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. However, a well-structured P3 delivers better value for the public dollar and saves money because the private sector is incentivized to perform.
The P3 model makes sure funds are set aside for regular repair and maintenance – the single most important factor in keeping infrastructure costs down.
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 ensures the private sector sets aside money 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 paid for by the private sector.
Other factors that contribute to better value:
The private sector is better and more experienced at managing construction and operational risks which result in savings to taxpayers.
Contractors are penalized if they go over budget, take longer than expected, or underperform.