Comparative performance of PPPs and traditional procurement in Australia

Abstract

Empirical research comparing projects procured as public–private partnerships (PPPs) with other methods of procurement is important because Australian governments plan to spend $320 billion on infrastructure over the next decade and PPPs are perceived to be an appropriate form of delivery. Estimating cost and risks in Australian capital projects is often characterized by optimism bias—the tendency to be overly optimistic about planned actions—and is too often based on insufficient historical data on which to make decisions. Given this broad context it is important to begin to understand in detail how PPPs have performed against other forms of procurement. To achieve this, a detailed study has been undertaken to compare the project time and cost outcomes observed in the Australian PPP market with those projects delivered by governments via traditional procurement methods. Two sets or pools of projects were compared based on a detailed analysis of publicly available data for a sample of 21 PPP projects and 33 traditional projects. This selection was based on a consideration of previous studies, time and cost metrics, project size and the relative complexity of different project types. In comparing the two sets PPPs demonstrated superior cost efficiency over traditional procurement, which ranged from 30.8% when measured from project inception, to 11.4% when measured from contractual commitment to the final outcome. Between the signing of the final contract and project completion, PPPs were found to be completed 3.4% ahead of time on average, while traditional projects were completed 23.5% behind time. The overall conclusion is that PPPs provide superior performance in both the cost and time dimensions, and that the PPP advantage increases (in absolute terms) with the size and complexity of projects.