Developing a Fuzzy Value-for-Money Analysis Model for Annuity-Based Public-Private Partnership Infrastructure Projects under Consideration of Risk Mitigation Capability
Publication: Journal of Construction Engineering and Management
Volume 146, Issue 7
Abstract
Optimal allocation of risk between the public and private sector is instrumental to the enhancement of value-for-money (VFM) for public-private partnership (PPP) infrastructure projects. This study offers a novel method that considers the risk mitigation capability (RMC) of the public and private sector to evaluate VFM of a PPP infrastructure project under the performance-based annuity (PPP/AP) scheme. It is the first attempt to incorporate both the RMC and risk allocation decisions into VFM development quantitatively. This model applies a combination of the Takagi-Sugeno fuzzy inference system and statistical methods. The perceptional data from Indonesian PPP experts were collected to estimate model parameters and assess the VFM of a 73 km Indonesian public road, and then used to illustrate the application of the model. The result shows that moderate levels of RMC for both the public and private sector, worsened by suboptimal risk allocation, lead to a no-go decision with PPP/AP. The proposed model makes earlier PPP decision-making possible for the public sector before invitations for bids.
Get full access to this article
View all available purchase options and get full access to this article.
Data Availability Statement
Data generated or analyzed during the study are available from the corresponding author by request.
Acknowledgments
Some parts of this study were based on the research work conducted during the first author’s postdoctoral research visit at Technical University Berlin with the full support of Alexander von Humboldt Foundation. However, the final product of this research was based on the equal contribution of the two authors. Moreover, the authors express gratitude to the respondents for the willingness to participate in the survey and to the two anonymous reviewers for providing useful comments that helped improve the quality of the original manuscript.
References
Ameyaw, E. E., and A. P. C. Chan. 2016a. “Critical success factors for public-private partnership in water supply projects.” Facilities 34 (3/4): 124–160.
Ameyaw, E. E., and A. P. C. Chan. 2016b. “A fuzzy approach for the allocation of risks in public-private partnership water-infrastructure projects in developing countries.” J. Infrastruct. Syst. 22 (3): 04016016. https://doi.org/10.1061/(ASCE)IS.1943-555X.0000297.
Ball, R., M. Heafey, and D. King. 2007. “The private finance initiative in the UK.” Publ. Manage. Rev. 9 (2): 289–310. https://doi.org/10.1080/14719030701340507.
Bourn, J. 2007. Public sector auditing: Is it value for money? West Sussex, UK: Wiley.
Brewer, G., T. Gajendran, M. Jefferies, D. McGeorge, S. Rowlinson, and A. Dainty. 2013. “Value through innovation in long-term service delivery: Facility management in an Australian PPP.” Built Environ. Project Asset Manage. 3 (1): 74–88. https://doi.org/10.1108/BEPAM-03-2012-0008.
Chen, C., and H. Doloi. 2008. “BOT application in China: Driving and impeding factors.” Int. J. Project Manage. 26 (4): 388–398. https://doi.org/10.1016/j.ijproman.2007.07.002.
Chou, J.-S., H. P. Tserng, C. Lin, and C.-P. Yeh. 2012. “Critical factors and risk allocation for PPP policy: Comparison between HSR and general infrastructure projects.” Transp. Policy 22 (July): 36–48. https://doi.org/10.1016/j.tranpol.2012.05.009.
Cruz, C. O., and R. C. Marques. 2013. Infrastructure public-private partnerships: Decision, management and development. Berlin: Springer.
Cruz, C. O., and R. C. Marques. 2014. “Theoretical considerations on quantitative PPP viability analysis.” J. Manage. Eng. 30 (1): 122–126. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000184.
de Castro e Silva Neto, D., C. O. Cruz, F. Rodrigues, and P. Silva. 2016. “Bibliometric analysis of PPP and PFI literature: Overview of 25 years of research.” J. Constr. Eng. Manage. 142 (10): 06016002. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001163.
de Marco, A., and G. Mangano. 2013. “Risk and value in privately financed health care projects.” J. Constr. Eng. Manage. 139 (8): 918–926. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000660.
Government of Western Australia Department of Treasury. 2013. “Public sector comparator policy: Additional policy guide.” Accessed May 6, 2019. https://www.treasury.wa.gov.au.
Grimsey, D., and M. K. Lewis. 2004. “Discount debates: Rates, risk, uncertainty and value for money in PPPs.” Publ. Infrastruct. Bull. 1 (3): 1–6.
