The International Transport Forum (ITF) released the report “Private Investment in Transport Infrastructure: Dealing with Uncertainty in Contracts.” In this report, ITF analyzes how decision makers in the public and private sector can better manage the uncertainty regarding contracts for privately-financed infrastructure.
As the report acknowledges, currently the vast majority of private investment in transport infrastructure occurs through public-private partnerships (PPPs). In light of this, many views examine the benefits that private investment could provide for the delivery and management of infrastructure. Specifically, private investment can advance efficiency; however, to ensure sustainable private investment in infrastructure, this must be done under the right circumstances.
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As a result, risk pricing can become an issue when the efficiency incentives do not extend beyond the initial competition for the contract. Moreover, unpredicted changes at contracts also pose a challenge to the PPP model. In that case, systematic renegotiations of PPP contracts are needed to ensure flexibility.
To mitigate these issues, ITF laid out a list of counter measures, which include the following, amongst others:
- Better understanding of contract performance: This can be damaged by the lack of relevant data. To avoid this problem, a database must include key characteristics of the procurement approach, of the project itself, and its end cost.
- Right institutional and regulatory framework: As said above, private investment can work best under the right conditions. For this reason, private investment can be more efficient, provided that the right institutional and regulatory framework conditions are met.
- Comprehensive analysis of how to assist suppliers: Various measures could help construction contractors to better assess and price construction risk.
- Transparent public accounting standard: The International Monetary Fund (IMF) recommends the International Public Sector Accounting Standards Board’s IPSAS32 standard to determine how public-private partnerships (PPPs) should affect the public balance sheet.
- Competitive markets can achieve cost-effective infrastructure: Competition for the contract is the first condition for a model to perform. The report mentions that competition in procurement for major infrastructure in the EU is much less strong than is desirable. So, acknowledging the extent of the challenge can be a good start.
See more details into the report, in the PDF below
