The Influence of Critical Success Factors on Value for Money Viability Analysis in Public-Private Partnership Projects

Khalid Almarri, Faculty of Engineering and IT, the British University in Dubai, Dubai, United Arab Emirates

Halim Boussabaine, Faculty of Engineering and IT, the British University in Dubai, Dubai, United Arab Emirates

Governments are increasingly entering partnerships with the private sector through the public–private partnership (PPP) model for the development of public projects. Value for money analysis is used to assess the viability of these ventures. This research aims to investigate the contribution of the PPP critical success factors to value for money viability analysis. Relevant data were collected through a questionnaire to establish the PPP critical success factors and value for money success criteria. Data were collected from 92 participants. The data obtained were analyzed using mean score, t-test, and regression analysis. The research found that government guarantees, macroeconomic conditions, shared authority between the public and private sectors, social support, and transparent procurement process contributed positively to value for money viability analysis. The results imply that practitioners should consider these key indicators for improving the value for money viability of PPP projects.

KEYWORDS: PPP; critical success factors; value for money; viability analysis

Project Management Journal, Vol. 48, No. 4, 93–106
© 2017 by the Project Management Institute
Published online at www.pmi.org/PMJ

INTRODUCTION img

The PPP terminology was first introduced in the United Kingdom in 1997. Prior to this, other arrangements of a similar collaborative form of engaging the private sector fell within the private finance initiative, which was introduced by the UK government in 1992 (Broadbent & Laughlin, 2003, 2004). PPPs are expected to help maximize value in the development of public projects. This is based on the theory that additional value can be realized through the participation of the private sector in the provision of public services (Broadbent & Laughlin, 2004; Williams, 2016). This is attributed to the fact that the private sector is capable of minimizing life cycle costs efficiency in risk management, producing clear service outputs, and specifying robust technological requirements for the full duration of the project (The European PPP Enterprise Centre [EPEC], 2012; The Canadian Council for PPP, 2011). Another factor that leads to the proliferation of PPPs is the integration of the project development cycle stages. This integration consists of funding, planning, constructing, managing, and maintaining the projects by private investors (Almarri & Blackwell, 2014; Broadbent & Laughlin, 2003; European Commission [EU], 2003). Moreover, PPP contracts are aimed at using the private sector experience to manage risk, quality, efficiency, innovation, and finance (Osei-Kyei & Chan, 2015). The PPP model is shaped by three major factors: ownership, internal control, and funding (University of Melbourne, 2011). Ownership refers to the financial gearing of the project, where the equities are clearly defined; internal control refers to the management of the project to achieve its goals; and funding refers to financial support that either party is willing to contribute. PPPs are reported to have high success rates in terms of efficiency, innovation, quality, funding, and risk (Alfen, 2010). Because of these perceived benefits, PPPs have become an extremely popular mechanism for procuring public work around the world (Alfen, 2010; Roumboutsos & Saussier, 2014). However, developing public projects under the PPP method depends to a large extent on the outcome of value for money viability analysis. Realizing value for money in PPP depends on the ability to identify and allocate risks to those parties that have the ability to manage them in a better manner. The underlying principle of risk allocation is that each risk should be allocated to the party that is able to control its occurrence and impact on the project, as well as absorb its consequences with the smallest financial impact (Chou, Tserng, Lin, & Yeh, 2012; The World Bank Institute [WBI], 2012). In order for PPPs to deliver the anticipated value from risk management, stringent success criteria must be put in place to make sure the planned value is delivered as assumed (Williams, 2016). The underlying concept of success in PPP projects can be interpreted in several ways. For instance, success could be measured by the partner partnerships based on particular criteria—for example, governance, collaboration, and so forth—as cited by Jeffares, Helen, and Boivard (2009). Others view success from the standpoint of broader societal benefits, such as the efficiency of public services delivery. Success is also viewed from the development and operation of PPP projects’ aspects, using factors such as communication, teamwork, and so forth. The latter concept of success is measured based on the outcomes of the PPP contract at the stage of completion and the ongoing operational performance of the project. All these views and others have their own merits. In this study, success is associated with factors that lead to the achievement of value of money objectives during the project viability analysis stage.

