• PPP contracts concentrate on the “what” not the “how”. This is an important distinction and requires a clear understanding by the government sponsors who wish to explore PPPs as an alternative contracting option of how a PPP will deliver the best outcomes. The UK and Australian experience has been that in the past, the public sector specified what it required to the last detail leaving private sector contractors with little scope to bring innovation in
design and specification or to compete other than on the basis of the lowest cost in the short term. A switch to output specifications allows innovation in design, avoids gold plating and has been shown to deliver service benefits over the life of the contract.
• The public sector receives guaranteed services of a specified quality because it is usually on that basis that the private sector partner gets remunerated. The private sector partner is motivated to perform, failing which its income would be jeopardised. Unfortunate though it
may be, commercial or market economic incentives are often more effective at providing motivations to achieve the specified outcomes than traditional public sector management incentives. This is not necessarily the case in New Zealand as we have, since the introduction
of SOEs, developed a very efficient corporatised model for operating publicly owned assets.
• Risks can be allocated and managed more efficiently by allocating to the private sector responsibility for managing and delivering service and to the public sector the
responsibility for policy and legislative frameworks. Risk transfer is a major benefit in PPPs and, as discussed below, one of the key determinants of whether a PPP should be adopted.
• Access to capital by transferring the responsibility for funding the development of infrastructure to the private sector under a PPP. This can be a particular advantage where a government sponsor has funding constraints but it is usually not the only justification for adopting a PPP model in industrialised countries. Many commentators criticise the funding motivation for undertaking PPPs. Because governments are usually able to borrow money more cheaply than the private sector, it is argued that projects should be financed by public debt rather than private finance.