Public-private partnerships and investments in innovation: the influence of the contractual arrangement

Abstract

Public-private partnership (PPP) policy strategies emphasize the ability of PPPs to foster innovation. Evidence reported in literature supports less the inherent quality of PPPs for innovation and more the importance of contributing factors. The contractual agreement is the setting of these factors. In this context, an analytical model based on behavioural economics is presented, with boundary conditions reflecting various contractual configurations. The analysis indicates why, from a purely economic point of view, the private party in a PPP arrangement has an incentive to invest in low risk incremental innovations, which impact on, and positively effect, cost savings during construction and operation. It is also identified that further innovations are hampered by the ability to produce verifiable improvements correlated to performance. Findings contribute to the subject of public procurement for innovation in PPPs and support public authorities regarding the rationale, potential and necessary framework conditions for the use of public procurement as an innovation policy tool.

Justification of approach to classification of innovations in public-private partnership

“…We agree with the research position of Gonzalez & Garvin (2016) [42] synthesising archive research in their work and demonstrating a limited amount of PPP innovation evidence. Roumboutsos & Saussier (2014) [43] highlight extensive ability of PPPs to stimulate innovations, and we totally support this point of view. N. A.…”

Allocating Revenue Risk in Transport Infrastructure Public Private Partnership Projects: How it Matters

“…Indeed, PPPs have shown a number of limitations: high cost of financing, large transaction costs, tendering and bidding issues, incomplete contract nature, lack of innovation, and limits in bank financing among others (cf. Hodge & Greve, 2007Martin, Lawther, Hodge, & Greve, 2013;Meaney & Hope, 2012;Roumboutsos & Saussier, 2014;Soliñ o & de Santos, 2010). Additionally, central to the criticism that PPPs have faced until today are evident failures in their structuring.…”

How (Not) to Foster Innovations in Public Infrastructure Projects*

“…Advocates of public–private partnerships often argue that bundling fosters innovation incentives (e.g., HM Treasury, 2012). In this context, innovations can be defined in a very broad sense as “any positive efficiency gains achieved through productive investments” (Roumboutsos and Saussier, 2014, p. 359). However, now that public–private partnerships have been in place for more than 20 years, the empirical evidence regarding the success of public–private partnerships in stimulating innovations is mixed.…”