Risk transfer and value for money by infrastructure project type

ABSTRACT

In deciding whether an infrastructure project should be delivered using traditional procurement or a public-private partnership (PPP), the public sector estimates the project’s value for money (VFM), which serves as the principal justification for adopting PPP. It is well known that VFM arises primarily from risk transfer, that is, the risk of (for example) potential cost overruns is transferred from the public sector to the private sector under PPP, thereby creating cost savings to the public sector. Using a unique source of PPP data, Infrastructure Ontario, Canada, this paper investigates an issue not examined systematically and quantitatively in the literature: how the contribution to VFM arising from risk transfer varies from project type to project type, and why.

KEYWORDS:

• Public-private partnerships
• risk transfer
• value for money
• Infrastructure Ontario

JEL CLASSIFICATION:

• H44
• H54

Disclosure statement

No potential conflict of interest was reported by the author(s).