Public Private Partnerships: A licence to print money … or value for money?
The first objective is to clarify what the value of a public asset such as a PPP infrastructure is? In order to address this question, the author will present fundamental definitions of what a PPP is, what an asset is and what value is? The second objective is to clearly explain what value means from the perspectives of the different stakeholders, and the author introduces a graphic model to illustrate what ‘value’ means to each stakeholder. The third objective is to review some of the current methodologies that are applied in the decision making with respect to PPPs and different evaluation techniques. The fourth object is to critique the use of some of techniques and tools. Finally, the author will review the concept of VfM for a PPP and present his conclusion to the question ‘Are PPPs a licence to print money’?
The value of a public asset is determined by the standard accepted rules such as FRS and/or GAAP. The evaluation methodology that is applied depends on whose balance sheet the asset resides on and on which side of the balance. So if the asset is valued from the perspective of the public agency, it is a cost or a liability and that is its value. In determining whether a decision is made to proceed with a specific project the use of a CBA is one of the VfM tests for a PPP. If the asset is on the balance sheet of the private consortium, then the value is determined as a function of future earnings in perpetuity.
The concept of the Polygon of Perspective Value clearly illustrates how the same asset can have different values to different stakeholders and how this may change over time.
The author has reviewed the different evaluation methodologies and tools for decision making. The conclusion is that these methodologies and techniques are fit for purpose provided care and attention is taken with respect to the assumptions that apply for each.
Do PPPs offer VfM or are they a licence to print money? As a learned colleague once said ‘Price is what you pay, value is what you get’. Yes PPPs do offer value for money, however the price is that is paid is subjective and depends on the perspective of the buyer and the seller. Are PPPs a licence to print money? That depends on the terms and conditions of the actual binding contractual agreement and market conditions.
The outcome of this paper is that there is a requirement for further research into the whole area of risk transfer and whether the reward for carrying the level of risk is proportionate and appropriate. The next step is to investigate the different models and methodologies that are applied in determining the value of risk transfer in a PPP project compared to the traditional methodologies of procurement (Figure 1). Yes a PPP does offer value for money if best practice guidelines are adhered to, particularly in the design, build and transfer stages of delivering large-scale infrastructure projects.
But price is what you pay on the day.