A Comparison of Construction Contract Prices for Traditionally Procured Roads and Public–Private Partnerships

  • Frédéric Blanc-Brude
  • Hugh Goldsmith
  • Timo Välilä


Theoretical literature suggests higher asset construction costs in a public-private partnership (PPP) than in traditional public procurement, due to the bundling of construction and operation and the transfer of construction risk, among other factors. Data on ex ante road construction prices in Europe suggest a PPP road to be 24% more expensive than a traditionally procured road, ceteris paribus. This estimate resembles reported ex post cost overruns in traditionally procured roads. Thus, the public sector seems to pay a premium on ex ante PPP construction contract prices mostly to cover construction risk transfer. Other reported sources of higher PPP road construction costs, including bundling, seem on average of lesser importance.


Public–private partnerships Risk transfer Construction cost European roads 

JEL Classification

L33 H54 C51 


  1. Blanc-Brude, F., Goldsmith, H., & Välilä, T. (2007). Public–private partnerships in Europe: An update. Economic and Financial Report 2007/03. European Investment Bank.Google Scholar
  2. Dewatripont M., Legros P. (2005) Public–private partnerships: Contract design and risk transfer. EIB Papers 10(1): 120–145Google Scholar
  3. Drucker P. (1984) Innovation and entrepreneurship. Harper Collins, New YorkGoogle Scholar
  4. Dudkin G., Välilä T. (2006) Transaction costs in public–private partnerships: A first look at the evidence. Competition and Regulation in Network Industries 1(2): 307–330Google Scholar
  5. Edwards, P., Shaoul, J., Stafford, A., & Arblaster, L. (2004). Evaluating the operation of PFI in roads and hospitals. ACCA Research Report, 84.Google Scholar
  6. EIB. (2005). Evaluation of PPP projects financed by the EIB. Luxembourg: Operations Evaluation Unit, European Investment Bank.Google Scholar
  7. Ekene I., Ezulike J., Perry G., Hawash K. (1997) Barriers to entry into the PFI market. Journal of Construction and Architectural Management 4(3): 179–193CrossRefGoogle Scholar
  8. Flyvbjerg B., Bruzelius N., Rotherngatter W. (2003) Megaprojects and risk: An anatomy of ambition. Cambridge University Press, Cambridge, UKGoogle Scholar
  9. Flyvbjerg B., Holm M. S., Buhl S. L. (2002) Underestimating costs in public works projects: Error or lie?. Journal of the American Planning Association 68(3): 279–295CrossRefGoogle Scholar
  10. Grout P. A. (1997) The economics of the private finance initiative. Oxford Review of Economic Policy 13(4): 53–66CrossRefGoogle Scholar
  11. Grout P. A. (2005) Value-for money measurement in public–private partnerships. EIB Papers 10(2): 32–56Google Scholar
  12. Grossman S. J., Hart O. D. (1986) The costs and benefits of ownership: A theory of vertical and lateral integration. The Journal of Political Economy 94(4): 691–719CrossRefGoogle Scholar
  13. Halvorsen R., Palmquist R. (1980) The Interpretation of dummy variables in semi logarithmic equations. American Economic Review 70(3): 474–475Google Scholar
  14. Hart O. (2003) Incomplete contracts and public ownership: Remarks, and an application to public–private partnerships. The Economic Journal 113: C69–C76CrossRefGoogle Scholar
  15. Hart O. D. (1995) Firms, contracts and financial structure. Oxford University Press, OxfordCrossRefGoogle Scholar
  16. Hart O. D., Moore J. (1990) Property rights and the theory of the firm. Journal of Political Economy 98: 1119–1158CrossRefGoogle Scholar
  17. Hart O., Schleifer A., Vishny R. W. (1997) The proper scope of government: Theory and an application to prisons. Quarterly Journal of Economics 112(4): 1127–1161CrossRefGoogle Scholar
  18. Hippel, P. T. V. (2005). Mean, median, and skew: Correcting a textbook rule. Journal of Statistics Education, 13(2).Google Scholar
  19. HMT. (2003). PFI: Meeting the investment challenge. HMSO. July 2003, pp. 43–58.Google Scholar
  20. HMT. (2004a). Value for money assessment guidance. HMSO. August 2004.Google Scholar
  21. HMT. (2004b). VfM: Quantitative assessment. London: HM Treasury.Google Scholar
  22. House of Commons. (2003). PFI Construction performance. Committee of Public Accounts. Thirty-fifth Report of Session 2002–2003. HC567. HMSO. July 2003.Google Scholar
  23. International Construction Client’s Forum (ICCF). (2005). Client best practice—An international perspective. Discussion Paper, October 2005.Google Scholar
  24. Klein M. (1997) The risk premium for evaluating public projects. Oxford Review of Economic Policy 13(4): 29–42CrossRefGoogle Scholar
  25. Langdon D. (Ed.). (2004) Spon’s civil engineering and highway works price book 2005. Spon Press, LondonGoogle Scholar
  26. MacDonald, M. (2002). Review of large public procurement in the UK. July 2002. London: Mott MacDonald.Google Scholar
  27. National Audit Office. (2005). Improving public services through better construction. HMSO, March 2005.Google Scholar
  28. Riess A. (2005) Is the PPP model applicable across sectors?. EIB Papers 10(2): 10–30Google Scholar
  29. Williamson O. E. (1979) Transaction costs economics: The governance of contractual relations. Journal of Law and Economics 22: 233–261CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  • Frédéric Blanc-Brude
    • 1
  • Hugh Goldsmith
    • 2
  • Timo Välilä
    • 2
  1. 1.Infrastructure EconomicsShanghaiPeople’s Republic of China
  2. 2.Projects Directorate European Investment BankLuxembourgLuxembourg

Personalised recommendations