A Comparison of Construction Contract Prices for Traditionally Procured Roads and Public–Private Partnerships

by Frédéric Blanc-Brude, Hugh Goldsmith, Timo Välilä
Abstract:
Theoretical literature suggests higher asset construction costs in a publicprivate partnership (PPP) than in traditional public procurement, due to the bundling of construction and operation and the transfer of construction risk, among other factors. Data on ex ante road construction prices in Europe suggest a PPP road to be 24% more expensive than a traditionally procured road, ceteris paribus. This estimate resembles reported ex post cost overruns in traditionally procured roads. Thus, the public sector seems to pay a premium on ex ante PPP construction contract prices mostly to cover construction risk transfer. Other reported sources of higher PPP road construction costs, including bundling, seem on average of lesser importance.
Reference:
A Comparison of Construction Contract Prices for Traditionally Procured Roads and Public–Private Partnerships (Frédéric Blanc-Brude, Hugh Goldsmith, Timo Välilä), In Review of Industrial Organization, volume 35, 2009.