Allocating risks in public-private partnership projects using a transaction cost economics approach - a case study

Public-private partnership (PPP) projects are often characterised by increased complexity and uncertainty due to their idiosyncrasy in the management and delivery processes such as long-term lifecycle, incomplete contracting, and the multitude of stakeholders. An appropriate risk allocation is particularly crucial to achieving project success. This paper focuses on the risk allocation in PPP projects and argues that the transaction cost economics (TCE) theory can integrate the economics part, which is currently missing, into the risk management research. A TCE-based approach is proposed as a logical framework for allocating risks between public and private sectors in PPP projects. A case study of the Southern Cross Station redevelopment project in Australia is presented to illustrate the approach. The allocation of important risks is put under scrutiny. Lessons learnt are discussed and alternative management approaches drawing on TCE theory are proposed.

Perceptions of representatives of public, private, and community sector institutions of the barriers and enablers for physically active transport

Active transport bridges many shared concerns in the public health and transport sectors. To positively affect opportunities for active transport, public health and transport professionals are engaging with other sectors, including urban planning, housing, recreation, retail, education, and employer groups. A first step in such inter-sectoral collaboration is to understand the perceptions of key players in all of these sectors. This paper describes the results of structured interviews with senior and middle-level administrators from public, private, and community groups in a rapidly developing region in Queensland, Australia, to assess the perceived barriers and enablers to active transport. Key themes emerged relating to infrastructure delivery, public transport services, walk- and cycle-friendly community attributes, political leadership and government coordination, and societal travel norms and culture. There were also themes relating to limits due to resources and limited relevant technical expertise, institutional and practitioner cultures, and agencies not identifying with their roles in active transport. Policies and cross-government initiatives were seen to hold promise, including economic incentives and built environment guidelines, campaigns targeting public attitudes and opinions, and community participation in policy-making. These elements are potential keys to positively promoting comprehensive active transport initiatives among gatekeepers and leaders across different sectors.

Factor analysis of partners' commitment to risk management in public-private partnership projects

Purpose – The purpose of this paper is to investigate and uncover key determinants that could explain partners' commitment to risk management in public-private partnership projects so that partners' risk management commitment is taken into the consideration of optimal risk allocation strategies.

Design/methodology/approach – Based on an extensive literature review and an examination of the purchasing power parity (PPP) market, an industry-wide questionnaire survey was conducted to collect the data for a confirmatory factor analysis. Necessary statistical tests are conducted to ensure the validity of the analysis results.

Findings – The factor analysis results show that the procedure of confirmatory factor analysis is statistically appropriate and satisfactory. As a result, partners' organizational commitment to risk management in public-private partnerships can now be determined by a set of components, namely general attitude to a risk, perceived one's own ability to manage a risk, and the perceived reward for bearing a risk.

Practical implications – It is recommended, based on the empirical results shown in this paper, that, in addition to partners' risk management capability, decision-makers, both from public and private sectors, should also seriously consider partners' risk management commitment. Both factors influence the formation of optimal risk allocation strategies, either by their individual or interacting effects. Future research may therefore explore how to form optimal risk allocation strategies by integrating organizational capability and commitment, the determinants and measurement of which have been established in this study.

Originality/value – This paper makes an original contribution to the general body of knowledge on risk allocation in large-scale infrastructure projects in Australia adopting the procurement method of public-private partnership. In particular, this paper has innovatively established a measurement model of organisational commitment to risk management, which is crucial to determining optimal risk allocation strategies and in turn achieving project success. The score coefficients of all obtained components can be used to construct components by linear combination so that commitment to risk management can be measured. Previous research has barely focused on this topic.

Interpreting risk allocation mechanism in public-private partnership projects : an empirical study in a transaction cost economics perspective

Risk allocation in public-private partnership (PPP) projects is currently claimed as capability driven. While lacking theoretical support, the claim is often 'violated' by current industrial practice. There is thus a need for formal mechanisms to interpret why a particular risk is retained by government in one project while transferred to private partners in another. From the viewpoint of transaction cost economics (TCE), integrated with the resource-based view (RBV) of organizational capabilities, this paper proposed a theoretical framework for understanding risk allocation practice in PPP projects. The theories underlying the major constructs and their links were articulated. Data gathered from an industry-wide survey were used to test the framework. The results of multiple linear regression (MLR) generally support the proposed framework. It has been found that partners' risk management routine, mechanism, commitment, cooperation history, and uncertainties associated with project risk management could serve to determine the risk allocation strategies adopted in a PPP project. This theoretical framework thus provides both government and private agencies with a logical and complete understanding of the process of selecting the allocation strategy for a particular risk in PPP projects. Moreover, it could be utilized to steer the risk allocation strategy by controlling certain critical determinants identified in the study. Study limitations and future research directions have also been set out.

