PPP construction risk: International evidence from the roads sector

In terms of successfully delivering large infrastructure projects, publicprivate partnerships (PPP) are reported to be a significant improvement over traditional approaches to public-sector procurement. The size of this improvement remains, however, dependent on a number of critical prerequisites being in place. Conventional wisdom suggests that the construction of some types of project is inherently less risky than others. This was not supported by research findings in this study. Those surveyed suggested a weak if any correlation between construction risk and project type. Instead,survey respondents identified specific characteristics of a construction mandate that could expose investors to construction risk (these characteristics are identified in the research report). These characteristics cut across many different types of PPP project. The most frequently reported cause of PPP construction distress (schedule, specification or budget problems) is the public sector itself. Problems were identified as arising from inexperience, lack of commitment, lack of engagement, bureaucracy, interference and associated scope changes and enforced delays. It was reported that partnership is not always the spirit with which the public sector entersinto the long-term, collaborative contracting arrangements associated with PPP. Other major causes of distress included delays with permits and approvals, unforeseen ground conditions, and aggressively tight construction budgets. Based on the survey responses, Standard & Poors has developed a Construction Risk Index analytical tool that can be used to identify where PPP projects have previously been exposed to construction risk. Comparisonof these known risks with the specific mitigants structured into particular PPP transactions helps to assess credit quality as it reveals areas of potential, residual construction risk exposure for lenders. The construction phase is often the most risky phase of a PPP projects lifecycle. With little published evidence to help investors gauge the construction risks associated with PPP, Standard & Poors launched a global research initiative in late 2006 to address this information deficit. For the covering abstract see ITRD E137145.

  • Authors:
    • Brain, R
  • Publication Date: 2007

Language

  • English

Media Info

Subject/Index Terms

Filing Info

  • Accession Number: 01100074
  • Record Type: Publication
  • Source Agency: TRL
  • Files: ITRD
  • Created Date: May 27 2008 9:36AM