Grimsey, D., and M. K. Lewis. 2005. “Are public private partnerships value for money ? Evaluating alternative approaches and comparing academic and practitioner views.” Accounting Forum 29 (4): 345–378. https://doi.org/10.1016/j.accfor.2005.01.001.
Gunduz, M., Y. Nielsen, and M. Ozdemir. 2015. “Fuzzy assessment model to estimate the probability of delay in Turkish construction projects.” J. Manage. Eng. 31 (4): 04014055. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000261.
Hawkesworth, I., and P. Burger. 2011. “How to attain value for money: Comparing PPP and traditional infrastructure public procurement.” OECD J. Budgeting 11 (1): 7–57. https://doi.org/10.1787/budget-11-5kgg8r57tf34.
HM Treasury. 2003. PFI: Meeting the investment challenge. Norwich, UK: HM Treasury.
IBM Corporation. 2013. IBM SPSS conjoint 22. New York: IBM Corporation.
Ismail, S. 2013. “Critical success factors of public private partnership (PPP) implementation in Malaysia.” Asia-Pac. J. Bus. Admin. 5 (1): 6–19. https://doi.org/10.1108/17574321311304503.
Jin, X.-H. 2011. “Model for efficient risk allocation in privately financed public infrastructure projects using neuro-fuzzy techniques.” J. Constr. Eng. Manage. 137 (11): 1003–1014. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000365.
Jin, X.-H., and G. Zhang. 2011. “Modelling optimal risk allocation in PPP projects using artificial neural networks.” Int. J. Project Manage. 29 (5): 591–603. https://doi.org/10.1016/j.ijproman.2010.07.011.
Khadaroo, I. 2008. “The actual evaluation of school PFI bids for value for money in the UK public sector.” Crit. Perspect. Account. 19 (8): 1321–1345. https://doi.org/10.1016/j.cpa.2007.05.001.
Khadaroo, I. 2014. “The valuation of risk transfer in UK school public private partnership contracts.” Br. Account. Rev. 46 (2): 154–165. https://doi.org/10.1016/j.bar.2013.12.004.
Khallaf, R., K. Kang, and M. Hastak. 2018. “Analysis of the use of PPPs in higher education institutions through systematic literature review.” In Proc., Construction Research Congress 2018, 148–157. Reston, VA: ASCE. https://doi.org/10.1061/9780784481301.003.
Kumar, L., A. Jindal, and N. R. Velaga. 2018. “Financial risk assessment and modelling of PPP based Indian highway infrastructure projects.” Transp. Policy 62 (Feb): 2–11. https://doi.org/10.1016/j.tranpol.2017.03.010.
Kweun, J. Y., P. K. Wheeler, and J. L. Gifford. 2018. “Evaluating highway public-private partnerships: Evidence from US value for money studies.” Transp. Policy 62 (Feb): 12–20. https://doi.org/10.1016/j.tranpol.2017.03.009.
Lam, P. T. I., and A. A. Javed. 2013. “Comparative study on the use of output specifications for Australian and UK PPP/PFI projects.” J. Perform. Constr. Facil. 29 (2): 04014061. https://doi.org/10.1061/(ASCE)CF.1943-5509.0000554.
Liu, T., and S. Wilkinson. 2015. “Critical factors affecting the viability of using public-private partnerships for prison development.” J. Manage. Eng. 31 (5): 05014020. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000324.
Love, P. E. D., J. Liu, J. Matthews, C. P. Sing, and J. Smith. 2015. “Future proofing PPPs: Life-cycle performance measurement and building information modelling.” Autom. Constr. 56 (Aug): 26–35. https://doi.org/10.1016/j.autcon.2015.04.008.
Love, P. E. D., X. Wang, C. Sing, and R. L. K. Tiong. 2013. “Determining the probability of project cost overruns.” J. Constr. Eng. Manage. 139 (3): 321–330 https://doi.org/10.1061/(ASCE)CO.1943-7862.0000575.
Mahalingam, A. 2010. “PPP experiences in Indian cities: Barriers, enablers, and the way forward.” J. Constr. Eng. Manage. 136 (4): 419–429. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000130.
Morallos, D., A. Amekudzi, C. Ross, and M. Meyer. 2009. “Value for money analysis in U.S. transportation public-private partnerships.” Transp. Res. Rec. 2115 (1): 27–36. https://doi.org/10.3141/2115-04.
OECD (Organisation for Economic Co-operation and Development). 2008. Public-private partnerships: In pursuit of risk sharing and value for money. Paris: OECD.
