Risk Management and Governance for PFI Project ... - Title Page - MIT

Table 2: Strength and Weakness of PPP Methods
Type of PPP Strength Weakness
Privatization • If competition is introduced, customers receive
better prices and higher performance for private
services formerly provided by government
monopolies.
• Government assets can be converted into
revenue through sales to private firms.
• Excess capacity of government facilities can be
addressed through privatization-in-place,
maintaining jobs and, if competition is
introduced, using facilities more effectively.
Third Sector • Can freely active out of institutions and
limitations.
• Can deliver large size projects with high
fund-raising capacity.
• The principle of self-support and
beneficiaries-pay allows for expanding projects.
• Also enables the diversification of public
services and cost reducing.
PFI • Allows the government to finance facilities or
Competitive
sourcing
services needed, but which it could not afford to
publicly fund.
• Makes the most productive use of valuable
government assets by bringing in revenue,
reducing overhead costs, and providing
investments for facilities; and can be used to
address excess capacity.
• Introduces competition (vs. prior monopoly),
which promises to raise performance and
significantly lower costs.
• Allows historic government workforce an
opportunity to bid to retain the work (vs.
outsourcing or privatization).
Outsourcing • More efficient because of competition and
manager's direct observation.
• Enables the government to take advantage of
specialized skills, new technology, and
innovation that are lacking in its own
organization.
• Can reduce dependence on a single supplier
(i.e., the government), and the potential for
future competition provides a continuing
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• Where there were once public monopolies,
privatization may produce private monopolies, not
competition.
• Governments can maintain control over newly
privatized firms, preventing open market
competition.
• Tend to make over investments based on
optimistic demand forecast.
• Can lack the power of self-judgment and
overestimate the public credit. There can be the
degradation and contraction of public services and
steep rise of project cost.
• There can be a cozy relationship between public
sector and private sector and a less awareness of
project.
• Authority can be blurred and roles made unclear
between public and private partners.
• The government assumes a greater portion of risk
compared to other forms of privatization.
• Will have an impact on government workforce
(both in morale and in limited involuntary
separations).
• The process is both time-consuming and
expensive—as well as very complex.
• Can limit the flexibility of government in
responding to emergencies if not provided for in
advance, via the contract.
• Can cause personnel disruptions and transition
problems if not planned well.
• Contracting processes can be complex, time
consuming, and costly if proper management and
a standardized process are not provided.
incentive for higher performance at lower cost.
Source: Created from Gansler (2003) “Moving Toward Market-Based Government: The Changing Role of
Government as the Provider”, IBM Endowment for the Business of Government (Gansler, 2003)