Decision making to support an integrated infrastructure supply chain industrial ecological approach within public private partnerships

Supply chains are complex adaptive systems for which final performance depends upon numerous interdependent decisions made by numerous firms which synthesise inputs from various resources systems.  The dynamic interdependent behaviour of social, economic, material and informational resource systems within eco-industrial settings that support the built environment life cycle supply chains can be studied at the supply chain level.  The impact of megaprojects is significant and holds promise to explore the impact of decisions on various systems as it combines project and system boundaries.  Megaoprojects considered as major events within systems can produce critical revolutionary impacts on the systems within which they are embedded.  The decisions that are made on megaprojects are central to risk management.  typically major infrastructure projects are procured through a form of public private partnership (PPP).  The core principle of PPP is value for money which refers to the best available outcome attempting to take account of all benefits, costs and risks over the whole life of the procurement.  In this paper the focus is on Australia where there has been considerable acitivity in the use of PPPs.  With recent national infrastucture packages proposed to stimulate the economy due to the global financial crisis, decision modelling on risks is a revelant and critical matter not only in practice but also in the research community.  PPPs encourage the whole-of-lifecycle approach in the procurement and management of public sector assets by transparently recognising the costs and risks associated with the whole life of the required service or facility, thus integrated whole of life supply chains can be considered.  By creating a single point of responsibility for an entire project from inception through operation, a strong incentive is created for thinking about the effects that a design or construction decision will have on the effectiveness and efficiency of managing and maintaining a facility during its operational life.  The decision to procure holistic supply chains becomes a much more viable commercial reality in the PPP environment than previously considered in the usual commercial construction spot transactional approach.  These types of decisions tend to be imprecise, approximate and complex requireing justification and reasoning logic rather than the classical 'truth' logic.  The purpose of this paper is to develop a theoretical decision framework which combines interdependency and multi-values logic for supply chain procurement modelling.

Risk allocation in public-private partnership projects : an innovative model with an intelligent approach

Both the increasing private participation in public projects and the critical importance of appropriate risk allocation to the success of Public-private partnership (PPP) projects justify specific research on how to establish effective risk allocation strategies in PPP projects. Partner’s risk management capability is currently the main concern to risk allocation in PPP projects. Following the transaction cost economics, it is argued that factors such as partner’s commitment and risk management structure should be considered simultaneously in order to develop effective risk allocation strategies. Based on the holistic capability-commitment governance-driven view, this paper proposed a model for generating an optimal risk allocation strategy in PPP projects. The model is demonstrated and described. An artificial intelligent technique integrated with fuzzy logic for model testing and validation is then introduced and justified. The innovative model is expected to provide a logical and complete understanding of the risk allocation strategy selection process, and to provide stakeholders with a richer framework than previously existing ones to guide their decision-making on risk allocation strategies.

Neurofuzzy decision support system for efficient risk allocation in public-private partnership infrastructure projects

The performance of public-private partnership (PPP) infrastructure projects is largely contingent on whether the adopted risk allocation (RA) strategy is efficient. Theoretical frameworks drawing on the transaction cost economics and the resource-based view of organizational capability are able to explain the underlying mechanism but unable to accurately forecast efficient RA strategies. In this paper, a neurofuzzy decision support system (NFDSS) was developed to assist in the RA decision-making process in PPP projects. By combining fuzzy and neural network techniques, a synthesized fuzzy inference system was established and taken as the core component of the NFDSS. Evaluation results show that the NFDSS can forecast efficient RA strategies for PPP infrastructure projects at a highly accurate and effective level. A real PPP infrastructure project is used to demonstrate the NFDSS and its practical significance.

Risk allocation in public-private partnership projects

Both the increasing private participation in public projects and the critical importance of appropriate risk allocation to the success of public-private partnership (PPP) projects justify specific research on the risk allocation practice in PPP projects, particularly whether the practice is value-for-money driven. In this paper, the risk allocation in construction projects is examined firstly. The risks associated with PPP projects and the concept of optimal risk allocation are then reviewed. More importantly, the risk allocation practice in PPP projects is examined, particularly in the Australian context. Important issues, such as the current practice, the governments' accountability, and achieving efficient allocation, are discussed. The discussion presented in this paper is expected to justify and elicit further research on how to achieve efficient risk allocation in PPP projects

Exploring critical factors for achieving successful risk allocation in public-private partnership projects

Public Private Partnerships (PPP) as a procurement mechanism for infrastructure projects is becoming increasingly common. This is principally due to the value for money opportunities it offers the public sector sponsors. This value for money is primarily achieved through the optimisation of the allocation of risk inherent in the project being transferred from the public sector sponsors onto private sector bidders. This paper analyses the influence that these factors have on successful risk allocation with the aim of providing clearer parameters for optimal risk allocation in PPP projects. Through an extensive review of existing literature, the critical success factors for optimal risk allocation in PPP projects are identified. It is found that the optimisation of risk allocation in PPP projects is critically influenced by the identified factors, which will undoubtedly aid in the successful outcome for future PPP projects.

Identifying attributes contributing to environmental sustainability of public-private partnership infrastructure projects

Due to increasing demands for new infrastructure and an aim to reduce initial public investment, Australian government agencies are increasingly using public-private partnerships (PPPs) as a form of delivery for infrastructure projects. Environmentally, there is growing pressure for the building industry in general to become more sustainable. Moreover, as the built environment continues to grow each year, the performance of buildings as a whole will need to continually improve purely for national energy consumption to remain stable. Based on a systematic and extensive review on relevant literature, this paper has identified the key attributes that will influence the environmental sustainability of infrastructure completed through a PPP. The key attributes are grouped into five groups defined by whom or what has the majority of control over the attribute. Meanwhile, the key attributes are explored and their influence on environmental sustainability justified. This paper was able to not only identify significant factors involved in creating environmental sustainability in infrastructure PPPs, but also trends of the key attributes. It has been found that (1) the longevity of the contract in a PPP project allows greater innovation into environmental sustainability than traditional methods of procurement, (2) innovation is a requirement for the improving upon environmental performance in the built environment, (3) improvements to environmental sustainability relies upon a positive relationship between economic and environmental benefits, and (4) the key attributes for PPP projects are decided upon relatively early in the contract. Due to space limit, detailed discussion on each of the identified attributes is not provided in this paper. Nonetheless, further research direction is discussed.