PPIAF (Public-Private Infrastructure Advisory Facility). 2009. “Value for money and the PSC.” In Toolkit for public-private partnerships in roads & highways. Washington, DC: PPIAF.
Qing-gui, C., L. Kai, L. Ye-jiao, S. Qi-hua, and Z. Jian. 2012. “Risk management and workers’ safety behavior control in coal mine.” Saf. Sci. 50 (4): 909–913. https://doi.org/10.1016/j.ssci.2011.08.005.
Quiggin, J. 2004. “Risk, PPPs and the public sector comparator.” Aust. Account. Rev. 14 (33): 51–61. https://doi.org/10.1111/j.1835-2561.2004.tb00229.x.
Russell, A. D., P. Tawiah, and S. De Zoysa. 2007. “Project innovation-a function of procurement mode?” Can. J. Civ. Eng. 33 (12): 1519–1537. https://doi.org/10.1139/l06-077.
Sharpe, F. W. 1964. “Capital asset prices: A theory of market equilibrium under conditions of risk.” J. Finance 19 (3): 424–442. https://doi.org/10.1111/j.1540-6261.1964.tb02865.x.
Shrestha, A., T. K. Chan, A. A. Aibinu, and C. Chen. 2017. “Efficient risk transfer in PPP wastewater treatment projects.” Util. Policy 48 (Oct): 132–140. https://doi.org/10.1016/j.jup.2017.03.003.
Shrestha, A., I. Martek, A. A. Aibinu, C. Chen, and T.-K. Chan. 2018. “Risk allocation inefficiencies in Chinese PPP water projects.” J. Constr. Eng. Manage. 144 (4): 04018013. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001457.
Siemiatycki, M., and N. Farooqi. 2012. “Value for money and risk in public-private partnerships.” J. Am. Plann. Assoc. 78 (3): 286–299. https://doi.org/10.1080/01944363.2012.715525.
Song, J., Y. Hu, and Z. Feng. 2017. “Factors influencing early termination of PPP projects in China.” J. Manage. Eng. 34 (1): 05017008. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000572.
Takagi, T., and M. Sugeno. 1985. “Fuzzy identification of systems and its applications to modeling and control.” IEEE Trans. Syst. Man Cybern. SMC-15 (1): 116–132. https://doi.org/10.1109/TSMC.1985.6313399.
Thomas, A. V., S. N. Kalidindi, and L. S. Ganesh. 2006. “Modelling and assessment of critical risks in BOT road projects.” Constr. Manage. Econ. 24 (4): 407–424. https://doi.org/10.1080/01446190500435275.
Touran, A., and R. Lopez. 2006. “Modeling cost escalation in large infrastructure projects.” J. Constr. Eng. Manage. 132 (8): 853–860. https://doi.org/10.1061/(ASCE)0733-9364(2006)132:8(853).
WBI and PPIAF (World Bank Institute and Public-Private Infrastructure Advisory Facility). 2013. Value-for-money analysis—Practices and challenges: How governments choose when to use PPP to deliver public infrastructure and services. Washington, DC: World Bank.
Xu, Y., A. P. C. Chan, and J. F. Y. Yeung. 2010. “Developing a fuzzy risk allocation model for PPP projects in China.” J. Constr. Eng. Manage. 136 (8): 894–903. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000189.
Yan, X., H.-Y. Chong, Z. Sheng, and X. Wang. 2017. “Financing decision model for toll roads: Balancing economic and public attributes.” J. Manage. Eng. 33 (4): 04017010. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000523.
Zadeh, L. A. 1965. “Fuzzy sets.” Inf. Control 8 (3): 338–353. https://doi.org/10.1016/S0019-9958(65)90241-X.
Zhang, C., and Y. Lin. 2008. “Risk control of book supply chain: A case study.” In Proc., 2008 Int. Conf. on Service Systems and Service Management. New York: IEEE. https://doi.org/10.1109/ICSSSM.2008.4598469.
Zhang, F., and B. Yu. 2016. “Value-for-money drivers of PPP projects in China.” In Proc., Int. Conf. on Construction and Real Estate Management 2016, 1311–1317. Reston, VA: ASCE. https://doi.org/10.1061/9780784480274.101.
Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 146 • Issue 7 • July 2020
Copyright
©2020 American Society of Civil Engineers.
History
Received: May 23, 2019
Accepted: Feb 11, 2020
Published online: May 11, 2020
Published in print: Jul 1, 2020
Discussion open until: Oct 11, 2020
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.