There is a common understanding that the PPP method has prospered because of its perceived ability to deliver value for money. However, a recent report, re-evaluating PPP projects by the UK government, eluded to the idea that PPP is becoming expensive and is not delivering value for money as it is supposed to do (The National Council for PPP, 2012). Thus, there is a need to investigate the factors that lead to better value for money (Ameyaw, Adjei-Kumi, & Owusu-Manu, 2015). Ismail (2013) examined the drivers that would help achieve value for money. The author found only two constructs (private sector technical innovation and competitive tender), which were perceived by practitioners to enhance value for money creation. A study by Zhen, Chen, and Zhang (2014) identified factors that influence value for money in PPP projects in Japan. The authors identified “operational environment, balancing the interests of both public and private sectors, and promoting the participation of the private sector in the timely provision of necessary public works and services” as key determinants of value for money (Zhen et al., 2014, p. 167). Although several studies have been conducted to prove the success of PPP applications, the underlying pattern in the existing literature on both critical success factors and value for money success criteria focuses on the importance and ranking of the critical success factors and value for money drivers (Ismail, 2013; Li, Akintoye, Edwards, & Hardcastle, 2005; Sarmento & Renneboog, 2016; Yuan, Zeng, Skibniewski, & Li, 2009). Notwithstanding the reporting on the success of PPP worldwide, numerous issues have led to failure in PPP projects, where value for money was not returned to the public sector. Mohsin and Zhang (2013) have identified failure drivers through the life cycle of PPP transportation projects. They found that several projects in the United Kingdom and the Netherlands did not achieve their value for money potential. In particular, the authors found that conflicts between partners are among the highly probable causes for not achieving value for money. Other authors have pointed to the issue of PPP projects’ failure to meet delivery outputs’ minimum requirements (McCann, Aranda-Mena, & Edwards, 2015). Research on critical success factors and value for money success also tends to concentrate on or study each of the themes in isolation; in reality, however, there is a potential interplay between the two constructs. Furthermore, most studies tend not to go beyond the listing and ranking of critical success factors and value for money constructs (i.e., factors affecting value for money). Thus, the aims of this investigation are to assess the contribution of critical success factors to value for money viability analysis.

This article is divided into six sections. The first section, Introduction, was an overview of the article. The second section presents a synthesis of the theoretical discussions regarding project critical success factors and value for money viability analysis factors. The third section presents the methodological approach that was followed to derive the results. The fourth section presents an analysis of the results; the fifth section presents the discussion and the implication of the results. The sixth and final section presents the conclusions and limitations of the study.

The Theoretical Background

The Critical Success Factors of PPPs

Critical success factors are essential for the success of any process, and identifying and analyzing them according to their importance in creating value helps the practitioners to adhere to the contexts under which the projects are being developed (The Global Green Growth Forum, 2012). Also, critical success factors help direct the efforts and resources of the project team in more important areas, which leads to the successful delivery of the objectives (Gupta, Gupta, & Agrawal, 2013). “The ‘Critical Success Factors’ (CSF) concept was developed by Rockart and the Sloan School of Management with the phrase first used in the context of information systems and project management” (Jefferies, Gameson, & Rowlinson, 2002, p. 354). Jack Rockart was an American organizational theorist and a senior lecturer and co-founder of the MIT Sloan School of Management. The concept focuses on areas in which positive outcomes are critical for the organization to achieve its objective in an efficient and effective way (MIT CISR, 2017). Rockart's classification of the critical success factors is widely used in the literature and particularly in public–private partnership research (Gudienė, Banaitis, Podvezko, & Banaitienė, 2014; Liu, Love, Davis, Smith, & Regan, 2014a; Medeiros, Perez, & Lex, 2014). Rockart classified critical success factors as industrial (industry characteristics), environmental (economy, competition, infrastructure), strategic (stakeholder objectives), and temporal (internal forces, barriers) (Jefferies et al., 2002). Others grouped them into discrete groups. Such factors can be studied collectively or individually to establish, for example, the causal, contextual, and intervening effects and how they contribute to the success of PPP projects. Critical success factors proposed by Li et al. (2005), Zhen et al. (2014), and Cheung (2009) were used in this study. Table 1 shows the list of critical success factors included in this study. Further details about the backgrounds of these factors can be found in the References section.

