Public-private Partnerships for Government Financing, Controlling Risk, and Value-for--money: The UK Experience

Abstract

One of the key requirements to a successful Public-private Partnership (PPP) is the transfer of risk from the government to the private sector. This research examines the PPP experience in the United Kingdom (UK) Ministry of Defense to determine if they would be applicable to the US Department of Defense (DoD). PPP agreements have provided the UK increased capabilities. Also, this research provides an in-depth analysis of Private Financed Initiatives (PFI) that Serco Inc. has undertaken. Finally, this research evaluates the increases in value-for-money resulting from the PPP transfer of risk to the private sector. The research concludes that PPPs should be continued and expanded to provide increased real-time capability to the DoD while supporting private industry. Since the government has the lowest cost of borrowing, PPPs agreements may not appear to be cost effective as a means of procurement. However, the benefits from transferring risk to the private sector can more than offset the higher financing cost. PPPs reallocate risk and up-front capital requirements allowing the government to spread program cost over time. Without initial capital outlays, the government can acquire higher priority goods and services with its limited resources. In addition, PPPs provide the government with an increased infrastructure and technological capability than would otherwise not be available.