While P3 transaction costs are higher than the traditional bid-build contracts and the private sector’s borrowing costs are higher than those available to the public sector, a well-structured P3 delivers better value for the public dollar and saves money.
This is because the P3 model makes sure funds are set aside for regular repair and maintenance – the single most important factor in keeping infrastructure costs down.1 The P3 model considers an asset’s whole life, which can affect many decisions on the project and lead to better value in design, construction, maintenance and operation. Looking at life-cycle costs in advance ensure the private sector has money in hand for maintenance and repairs and protects it from being used for some other initiative.
Furthermore, because appropriate risks are transferred to the private sector, cost and time overruns are often paid for by the private sector.
Other factors that contributes to better value:
- The private sector’s obligations to its shareholders give it very low intolerance of cost overruns and project delays.
- It manages construction and operational risks better, which result in savings to taxpayers.
- Contractors are penalized if they go over budget, take longer than expected, or underperform.
- By delivering projects on time, the P3 model alleviates economic pressures put on moving goods and people during construction, and helps to provide better access to health care and public services sooner.