Code Items
SF1 Appropriate risk allocation
SF2 Commitment of public and private parties
SF3 Committed and competent public agency
SF4 Competitive procurement process
SF5 Detailed cost/benefits assessment
SF6 Favorable legal framework
SF7 Good governance
SF8 Government guarantees
SF9 Local financial market
SF10 Macroeconomic conditions
SF11 Multi-benefit objectives of all stakeholders
SF12 Political support
SF13 Project technical feasibility
SF14 Shared authority over public and private sectors
SF15 Social support
SF16 Sound economic policy
SF17 Strong private consortium
SF18 Transparent procurement process
Table 1: PPP critical success factors.

Value for Money Indicators

Value for money means delivering the required public services with the optimal cost and benefits (Akintoye & Chinyio, 2005). It is a key indicator used by the public sector to assess whether a PPP project will offer better value over other conventional procurement options. Akintoye and Chinyio (2005) and Henjewele, Sun, and Fewings (2011) stated that achieving value for money should be the benchmark strategic objective of PPP projects. Yuan et al. (2009, p. 257) stated that the strategic objective of value for money encompasses the “public client's overall strategic plan and mission objectives, private sector's long-term development and payoff strategy, the general public's requirements of quality public facilities and services.” Liu, Love, Smith, Regan, and Sutrisna (2014b) cited Henjewele et al. (2011) to state that “meeting client's requirements should be considered as a core dimension in performance measurement of PPPs.” (Liu et al., 2014b, p. 502) Furthermore, Kušljić and Marenjak (2013, p. 949) stated that “a PFI project can be described as successful if it delivers value for money in the form of cost effective, reliable and timely services at agreed prices and to agreed quality, as defined in the contract.” These studies have highlighted the importance of conducting value for money analysis. There are different approaches for conducting value for money assessment. One approach is to check qualitatively that guidelines’ stipulations to achieve value for money are met, such as checking how well the PPP concession is structured. The other common approach is quantitative assessment, which is used for the identification of the critical success factors and their association with the local context. However, in practice, the two approaches are combined to appraise PPP projects through comparing key factors such as fiscal costs, risk adjusted costs, or economic cost-benefit to the conventional procurement options (The European PP Expertise Centre [EPEC], 2012; The Canadian Council for PPP, 2011; The World Bank Institute [WBI], 2012). No matter how robust the analysis, there are always unseen obstacles that may prevent PPPs from generating value for money. These include behavioral, policy, capital, technological, and coordination failures. Such difficulties impede competitiveness and the overall value for money efficiency of PPP projects. This poses the need to find solutions to overcome value creation performance problems. This research postulates that PPPs can offer additional value for money when there is synchronization between the project success factors and value for money viability analysis. The most cited factors that contribute to value for money analysis include optimized risk allocation, competitive bid process, improved services to the community, clear output specifications, improved facilities to the users, optimization of assets efficiency, technical innovation, the private sector's project management skills, incentives for private parties, appropriate capital structure, long-term engagement, efficient dispute resolutions, low life cycle cost, early service delivery, reduced negative environmental impact, and low tariffs (Li, 2003; Li et al., 2005). These value for money factors are also extensively cited and recognized in the PPP literature (Cheung, Chan, & Kajewski, 2009; Chou & Pramudawardhani, 2015; Ismail, 2013; Osei-Kyei & Chan, 2015).

As demonstrated above, most studies tend to concentrate either on critical success factors or value for money factors. This study furthers the existing literature by addressing the question of how likely critical success factors contribute to the value for money viability of PPP projects. It is common for most PPP procurement guides to suggest that each project be checked for viability and adherence to the goals of value for money and affordability agenda and objectives. For example, the UK's HM Treasury stipulates that the PPP projects must be appraised for their value for money at very early stages by the procuring departments to show their economic, financial, and commercial viability. Thus, this research proposes to cluster the value for money factors that contribute to the viability of the PPP projects into economic, financial, and commercial clusters.

Economic: The purpose of the economic appraisal is to determine the impact of the proposed project on the cash flow and overall financial status of the procurer (Boussabaine, 2006). This appraisal must take into consideration the timing of cash flow occurrence and the cost of capital. The research hypothesizes that the following value for money indicators contribute to the economic viability of PPP projects (Cheung et al., 2009; Li et al., 2005):

  • Low life cycle cost,
  • Optimized risk allocation,
  • Improved services to the community,
  • Optimization of asset efficiency, and
  • Early service delivery.

