Public Private Partnerships, the Advantages and Disadvantages Examined
WINNER OF The Neil Mansfield Award
G W E B van Herpen, Ministry of Transport, AVV, NL
In this essay, the advantages and disadvantages of public private partnerships are being described. PPP-projects are likely to be successful as those genuinely combining capital and service requirements; where the risks are primarily commercial; where scope for innovation exists; and with skilled and committed public sector management.
The main advantage of public private partnerships is the creation of value for money, which is a collection of several factors. The most important value for money-drivers are the transfer of risk, the output based specification, the long-term nature of contracts, the performance measures, the increased competition and the private sector management. Other important advantages of public private partnerships are the quicker delivery of projects, the improved incentives to market forces, the cost efficiencies, the broad support for PPP and the improved cost calculations by the public sectors.
However, public private partnerships also have some disadvantages. The most import one is the increased transaction costs. This is a result of the complexity of the relations between the diverse actorsand because of the long duration of these relations. The other most important disadvantages are the higher capital costs, the insecurity of being granted the concession, the culture gap between the two sectors and the hold up problem.
Association for European Transport