Measuring the value for money of transport infrastructure procurement; an intergenerational approach

Abstract

Cost-benefit analysis is essential for decision-making in connection with major transport projects and integrated investment programmes. Projects of transport infrastructure have traditionally been publicly promoted and managed, but funded through both public and private sources. While budget allocations are always somehow present, the financing of the project may involve private participation, including user fees and loans of various types. Actually, management models involving private actors have been increasingly used in recent decades. The background supporting this trend is that private ingenuity and expertise in dealing with risk improves overall project efficiency enough to compensate for the additional expenditure generated by these models. In addition, the government promoting the investment may use private finance as a mechanism to place it off-budget.Current methods of project appraisal, in particular cost-benefit analysis, look at actions from the point of view of today’s society. Decision makers usually determine the financing formula after the decision to build has been adopted, which should ideally follow a positive conclusion on the efficiency of the project. But the financing formula has an impact across the successive generations of users and/or taxpayers that will end up footing the bill stemming from the investment. This paper actually highlights the importance of looking closely at the intergenerational effects of the adopted financing mechanism to ensure its fairness and convenience. It describes the outcomes obtained from the analysis of the intergenerational impacts performed with IREM –a model developed precisely to analyse these effects – to a set of urban public transport infrastructure projects. The IREM results show that public-private partnerships, although often entailing a substantial increase of the public expenditure linked to these projects compared to conventional procurement mechanisms, are typically better in terms of intergenerational fairness. This conclusion cannot be extended to all PPPs, as it depends on the alternative public sector funding, but it is a strong argument in favour of including in the Value for Money analysis of PPPs, besides the standard efficiency and financial considerations, an analysis of the intergenerational effects of the different procurement options and to compare these effects with those of the purely public financing alternative.