Comparing Public–Private Partnerships with Conventional Procurement

Abstract

Value for money (VfM) analyses have been used in evaluating various approaches to highway projects to help government officials determine whether a public–private partnership (PPP) is likely to be preferable for financial reasons to conventional approaches. VfM is a tool that focuses primarily on the financial impacts of procurement models from the perspective of the agency sponsoring a project. Nonfinancial impacts, such as benefits to users or nonusers of a facility, are not generally considered or are relegated to a qualitative evaluation. Benefit–cost analysis (BCA) has been used by public agencies in planning and project development phases to determine whether an investment is worth making. BCA is a more comprehensive tool than VfM that is capable of quantifying and monetizing nonfinancial impacts, such as benefits to users or nonusers that may accrue from earlier delivery of a project. This paper discusses how BCA considerations may be incorporated into a more analytically comprehensive approach to comparing PPPs with conventional procurement. The approach uses some results from VfM analysis and adds new items that are consistent with a BCA approach. The paper illustrates the approach with a hypothetical project.