Value for money from PPP projects is 'yet to be proven'

13 April 2012

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13 April 2012 | Adam Leach

The potential benefits of public private partnerships (PPP) are eroded by inflexible contracts, high transactional costs and an unfair balance of commercial skills between the parties involved.

Taking Stock of PPP and PFI around the world, commissioned by the Association of Chartered Certified Accountants (ACCA) and conducted by Manchester Business School, argued the virtues of jointly funding large scale infrastructure projects by the public and private sector have been “mis-sold” in the UK.

The report identified a number of issues, such as a disparity between the commercial skills of the parties and the fact the public sector still takes the bigger risk, which means the funding mechanism rarely provides better value for money than wholly funding them through the public purse.

“The value for money case for PPP/PFI in the public sector has yet to be proven,” said professor Graham Winch of Manchester Business School. “The benefits gained from the availability of extra finance, the transfer of risk from public to private sector, and improvements in decision-making are too nebulous to provide any certainty that they outweigh all the known problems about PFI.”

The study concluded project delivery through a PPP is at the same level or better than with a fully publicly funded process but relies heavily on strong commercial skills in the public sector to prevent over-runs. It also said there was no evidence to suggest the model produced more efficient infrastructure.

It added PPP contracts tended to be less flexible which resulted in additional costs being accrued when operational flexibility was required. It cited a 2007 National Audit Office report that found on average, private finance projects took 34 months to close, around double the amount of time of conventional projects.

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