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PPP “essential” for infrastructure

Public-private partnerships must continue to play an essential role in infrastructural investment despite government cutbacks, according to a report by the Royal Institute of Chartered Surveyors.

The Future of Public Private Partnerships finds PPPs have proven to be an effective method for the procurement of infrastructure projects over the last decade.

But the research also contends that steps must be taken in order to establish a best-practice framework to ensure the successful provision of this procurement model.

The report maintains that constraints on government spending and the focus on tackling national debt will increase the requirement for substantial volumes of private sector capital to meet essential infrastructure needs. It also suggests the proposed establishment of a National Infrastructure Bank will support PPPs and help reduce borrowing costs on essential infrastructure projects.

“While there is no denying PPPs have suffered reputational damage in the past, they remain a viable and important tool for helping us meet the UK’s infrastructure challenge,” said RICS UK Construction/QS Board chairman David Bucknall.

“Amid fiscal austerity, it is critical for government, financial institutions and the construction industry to work together to develop best-practice for partnership-based procurement. This must now evolve to deliver the government’s objectives of 20 per cent reduction in the whole life cost of built infrastructure.”

The Future of Public Private Partnerships report was carried out on behalf of RICS by the University of Ulster and the University of Aberdeen between the summer of 2010 and early 2011, examining the impact of the global financial crisis on the use of PPPs in the UK, Australia, Canada, USA and India.

Key conclusions include:

  • Government support is fundamental to the functioning of a robust PPP market. This support can take the form of clear and consistent regulatory and legal frameworks as well as the creation of an infrastructure project pipeline to improve transparency and encourage private sector investment.
  • Elongated and complex tender processes result in disproportionately high bid costs, discouraging contractor participation and undermining the credibility of ‘competitive tendering’.
  • The provision of robust risk transfer and whole-life-cost data relative to conventional forms of procurement is essential to ensure the credible and objective evaluation of PPP projects so that true value-for-money evaluations can be undertaken.
  • In order to secure future private investment, particularly from institutional investors, the construction industry needs to communicate more clearly the investment potential of infrastructure as an investment asset class including risk-return characteristics and diversification benefits. Additionally, it is essential to improve the transparency of infrastructure investment markets to enable performance benchmarking across asset classes and to create innovative investment vehicles to best match investor risk profiles and investment capacities.

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