What is Value-for-Money ?
Government contracting agencies will achieve Value-for-Money through PPPs if the latter compares favourably to traditional public sector provisions in terms of quality of service and related costs over the lifetime of an infrastructure asset. In other words, this means that an infrastructure project is likely to bring more value if implemented as a PPP rather than through the traditional procurement process.
How can Value-for-Money be realized?
Value-for-Money can be realized in a PPP project only under certain conditions, including (but not limited to) when:
- The private sector is given space to innovate and is incentivized to improve service delivery;
- The risks are properly allocated between the public and private partners;
- The private partner is selected through market competition; and
- The performance of the private partner is carefully monitored and penalty clauses for nondelivery of services are enforced.
Why is it important?
PPP projects have significant financial implications. Indeed, using a PPP structure does not mean that public infrastructure services will be provided “for free”. To be developed as a PPP, a project must have a commercially-viable business case for the private partner. This means that users and/or tax payers have typically to pay for the project to be delivered profitably by a private company. PPP contracts can also entail long-term budgetary commitments and contingent fiscal liabilities such as those related to public guarantees. Therefore, care is needed to ensure that PPP contracts are affordable to the government over their entire period, do not threaten fiscal stability in the long run and achieve Value-for-Money.