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An analysis framework for public-private partnerships

University of British Columbia

A number of decisions confront both the public and private sectors when considering the use of a Public-Private Partnership (PPP) approach for a given project. They include: identifying the design alternatives which best satisfy public needs and the project's constraint set; what PPP approach is best suited for the alternatives selected; and, for a given PPP approach, how should risks be mitigated, residual risks assigned, and what compensation is justified. Additional decisions from a private-sector viewpoint deal with whether to pursue a proposal or not, and under what conditions should a consortium withdraw from the process. In seeking help with these decision problems, one finds that the knowledge base required is highly fragmented, little objective assessment of the pros and cons of various approaches is available, few real life experiences have been analysed and documented in the form of case studies, and, formal tools to assist with these decisions are few and invariably lack the depth commensurate with the magnitude of the commitments and risks involved. This work presents an analysis framework designed to address several of these decisions. This framework was derived based on a thorough review and analysis of the literature, a case study of the Northumberland Strait Crossing project (The Fixed Link to Prince Edward Island), and significant interaction with the B.C. Ministry of Transportation and Highways (MoTH-B.C). As part of this framework, an economic evaluation model which provides a mechanism for unifying the phases, and the cost and time consequences of the performance/risk dimensions which characterize a project is developed. This model can be used for both deterministic and probabilistic analyses, from which valuable insights dealing with the behavior of PPP projects can be drawn. They include: quantification of overall economic and financial performance as a function of different variable values; estimation of overall risks, their composition and probabilities of failure; bounds on rates of return; tradeoffs between rates of return and risk assignment strategies; and, the relative effectiveness of different strategies for project speed-up (e.g. fast-tracking versus construction acceleration). A hypothetical case study is used to illustrate the power of the developed framework and the diversity of issues that must be addressed for PPP projects. Key findings in this research include: - Each project is a unique case and has to be assessed based on its merits and constraints. However, documentation of the experience gained in every project, especially in terms of risks is essential for enhancing the scant knowledge base that currently exists; - In general, and given the government's capability to acquire financing at a lower price than can the private sector, BOT's could be more expensive from a user-charge perspective, unless savings can be achieved in other project inputs such as capital costs and operating and maintenance costs. However, they can be potentially viable in cases when no funds are available, or for projects that have near monopoly situations; and, - Acceleration strategies such as fast-tracking design and construction and acceleration of construction exhibit only marginal benefits. The greatest benefits of adopting these strategies are expected when penalties are imposed for untimely completion of construction. The thesis highlights some of the knowledge gaps that exist in the literature and concludes with several recommendations for further research to enhance the developed framework.

Thesis/Dissertation

application/pdf

2009-03-19

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http://hdl.handle.net/2429/6217

Civil Engineering

University of British Columbia

UBCV

DSpace