Financial: The financial value for money viability analysis provides an assessment of the funding solution in terms of affordability and impact on the procurer's finances (Boussabaine, 2006). It is essential for the procurer to ascertain the capacity to pay for developing, operating, and maintaining the project for the intended contract period. This research hypothesizes that the following value for money indicators contribute to the financial viability of PPP projects (Li et al., 2005):

  • Incentives for private parties, and
  • Appropriate capital structure.

Commercial: The commercial value for money viability appraisal deals with key elements, such as the procurement process, the contract and its key elements, and risk transfer and payment mechanisms (Boussabaine, 2006). Most PPP guidelines do not make it a requirement to provide a commercial appraisal at an early stage of a project's development. However, in order to realize the full potential of value for money from project development, we advocate some sort of analysis to inform the evaluation of comparisons between alternative options.

The research hypothesizes that the following value for money indicators contribute to the commercial viability of PPP projects (Cheung et al., 2009; Li et al., 2005):

  • Technical innovation,
  • Competitive bid process,
  • Clear output specification,
  • Efficient dispute resolutions,
  • Long-term engagement, and
  • Private sector's project management skills.

The relationship between value for money indicators and project critical success factors is explored and tested through the following general hypotheses (Figure 1 illustrates the conceptual relationship between the research elements):

H1: The critical success factors correlate positively to value for money indicators.

H2: There is a statistically significant effect of critical success factors on value for money viability analysis in PPP projects.

This study further contributes to the theory of PPP critical success factors and value for money viability analysis by grouping the value for money success factors under three clusters—economic, financial, and commercial—and investigates further whether critical success factors contribute positively to the value for money's viability analysis agenda.

Methodology

This research adopted the Saunders, Lewis, and Thornhill's (2011) process for research development and design. The authors utilized a deductive approach to embrace both existing theories on critical success factors and value for money analysis, and to generate new empirical results. A survey design was selected to acquire data in a systematic manner from transitional and developed economies.

img

Figure 1: Success factor (SF) variables influencing value for money (VFM) outcomes.

The United Arab Emirates (UAE) was chosen as a representative of transitional economies, whereas the United Kingdom was chosen from the developed economies because of its pioneering role in PPP development and because its procurement processes are similar to those of the UAE.

The format of the questions was adapted from the template questionnaire designed by Li et al. (2005). The template consisted of separate segments for testing the attractive factors, value for money factors, and the critical success factors for PPP/PFI projects in the United Kingdom. This template and its contents are widely discussed and cited in the PPP literature (Cheung et al., 2009; Chou & Pramudawardhani, 2015; Ismail, 2013; Osei-Kyei & Chan, 2015). More important, Li et al.'s (2005) template was designed based on an extensive literature review. For example, eight critical success factors were imported from the work of Qiao, Wang, Tiong, and Chan (2001) in build–operate–transfer (BOT) projects in China: appropriate project identification; stable political and economic situation; attractive financial package; acceptable toll/tariff levels; reasonable risk allocation; selection of suitable subcontractors; management control; and technology transfer. These factors were then cross-checked with other studies. For example, reasonable risk allocation, Li et al. (2005) asserted, was supported by the work of Grant (1996) and Arthur Andersen and Enterprise LSE (2000). Another example is the available financial market, which is supported by the work of Jefferies et al. (2002) and McCarthy and Tiong (1991). Similar studies have also used the same techniques.

The questionnaire was conducted simultaneously in the United Kingdom and the UAE in 2015. The participants were selected from the public and private sectors and researchers. Professional experience in the field of PPPs in the UAE and PFI/PPP in the United Kingdom was mandatory. The chosen sampling criteria for this study were convenient sampling criteria. The reason for this selection was that the pool of respondents in the United Kingdom was difficult to penetrate and referrals were the only means of reaching qualified respondents. In addition, the pool of respondents from which to draw was relatively scarce in the UAE and the population that was sampled was unknown. This restricted the minimum requirement for using the random sampling process to make the sample representative of the population (Ellsberg, Heise, & World Health Organization, 2005). There were 30 qualified responses from the UAE and 62 from the United Kingdom. The process used to analyze the data is shown in Figure 2.

