Infrastructure is an important pillar of a community’s social and economic well-being. It supports the efficient transport of people and goods, delivers essential utilities, and provides accommodation for education and health.
Urbanization, aging infrastructure, changing technology and the push toward clean energy are driving the need for new infrastructure. This need provide many opportunities for both public and the private sectors, as governments and private sector organizations try to meet customer requirements, grow businesses and economies. These opportunities also bring uncertainty, inefficiency and the risk of failure. This article elaborates on key issues affecting infrastructure, trends, the PPP model and considerations to effectively manage projects regarding infrastructure.
Given the complexity of infrastructure projects, organizations struggle to effectively deliver their agreed-upon plans and strategies. Stakeholders demand improved performance and reduced risk. To successfully deliver infrastructure, organizations need to focus on challenges like revenue growth, improved performance, better cost management or increased competitive advantage. For the future success of infrastructural projects it is important to dedicate effort in setting the right approach from the beginning (EY, 2015).
To determine whether a project benefits the business, organizations should conduct market analysis and assess planned return on investment.Infrastructure involves long term capital investments. As a result, robust management of capital is crucial. Time, cost and quality of the infrastructural projects need to be balanced with the availability of capital. Whether it’s the pressure on public debt or the return on investment, stakeholders involved in infrastructure projects have rising expectations about the speed at which projects should generate benefits. In delivering these projects, organizations often face a number of key challenges, such as identifying the right suppliers who will produce within the expected time frame according the desired level of quality and budget, implementing sound program management processes, and securing the best talent and resources.
Infrastructure involves long term capital investments that are essential to the economic development and prosperity of a country. Expanding urbanization require governments to build infrastructure to address population growth and deliver better services to the community (Miller, 2013).
Governments around the world are increasingly turning to public private partnership (PPP) and public concession models to help build and finance infrastructure initiatives (EY Accountants LLP, 2017). Rising debt and falling revenues in the public sector are creating an environment of fiscal discipline. Organizations are seeking innovative funding models and public–private partnerships to finance infrastructure projects that will maximize return on investment and realize benefits faster. As cities continue to grow, the government and the private sector must effectively plan and attract sustained investment in highways, ports, airports, water, power, energy, telecommunications, and other types of infrastructure, in order to obtain the economic benefits of urbanization.
Through PPP programs, the skills and assets of the public and private sector are shared in delivering a service or facility for the use of the general public. During the last decade the focus on financial management and the cost efficiency of government procurement became more and more important
(EY, 2015). In markets with well-established PPP programs, governments have accepted and promoted the use of PPP models.
In markets whose PPP programs are in their infancy (such as in Aruba), governments accepted\and incorporated the principles
and processes from the latest
The rights and obligations of governments procuring the services are set out in service concession agreements. The terms and conditions of these agreements can be complex depending upon the nature of the arrangement. The most common forms of service concession arrangements are the build-operate-transfer arrangement, the rehabilitate-operate-transfer arrangement, and the operate-only arrangement
(Ernst & Young LLP, 2017). The build-operate-transfer arrangement is used when a private sector company takes responsibility for funding and building infrastructure assets such as roads, hospitals, power stations and schools, in consideration of a long term contract from the government giving the company the right to charge for services to the public using that infrastructure. The rehabilitate-operate-transfer arrangement is used when the private sector company improves an existing infrastructure and continues to maintain and operate the infrastructure for a contracted period. The operate-only arrangement is used when a private sector company becomes responsible for the operational management and maintenance of an infrastructure that is used to provide services to the public.
Thriving PPP markets are those where the government sustains and advances projects through incentives, such as access to skilled resources, government oversight and subsidies. As long as the assessment is rigorous, providing incentives for PPPs can strengthen the pipeline. Incentives can also inject greater rigor into procurement practices. As governments grow more confident in their preferred risk exposure and procurement practices, the need to reinvent the wheel for each transaction lessens. Standardization generates more efficient procurement. This standardization is particularly evident in the adoption of risk allocation matrices templates, standard form contracts, and supporting documentation, including technical specifications and performance rules.
The appraisal of the PPP forecast model’s value for money in comparison with more traditional procurement approaches remain a matter of much debate. The usefulness of quantitative assessment has come under attack. There is a growing consensus that developing a robust approach to quantitative assessment is highly problematic. The opportunity costs for governments and the broader impact on the economy are too often overlooked. Not only do contributions of the government to projects affect net debt, but funds allocated to projects are no longer available to meet other public demands. Retrospective scrutiny is an important means of monitoring continued performance, value for money assessment, and ensuring transparency. Project specific evaluations can include metrics related to financial performance, contractual requirements and timely reporting.
Infrastructure is a top priority for governments. Changing urbanization requires the development of new infrastructure or the expansion of existing infrastructure. Governments tend more and more towards development of the infrastructure projects in cooperation with the private sector. The PPP model is a vehicle that helps governments meet the increased demand for infrastructure, while managing the fiscal constraints. Governments will benefit by learning from developed PPP markets, how to better manage risks, and successfully complete these infrastructure projects.
• Ernst & Young LLP. (2017). International GAAP 2017. West Sussex, UK: John Wiley & Sons Ltd.
• EY. (2015). Infrastructure builds. EY.
• EY. (2015). Public-private partnerships and global infrastructure challenge. EY.
• EY Accountants LLP. (2017). EY Handboek jaarrekening 2017. Rotterdam: • EY Accountants LLP. Miller, J. D. (2013). Infrastructure 2013: Global Priorities, Global Insights. Washington,: Urban Land Institute and Ernst & Young.