is economic efficiency an objective in ppp transport projects?

Open Day, 22 March 2012 PPP in Transport: Trends & Theory

Is economic efficiency an objective in PPP transport projects?

Odeck, J., Liyanage, C.L., and Voordijk, H.


Motivation• Economic efficiency should be an important factors driving the use of PPPs as

compared to traditional procurements • The literature on PPP transport has not explored the role that economic efficiency

plays as an objective for PPPs

• COST Action U1001 has one of its objectives to enhance economic efficiency as an argument for using PPPs transport

• A comprehensive literature review is being compiled in COST Action U1001 gives an opportunity to study how economic efficiency is considered as an objective in PPP transport

• If economic efficiency is not an objective it would be a good idea to advise on its use to judge the most appropriate form for procurement (otherwise, why should PPP be of interest as compared to traditional procurement procedures?)


Objective• Using a comprehensive literature review compiled in the ongoing COST

Action TU1001 we:

I. Examines the extent to which economic efficiency has been considered as a major objective in PPP transport projects.

II. Examine the extent to which economic efficiency as an objective differs between stakeholders and;

III. Examine what the literature tells with regards to whether PPPs are more economically efficient compared to traditional form of procurement arrangements.


Relevance to COST Action TU1001


Structure of the database


Structure of the database

Stakeholder Performance objective

Sub-Element (strategic, operati-onal, User, Financial, Risk, Political)

KPIs Transport Mode

National Perspective

User Reliability Operational Road Lane Availability

Roads

Effi ciency Port Cargo Dwell Time

Ports

The database contains 67 original studies and is being expanded Each study can contain up to several data points with regards to performance objectives


Methodological approach• A systematic review of the literature database with respect to PPP

transport while focusing on the extent to which economic efficiency was a major objective

• A systematic review of studies that have compared the merits of PPP versus traditional procurement from economic efficiency point of view


What is economic efficiency as an objective?

0

capital outlay for project thro' government budget

( ) • (1 )

and

/

Tt

i it itt

ii

NPV B C r

NPVB C ratioC

i

tB is the sum of benefits(outputs) at time t, tC is the sum of costs (inputs ) at time

t, r is the discount rate hence (1 ) tr is the discount factor and i is the project

being evaluated

Any objective that maximizes NPV or any of its components !


Results (1): Is economic efficiency a major objective of PPPs transport?

The available objectives as seen by stakeholders were stated 167 times. Economic efficiency were stated 31 times by the public sector and 24 times by users.

Public sector Completion of project 1Effectiveness 12Efficiency (the implementation of projects) 1Efficiency (whole life cycle costing) 12increase the efficiency of the economy 1Value for money 4total(public sector) 31UserAccessibility 2Availability 5Comfort 4Minimisation of VOCs 8Value for money 5Total (users) 24Grand total 86% all objectives 53.3

Economic efficiency is clearly a major objective with PPP transport !


Results (2): Do stakeholders value economic efficiency differently?

Public sector UserCompletion of project AccessibilityEffectiveness AvailabilityEfficiency (the implementation of projects) ComfortEfficiency (whole life cycle costing) Minimisation of VOCs increase the efficiency of the economy Value for moneyValue for money

1) Economic efficiency seem to be equally important for the public sector and user2) However and as expected, the economic efficiency indicators are emphasized differently3) While users emphasize user benefits, the public sector emphasize efficient completion

delivery and completion4) User and the public sector concur with respect to value for money as an important objective

Thus, a successful PPP should be the one that addresses the different objectives of stakeholders


Result (3): Are PPPs more economically more efficient?

PPP is economically more efficient if the following benefit cost analysis holds:

• In such a case, the PPP procedure would give more returns per Euro invested as compared to traditional procurement

• There are many studies in the literature that have theoretically addressed this issue but the results are fairly inconclusive

/ / or if / / 0

PPP conventional

PPP conventional

B C ratio B C ratioB C ratio B C ratio


Result (3) cont.

• The database contained the following studies that have compared PPP versus traditional procurement

• Only three countries so far in the database

• A total of 94 transportations projects have been evaluated which should give some indications on the relative merits between the two types of procurement

Type Number of projectsNorway Roads 3United Kingdom All incl. Roads 37Australia All incl. 23 transport projects 54


Result (3) cont.

• The following results could be derived from the comparisons

Traditional PPP

Cost overruns Time overruns Cost overruns Time overruns

Norway 10.0 % * 10.0 % 35-50% lower

Australia 14.8 % 17.0 % 1.2 % 10.0 %

UK 73.0 % 70.0 % 22.0 % 24.0 %

1) PPPs tend to demonstrate better cost efficiency as compared to traditional procurement; 2) PPPs projects are completed earlier than traditionally procured projects. This implies

that benefits accrue to users earlier compared to traditionally procured projects. The overall conclusion is that PPPs seem to perform better in both cost and time dimensions as compared to traditional procurement.


Concluding remarks

This study, although preliminary, has revealed some interesting findings from the literature database that is being compiled:

I. Economic efficiency is a major objective for 50% of the projects studiedII. the different stakeholders focus on different aspect or elements of

economic efficiency and,III. The literature reveals that PPPs outperforms traditional form of

procurement with respect to cost efficiency and time dimensions.

These results are unique in the sense that no previous study has summarized the existing literature the way we do in this paper.

The potential for improving this paper lies in refining the database and collecting more data to make the conclusions more robust


Thanks for your attention!

[email protected]

is economic efficiency an objective in ppp transport projects?

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ppp transport projects

economic efficiency

merits of ppp

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cost action tu1001 open

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