The research hypotheses were tested using univariate and bivariate analysis techniques. The testing was carried out in three stages. In the first stage, univariate techniques were used to study the characteristics of each of the value for money and success factor variables. In the second stage, Pearson correlation analysis was utilized to discover the interrelationships among the critical success factors and the value for money constructs. It was also used to test the first study hypothesis. In the third stage, the following regression equation was used to test hypothesis H2:

img

Figure 2: The data analysis process.

img

VFM is the value for money indicators as described above.

α is the estimated constant;

β is the estimated coefficient for each of the PPP critical success factors; and

CSF represents the independent critical success factors variables.

The data about the factors, which contribute to value for money analysis, were collected in a format similar to the critical success factors. Thirteen factors were extracted from the literature. Statistical Package for the Social Sciences (SPSS) software was used to cluster these into three groups—economic, financial, and commercial—as explained in the previous section. These formed three dependent value for money variables (constructs). Simple regression and Pearson correlation were used to assess whether critical success factors contribute positively to the three clusters of value for money viability analysis. The critical success factors that had insignificant P values were excluded from the multiple regression analysis.

Descriptive Statistics and Ranking

In total, 92 qualified questionnaires were returned out of the 326 distributed; of these, 23 responses came from the public sector, 40 from the private sector, and 29 from academics. The UK respondents accounted for 61.3% of the sample (Table 2). Although the number of respondents from the UAE was smaller, the statistical tests showed that there was no statistical difference between the two groups. For example, the Chi square value for the UAE and the UK samples are 114.89 and 141.70, respectively. This is significantly higher than the critical Chi square value of 27.59 when the degree of freedom is 17. Therefore, the null hypothesis—that there is a significant difference in the observations—is rejected, and the rankings provided by each group on the critical success factors for implementing PPPs are established to be consistent. Thus, the two samples were combined for carrying out a regression analysis as demonstrated in Figure 2. The Cronbach alpha reliability for the factors is 0.820. This suggests that the data collected are reliable and that all the critical success factors should be included in any further statistical analysis.

The relative ranking of the critical success factors and value for money was measured by mean Likert rating scale questions. This survey measurement instrument is widely used in the literature. For example, Li et al. (2005), Cheung (2009), Cheung, Chan, Lam, Chan, and Ke (2012), and Ismail (2013) used a similar scale to measure the importance of critical success factors. The results of the ranking are presented in the following subsections.

Ranking of Critical Success Factors

The mean scores for the nine highest critical success factors for PPP implementation were all above 4.00 (see Table 3). This shows that the selected critical success factors are of major importance.

img

Table 2: Personal and job-related variable frequencies.

The commitment of the public and private parties to the cause of PPP models is the most critical success factor indicated by the respondents from both the UAE and the United Kingdom. It ranked second and fourth in studies conducted by Cheung (2009) and Li (2003), respectively, which shows the persisting importance of this critical success factor. The public party must show its commitment by facilitating all means for the private party to maximize the success of the project through the provision of permits; legislations; legal frameworks; public support; access to the financial market; and so on, for the project. The private party must show commitment to the project by maximizing efforts to develop and manage the PPP project in the most effective and efficient way that balances the generation of profits for both parties with improved and cost-effective services for the public. The second most highly rated critical success factor was appropriate risk allocation. This factor was identically ranked second in Li's (2003) study and fifth in Cheung's (2009) study. This pattern indicates that this factor retains its importance as one of the most significant factors influencing the success of PPP projects. The main feature of PPP models is that they establish clearly the responsibilities that each party should bear during the development and operation of the project. Risk allocation should be based on very clear criteria, where the reason for allocating such risks is well established. Ranked third was the critical success factor ‘committed and competent public agency.’ This factor was ranked 12th by Cheung (2009) and seventh by Li (2003). This inconsistency between the three factors could be attributed to the fact that competence and commitment are already integral parts of the procurement practice in these researchers’ countries and there was no need to emphasize it. The public agency acts as a one-stop shop for the private party to deal with all governmental departments that are involved in the project. Large projects such as PPPs require permits and approvals throughout the development phases of the project, and facilitating such requirements will improve the chances for the project's success. A transparent procurement process was ranked fourth by the respondents, with a mean score of significance of 4.33. This indicates how important the transparency of the bid process is, as it plays one of the most significant roles in awarding the project to the right bidder. Cheung (2009) and Li (2003) ranked this factor tenth and eleventh, respectively. This might be attributed to the fact that the procurement process is mature in their countries, and this factor is marginally significant.

img

Table 3: Mean and ranking of critical success factors (SF) for PPPs.

