budget – on average PPPs were completed slightly ahead of time while traditional projects were completed significantly behind time.
• While smaller traditional projects were completed ahead of time, the study found that project size had a marked negative impact on time over-runs compared with PPPs whose timeliness of completion were not negatively impacted by size of project.
• The study found that PPP projects were far more transparent than traditional projects as measured by the availability of public data for this study.