How To Attain Value for Money: Comparing PPP and Traditional Infrastructure Public Procurement

Governments increasingly use public-private partnerships (PPPs) to pursue value for money. However, value for money is (or at least, should be) the driving force behind traditional infrastructure procurement. Therefore, any project, whether it is a PPP or a traditionally procured project, should be undertaken only if it creates value for money. It seems that the choice between using a PPP or traditional procurement should be simple: governments should prefer the method that creates the most value for money. However, in practice the value-for-money objective is very often blurred, and the choice between using a PPP and traditional infrastructure procurement may be skewed by factors other than value for money. Some factors skew choice towards traditional procurement, while others skew it towards PPPs. Drawing on the results of a questionnaire sent to all OECD and some non-OECD countries, this article considers the various factors that may skew this choice and thereby undermine the pursuit of value for money. The results of the questionnaire point especially to differences in the range and complexity of the ex ante and ex post value-for-money tests that some governments apply to PPPs and traditionally procured infrastructure projects. However, accounting standards, political preferences for or against PPPs, and the strength of public sector unions also play, among others, a role in skewing incentives and affecting choice in some countries. The findings of the questionnaire are augmented by four case studies setting out the procurement processes for PPPs and traditional infrastructure procurement in France, Germany, Korea and the United Kingdom. With the focus on the attainment of value for money and by exploring the issues raised in the responses to the questionnaire, this article sets out some good practices that will align the requirements for these two types of procurement and remove possible perverse incentives that favour one over the other. JEL classification: H400, H440, H540, H570 Keywords: value for money, public-private partnerships, PPPs, traditional public procurement, infrastructure, public choice