The respondents gave the same significance to a strong private consortium. This item was ranked first in Li (2003) and third in Cheung (2009), indicating the importance of this critical success factor. The stronger the consortium, the more experience it brings to design and develop the most efficient and effective project.

The critical success factor competitive procurement process was ranked sixth by the respondents. It was ranked ninth and twelfth in Cheung (2009) and Li (2003), respectively, indicating this factor's moderate significance. The competitive procurement complements the transparency of the bidding process in providing a mechanism for the prequalification of bidders, ensuring that negotiations are focused on bringing the best bidder and not only the best financial offer. Political support was ranked in seventh place by the respondents, with a mean score of significance of 4.17. Political support is very critical to the success of PPP; it must be durable throughout the life cycle of the PPP project, regardless of any change in parliaments or cabinets. The project should be protected from changes in legislations or regulations that might affect its objectives. The critical success factors detailed cost/benefits assessment and good governance had almost the same mean score. These critical success factors are integral parts of the project appraisal process, and very important factors for the success of PPP projects. Life cost studies give an early indication of the true value of the project in order to make a decision on whether to award them or not. Such assessments will identify financial and technical alternatives to maximize the benefits of the project. Furthermore, good governance and the favorable legal framework are very important for the success of PPP projects. The private party will seek a legal system that guarantees the proper interpretation and implementation of the agreements. This will ensure the satisfaction of all stakeholders and maximize the project's chances for success.

The critical success factors that had a mean score of less than four were multi-benefit objectives of all stakeholders, project technical feasibility, shared authority between the public and private sectors, social support sound economic policy, government guarantees, macroeconomic conditions, and the local financial market. Although the ranks of these factors were low compared with the ranks of other factors, it does not mean that these critical success factors do not contribute to the success of PPP projects. In any case, their scores are well above the average score.

Ranking of Value for Money

The literature review showed that there were 16 main factors influencing the achievement of value for money in PPP projects (Table 4). The respondents selected optimized risk allocation, competitive bid process, improved services to the community, and clear output specification, as the most important factors that might influence value for money agenda. This indicates their importance in achieving the value for money objectives, and probably explains why some governments prefer PPP models over other conventional methods. Risk allocation plays a significant role in maximizing the success of PPP projects, leading to optimized performance and more value from the project.

img

Table 4: Mean and ranking of value for money factors for PPPs.

A competitive bid process is critical to the success of PPP projects and to the value that they offer. Coherent and transparent bidding processes are essential for the success of the project and the maximization of its value for money (WBI, 2012). Clear output specification also was deemed significant. This is because PPP contracts are long-term projects in which input specifications vary over time. Thus, specifications must be very clear to avoid unnecessary disputes and to ensure that the public receives the right services and facilities as anticipated. Improved services for the community was ranked among the most important outcomes of PPPs. The private party seeks state-of-the-art technologies and innovative ideas for the development and operation of the project, all of which lead to better services and improved facilities to the community. The value for money factor improved facilities was also ranked among the most important factors for achieving value for money by the UAE respondents. The reason for this may be that the respondents look at PPPs as a new vehicle for acquiring new technologies in which innovative ideas are utilized to improve the return on investment. In the United Kingdom, the services are already at the highest level of maturity. The same can be said regarding the optimization of assets’ efficiency factor. It was deemed important by the UAE but not the UK respondents. There was also disagreement between the respondents on ranking technical innovation and private sector project management skills. This slight difference could be attributed to the maturity of knowledge of PPPs in the UK industry. Incentives for the private party, appropriate capital structure, long-term engagement, efficient dispute resolutions, low life cycle cost, early service delivery, reduced negative environmental impact, and low tariffs were ranked lower than other factors by the respondents. This should not suggest that these factors are important in the analysis of value for money in all contexts.

