The risky business of public–private partnerships

TLDR

Public‑private partnerships are now a common third‑way government policy, promising greater efficiency by transferring infrastructure risks to private parties. The study empirically examines risk transfers in PPPs, comparing actual outcomes with proponents’ rhetoric and contract terms, and highlights the financial and contractual implications of these transfers. The authors outline conceptual frameworks of risk shifting and sharing, detail typical infrastructure risks and their differences from traditional delivery, and present a case study illustrating empirical risk transfer. The analysis shows that while commercial risks were largely transferred to private parties as intended, governance risks largely remained with the government.

Abstract

Public–private partnerships (PPPs) are now a common strand of third way government policy, with better efficiency promised from the private funding of public infrastructure through the transfer of risks to private parties. This paper aims to investigate, on an empirical basis, the realities of risk transfers in PPPs and compare this experience against both the rhetoric of project proponents and the formal contract conditions. The paper outlines some conceptual frameworks underpinning PPPs and establishes the notions of risk shifting and risk sharing. The range of typical risks encountered in infrastructure projects is specially considered, and differences to traditional project delivery arrangements are articulated. Some empirical experience on the transfer of risks under PPPs is then outlined through a case study. This analysis shows the extent to which risks were shifted to the private parties as planned, or whether risks remained with government. It is argued that while commercial risks were largely well managed, governance risks were not. It is critical to understand better the nature of risk transfers in PPPs in view of the large financial implications of these deals along with long contract terms.