Why PPPs may offer poor value for money
Public-private partnerships (PPPs) seemed to offer a solution to this problem. Private capital would be used to fund much-needed projects. Better still, private companies could build and operate the new infrastructure, bringing, it was hoped, huge cost savings.
New investment could be detached from the purse strings of the Treasury. It would no longer be so dependent on the short-term imperatives of the public finances. And because the money was borrowed privately, there was no need, at least initially, to count it as public debt.
Moreover, contracts could be written to incentivise firms to complete schemes on time and on budget. The main pitfalls of public-sector procurement – the delays and mammoth cost overruns – could be avoided.
The first modern PPPs were began in the 1980s under what became known as the Private Finance Initiative (PFI). Their numbers grew during the early-mid 1990s, with several design, build, finance and operate (DBFO) road schemes, as well as the construction of a number of privately-operated prisons. These projects were generally viewed as successful within government – a higher proportion were delivered on time and on budget than would have been expected using traditional procurement methods.
Building on these foundations, the election of a New Labour government saw a rapid expansion in the number of PPPs. The model fitted well with Labour’s ‘Third-Way’ approach to the economy. Instead of outright nationalisation, with its well-documented ineffiencies, the dynamism of the private sector would be harnessed for social objectives.
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