A PPP arrangement differs from conventional public procurement in several respects. In a PPP arrangement the public and private sectors collaborate to deliver public infrastructure projects (e.g. roads, railways, hospitals) which typically share the following features:
a long-term contract between a public procuring authority (the “Authority”) and a private sector company (the “PPP Company”) based on the procurement of services, not assets;
the transfer of certain project risks to the private sector, notably with regard to designing, building, operating and/or financing the project;
a focus on the specification of project outputs rather than project inputs, taking account of the whole life cycle implications for the project;
the application of private financing (often “project finance”) to underpin the risks transferred to the private sector; and
payments to the private sector which reflect the services delivered. The PPP Company may be paid either by users through user charges (e.g. motorway tolls), by the Authority (e.g. availability payments, shadow tolls) or by a combination of both (e.g. low user charges together with public operating subsidies).
The rationale for using a PPP arrangement instead of conventional public procurement rests on the proposition that optimal risk sharing with the private partner delivers better “value for money” for the public sector and ultimately the end user.
PPP arrangements are more complex than conventional public procurement. They require detailed project preparation and planning, proper management of the procurement phase to incentivise competition among bidders. They also require careful contract design to set service standards, allocate risks and reach an acceptable balance between commercial risks and returns. These features require skills in the public sector which are not typically called for in conventional procurement.
