SNS Research Brief 113. Alternative Ways of Building and Operating Infrastructure – Lessons from International Research

The Swedish government wants to try new ways of building and financing infrastructure. A new SNS report shows that public-private partnerships (PPPs) may result in more efficient projects and better maintenance – but only if the associated risks are allocated correctly, contracts are well-drafted, and expertise regarding public procurement is strengthened.

The report analyzes international research on public-private partnerships (PPPs) and other alternative ways of organizing and financing infrastructure.

Sweden is now about to once again try out these models after more than 25 years without any new PPP projects. The analysis shows that PPPs may contribute to quicker completion, a better lifecycle perspective, and more efficient maintenance. However, this requires a strong public client role and well-drafted contracts.

Results 

• PPPs may offer lifecycle benefits. Combining the design, construction, and operations in a contract creates incentives for long-term quality and cost-effectiveness.
• A proper distribution of risk is crucial. Projects are the most effective when each party carries the risks it can control or bear.
• The risk of renegotiations can be managed in contracts. Renegotiations may result in necessary flexibility but also risk being exploited in an opportunistic manner if the contracts are vague.
• Private financing does not free up resources but may increase efficiency.The true gains concern governance and incentives, not increasing the funds available in the budget.
• The institutional context is crucial. Countries with stable regulatory frameworks and great expertise among clients concerning complex contracts are the most successful when it comes to PPPs.

Recommendations

• The goevnernment should set up an independent national expert group with a clear mandate to push for developing alternative ways of financing.
• Strengthen expertise among clients with regard to risk management and contract design. The task of the expert group should be to collect and further develop expertise among clients.

• Initiate a national pilot program with PPP projects. The expert group should work together with the relevant authorities and develop pilot programs, including a plan for systematic evaluation, which is required for creating this specific expertise in a Swedish context.
• Create networks between public and private actors. Joint forums are needed to exchange experiences and develop approaches. This should not only involve various parties in PPPs, such as clients, contractors, and financing entities, but also various public agencies that may be clients.
• Promote interdisciplinary research on PPPs combining economics, law, and technology. Create a national interdisciplinary expertise center for PPP research and set up a program for continuous calls for research funding focusing on PPPs.

Private financing may be more expensive than government borrowing, but it offers risk-sharing and expertise that tend to improve the function of the facility during its lifecycle, according to Ingemar Bengtsson.

About the author

Ingemar Bengtsson holds a PhD in economics and is an assistant professor at the Division of Real Estate Science, Department of Technology and Society, Faculty of Engineering (LTH), Lund University.

About the research project SNS Infra

This report is part of the SNS Infra research project, which highlights how Sweden may strengthen its essential infrastructure – physical as well as digital – for the future. The project focuses on obstacles and opportunities concerning investments in transport, energy, water, and communication systems, with a particular focus on digitalization, financing, and collaboration between public and private actors.