Collaborative Infrastructure Procurement in Sweden and the Netherlands

Transport infrastructure is a major enabler of economic development. In the drive to refurbish or build, governments worldwide have turned to the private capital market for financing. The primary narrative behind this push is the huge stocks of private capital that are available, while public financing capabilities are said to be limited and insufficient.
The almost exclusive vehicle of private investment in transport infrastructure, including social infrastructure, is public-private partnerships (PPPs). In the context of PPPs, two important aspects have received little attention.
First, sufficient attention has not been given to the role of suppliers. The focus of governments and Intergovernmental Organisations has been on resolving the challenges to private investment from the viewpoint of investors: reducing the uncertainty they face and enabling them to price risk more efficiently
by establishing infrastructure as an asset class.
However, looking only at investors gives an incomplete view of the total cost of the risk transferred from the public to the private sphere. In PPPs, investors transfer some of the major risks they are not comfortable bearing to design, construction, maintenance, and operations contractors. Suppliers, too, face uncertainties and are unable to efficiently evaluate price risk. In such cases, the base
cost of the initial investment – and of subsequent services – may be much higher than they might have been, and not just the cost of their financing.
Uncertainty arises from the difficulty of accurately estimating the cost of construction, maintenance, operations, and financing. But it also stems from “unknown unknowns” (the so-called Knightian uncertainty). For instance, changes in weather patterns or paradigmatic technological shifts, the timing and impact of which are unclear, will influence what infrastructure is needed and where.
So what can policy makers do to reduce the cost of inefficient risk pricing of suppliers? Where does this put PPPs? How can public decision makers reconcile long-term uncertainty with private investment in infrastructure? Who should bear long-term uncertainty in projects: the public or the private sector?
These were some of the guiding questions for a Working Group of 33 international experts convened by the International Transport Forum (ITF) in September 2016. The group, which assembled renowned
practitioners and academics from areas including private infrastructure finance, incentive regulation, civil engineering, project management and transport policy, examined how to address the problem of uncertainty in contracts with a view to mobilise more private investment in transport infrastructure. As
uncertainty matters for all contracts, not only those in the context of private investment in transport infrastructure, the Working Group’s findings are relevant for public procurement in general.
The synthesis report of the Working Group was published in June 2018. The report is complemented by a series of 19 topical papers that provide a more in-depth analysis of the issues. A full list of the Working Group’s research questions and outputs is available in Appendix 2.