Have We Lost Interest in Public-Private Partnerships?

The latest instalment of the World Bank’s half-yearly reports on Private Participation in Infrastructure (the PPI Database Half Year (H1) Update 2023, available at https://ppi.worldbank.org/content/dam/PPI/documents/PPI-Half-Year-H1-Update-2023.pdf), paints a depressing but familiar picture. Investment by the private sector in Emerging Market and Developing Economies (EDME) continues to ‘flatline’, at levels well below the heady metrics of 2014 and 2015.

And the malaise with Public-Private Partnerships (PPPs or P3s) is not confined to EDME countries – it extends as well to advanced economies. Even in Canada – which has been a long-standing champion of P3 projects – enthusiasm seems to be waning. As discussed in a November 2023 paper by the University of Toronto’s Munk School of Global Affairs and Public Policy, there is an evident loss of interest in PPPs, in both the public and private sectors:

At the turn of the 2020s, the narrative on PPPs shifted, along with public sentiment and project delivery practice.…

Institutionally within government, the overwhelming preference for PPPs faded…

As governments sought to transfer significant construction cost risks to the private sector to achieve on time and on budget performance, these risks began materializing and becoming more costly than some firms could bear. …

Receiving sufficient competition for PPP project calls for proposals became increasingly difficult, as fewer firms had the appetite or the financial ability to bid for the largest and most complex projects.[1]

Yet there is – clearly – still a compelling need for private sector infrastructure investment, if we are to close the global ‘infrastructure gap’. This is particularly true in lower-income countries, where we are falling well short of meeting the infrastructure commitments set out in the United Nations Sustainable Development Goals.

These discouraging realities were the subject of a presentation I gave at this year's annual Istanbul PPP Week conference, on 6 March 2024 (a copy of my presentation slides is available at https://www.mmminfra.com/). The argument I advanced was that the public and private sector disaffection with PPPs is due, at least in part, to a perception that long- term PPP contracts are ‘too inflexible’ – and unable to respond appropriately to an increasingly fast-changing world. I also made the point that, going forward, the need for adaptability in long term infrastructure contracts will become even more acute, due to the profound uncertainties being caused by climate change.

My suggested approach is to increase the flexibility of our PPP contracts, by taking a fresh look at the issues of risk sharing, dispute resolution and renegotiations. By taking such an approach, we can create “PPP 2.0 Contracts”, which more closely embody the concept of true partnerships. Although my Istanbul conference presentation looked at some alternative forms of contracting, such as so-called Progressive Design-Build Contracts and Alliance Contracts, I believe that, with some targeted refinements, we can and should be able to ‘rescue’ PPP contracting and make PPPs the preferred choice for the increased investment in infrastructure we desperately need. Recently, I have been asked by the International Federation of Consulting Engineers (FIDIC) to lead a Task Group charged with exploring this concept of PPP 2.0 contracting in greater detail, to determine what those ‘refinements’ might entail, in terms of specific contractual wording. Suggestions are welcome!

This blog is in a series that appears on this website. It has been written by Mark Moseley, the Principal of Moseley Infrastructure Advisory Services (Mark.Moseley@MMMInfra.com). Unless otherwise noted, the copyright in this blog is owned by Moseley Infrastructure Advisory Services. The blog is made available for use under a Creative Commons Attribution 3.0 Licence, whereby users are free to copy and redistribute the contents of the blog, if they give credit to the author, and clearly indicate any changes that have been made.

[1] University of Toronto 2023, Public-Private Partnerships: Is a reassessment underway?, available at https://on360.ca/policy-papers/public-private-partnerships-is-a-reassessment-underway/#_edn30.