Correlation Analysis

Pearson correlation analysis was performed to discover the interrelationships among the critical success factors and the value for money constructs. The results are illustrated in Table 5. The results revealed that competitive procurement process, local financial market, and political support are not significantly correlated with the economic value for money viability analysis construct. Furthermore, the critical success factors, appropriate risk allocation and commitment of public and private parties, are not significantly correlated with financial viability constructs. The critical success factors, local financial market and multi-benefit objectives, are also insignificantly correlated with value for money commercial viability constructs. Table 5 also demonstrates that most critical success factors are correlated with the value for money viability constructs at a 0.05 significant level or above. It is also noticeable in the table that the correlation strength is below 0.5, with the exception of favorable legal framework, which moderately correlates with value for money financial viability. The most correlated critical success factors to value for money economic viability are shared authority between the public and private sectors, social support, and transparent procurement process, whereas the most correlated critical success factors to value for money financial viability are the favorable legal framework, good governance, government guarantees, social support, sound economic policy, and transparent procurement process. It is noticeable that only two (social support and transparent procurement process) out of the 18 show better correlation with value for money commercial viability. It appears also that social support and transparent procurement process of the critical success factors are important for all three value for money viability constructs.

img

Table 5: Correlation between critical success factors (SF) and the value for money (VFM) constructs.

Regression Analysis

Both simple and multiple regression analyses were used to explore the interdependent relationships between the critical success factors and value for money viability constructs. In both experiments, value for money viability constructs are used as dependent variables and critical success factors as independent variables. The simple regression was used to check how significant each of the critical success factors’ contribution is to the variation of value for money viability constructs. The results, illustrated in Table 6, indicate that four critical success factors (competitive procurement process, good governance, local financial market, and political support) did not contribute significantly to value for money economic viability, whereas only two critical success factors (appropriate risk allocation and detailed cost/benefits assessment) did not contribute to financial value for money viability. Normally, risk allocation is one of the key drivers in value creation in PPP contracts. In addition, cost-benefit analysis is necessary to make sure the PPP option is better than a generic version of the project. One plausible explanation why the contribution of these critical success factors is not significant at a p-value of 0.05 is because the respondents may view it as related to economic viability. Similarity, only local financial market and multi-benefit objectives returned insignificant contributions to commercial value for money viability. This might be a result of the fact that the respondents view the local market as part of the project's financing parameters. The results show that all other critical success factors have a linear relationship with the value for money viability constructs at a p-value of 0.05 or better.

img

Table 6: Simple regression results.

The purpose of the second experiment is to examine how much each of the critical success factors contributes to value for money viability when all the critical success factors are combined together. It also aimed to find which of the critical success factors contribute positively to the value for money agenda when all other critical success factors are considered constant. All of the critical success factors that demonstrated insignificant contribution to value for money viability were excluded in the second experiment. The results of the experiment are shown in Table 7.

img

Table 7: Multiple regression results.

Multiple regression analysis results based on the economical dependent variable (see Table 7) show that the model is significant (β = 4.353, f = 3.456, p = 0.000) and accounted for 27.4% of the variance in the data set. The majority of the critical success factors showed a positive influence. Although the overall model is significant at p < 0.001, the results also showed that only social support has a significant β value at p < 0.05. The results also showed that the critical success factors committed public agency, project technical feasibility, and sound economic policy affect economic value for money analysis in negative directions. It is important to point out that the influence of these critical success factors is very small (less than 8%), as demonstrated by the values of their β. The value of variance inflation factor (VIF) is below 10, which indicates that collinearity does not exist. It is plausible that these negative coefficient values may be a result of low correlation between the critical success factors and dependent variables. To overcome this problem, all the critical success factors with small β values were removed from the regression. The new results show that shared authority between the public and private sectors, social support, and transparent procurement process contribute positively to economic value for money viability, as shown in Table 7.

Multiple regression analysis results (see Table 7) based on the value for money financial viability dependent variable show that the model is significant (β = 4.353, f = 3.485, p = 0.000) and accounted for 30.4% of the variance in the data set. Although the overall model is significant at p < 0.001, the results also showed that only social support has a significant β value, at p < 0.05. However, several critical success factors have significant β values at 90% confidence level (p < 0.1). The results also depict that the competitive procurement process, local financial market, and political support critical success factors have negative contributions to the value for money viability analysis. To eliminate the possibility of collinearity between the critical success factors, the critical success factors with positive β values were selected for further experimentation. Using the backward regression method, the results showed that government guarantees, transparent procurement process, and social support have significant β values at p < 0.05, as shown in Table 7.

