What are the pros and cons of PPP?
Public Private Partnership (PPP) has become one of the most popular ways of funding infrastructure projects in countries around the world. They bring together a public authority with a private sector business with the aim of collaboration that will yield benefits for both sides. The ultimate aim of every PPP project is to deliver better value for money and more efficiency – and to provide some benefit for the public. PPP has many fans and also some critics. So, what are the pros and cons of the PPP way of working?
- More projects get completed. PPP projects tend to be the type of projects that either the public authority or the private sector business would be unable, or unwilling, to complete alone. By using the PPP model, both are encouraged to invest in projects that otherwise might get passed over.
- The project risk is spread. PPP projects often simply wouldn’t be viable for one business to take on alone in terms of the risks involved. However, when this risk is spread over both the public and private partners then it becomes much more manageable.
- The public is protected. As far as the public is concerned, one of the major pros of PPPs is that the public sector is projected from some of the biggest risks of the project, as these are largely transferred to the private sector business. So, for example, typical project risks such as the cost of delays or going over budget are the responsibility of the private sector business and the expense is that partner’s to bear. So, while the public will benefit from the end results of the project, the risks involved in getting it to completion are mitigated by passing these to the private sector partner.
- Remuneration is usually performance based. To ensure that private businesses don’t end up receiving large amounts of public sector money for little effort, PPP payments are usually performance based. This provides an additional incentive for the private partner involved to deliver on goals, timelines and objectives.
- PPPs often reach completion more quickly. When a PPP project runs smoothly it tends to be much faster and more efficient than a public authority project would be. This can make all the difference where the PPP project is something like travel infrastructure urgently required by commuters.
- Higher risk, higher reward. Because the private partner is bearing a much larger proportion of the risk than the public partner they may also expect to receive more substantial remuneration as a result, which can make a PPP costly.
- When PPPs go wrong, they go really wrong. Although there are contractual financial penalties for private partners if the targets for a PPP project are not met, there can still be considerable expense involved for a public authority where a project has gone wrong. It may be necessary to find another partner or complete the project with public resources and that can cause the costs to shoot up and the value for money calculation to be blown apart.
PPPs are just some of the ways that housing and construction infrastructure is created in the UK. At RG Group we are always on top of the latest news and trends in our sector.