Understanding pre-contractual transaction costs for Public–Private Partnership infrastructure projects

• A comparative transaction cost assessment of pubic infrastructure procurement
• Proved that PPPs are beset by higher transaction costs than their alternatives
• Identified levers to control transaction costs of pubic infrastructure procurement

While public entities are still increasingly interested in Public–Private Partnerships (PPPs), we recently observe increasing reluctance from private partners to engage in PPP-bidding. Up-front costs that PPP bidders make, are considered too high compared to the bidding chances, and may result in less bidders in the future. In this paper, we empirically analyze transaction costs of PPPs in the pre-contractual stage and compare these to similar costs borne by private partners for traditional public procurement. Statistical analyses based on sample of 172 public infrastructure projects enable the estimation of the pre-contractual cost burden. Based on the study results, suggestions are made to lower these costs or to improve the cost position of the private sector, in order to safeguard the competitive setting of the PPP market.