Economic and Financial Reports Volume 01/2006

Ex Ante Construction Costs in The European Road Sector: A Comparison of Public-Private Partnerships and Traditional Public Procurement

This paper compares the relative cost of building public infrastructure assets as public private partnerships (PPPs) with traditional public procurement. For the purpose of this study, public-private partnerships are defined as infrastructure projects procured under DBFO/M-type contracts that bundle Design, Build, Finance and Operation/Maintenance. When users pay directly for the service, such contracts are also referred to as “Concessions”. Projects that do not exhibit all four characteristics are not characterised as PPPs. Traditional public procurement in this study means any procurement method that is not a DBFO/Concession. It can encompass a wide range of contracting arrangements including separated design, supervision and construction contracts and design-build contracts. However, all these forms involve public rather than private finance. Private finance in turn brings in clear risk allocation and incentive mechanisms, which are
defining characteristics of PPP.