Multiple regression analysis results based on the commercial dependent variable (see Table 7) show that the model is significant (β = 4.210, f = 3.411, p = 0.000) and accounted for 29.8% of the variance in the data set. All other critical success factors showed a positive influence. Although the overall model is significant at p < 0.001, the results also showed that only social support has a significant β value, at p < 0.05. The results showed that the critical success factors competitive procurement process, political support, and sound economic policy affect economic value for money analysis in negative directions. Further analysis shows that macroeconomic conditions, social support, and transparent procurement process are the only factors that have significant β values at p < 0.05 or below, as shown in Table 7. As demonstrated in Table 8, the research's second hypothesis is accepted for only five of the critical success factors.

The literature speculates that government support through legalization and financial guarantees is essential for the success and viability of PPP projects. This finding supports the existing views in the literature that government guarantee is an important key factor in the success of PPP projects. Social support, for allowing the private sector to develop and run public services through developing and issuing policies that facilitate PPP provision, is also deemed important (Li et al., 2005). Negative public opinion about the private sector could hamper the use of PPP to deliver public projects. Thus, public support will certainly aid in the commercial viability of PPP projects. The issue of realistic assessment of costs and benefits is also highlighted in the literature as one of the important success factors in PPP projects (Li et al., 2005). This research agrees with the existing findings and confirms that this factor significantly contributes to value for money economic viability. It is reported that PPP projects should be able to provide better value for money than a pure public sector project approach to justify the extract financial burden (Boussabaine, 2013). Several authors have cited stable macroeconomic environment as one of the key success factors for PPP implementation. The findings from this research confirm this assertion.

Discussion

The main objective of this study has been to provide an understanding of the critical success factors that contribute to value for money viability analysis in PPP projects. Transparent procurement process and social support had significant correlations with all of the three value for money viability constructs—economic, financial, and commercial. Social support was the most significant critical success factor when regressed to all value for money viability constructs.

Although it was ranked by the res pondents as the fourteenth most significant critical success factor for the success of PPP projects, when it was regressed to the value for money viability constructs, social support seems to have the most influence on the viability analysis of the project. Social support refers to the public's support for the facilities and services that the PPP project is expected to bring, where a lack of support might delay the permits for commencement, reduce revenues because of a lack of use of services, or cause political debates that might delay the project (Cheung, 2009; Li et al., 2005).

img

Table 8: Final models summary.

A transparent bidding process was ranked as the fourth most significant critical success factor for the success of PPP projects and, when regressed against the value for money viability, showed a very significant influence as well. For a PPP project to succeed, it is critical to have a transparent bid process until the final close. It is very common for a PPP project to undergo a multistage bidding process in which the rights of some bidders become infringed, which undermines efforts to award the project to the best bidder. Furthermore, the chance for the successful delivery of the project depends significantly on the bid winner. The bid winner should be the one that delivers the best value for money for the project. All bidders must be involved in rigorous negotiations and must be given the information required for revising their bid proposals to unlock further value. The government must show more commitment by ensuring transparency for the full duration of the bid process, not only in the initial submittals. Public and private parties must show equal commitment to the objectives of the PPP project in order for the project to be viable (Li, 2003). Also, government support through favorable policies and minimum revenue guarantees may reduce the cost of risk and help secure financing from the private sector on good terms, leading to value for money creation (Boussabaine, 2013). Also, the influence of macroeconomic risks, such as unstable inflation and the exchange rates of the country, can be minimized through better risk allocation and investment protection guarantees, leading to value for money creation for both parties.

This study implies some limitations that future researchers should consider further factors and empirical data. It is very difficult to generalize the results to PPP procurement value for money creation based on one sample and limited geographical data. It is recommended that future studies determine additional success factors. Future research should seek to investigate the interrelationships among the value for money determinants, risk allocation, and critical success factors. This will show if risk allocation has a significant contribution to value for money viability as suggested by the literature.

Conclusion

This study set out to explore relationships between critical success factors and value for money viability constructs. The key contribution of this article is the tracking of the critical success factors that contribute to a positive value for money viability analysis. The critical success factor classification presented in this study complements studies that previously investigated PPP projects. It was envisaged that several critical success factors contribute to the value for money viability analysis. The article examined the correlation between critical success factors and the key value for money viability analysis constructs. The results show that most critical success factors are correlated with the value of money viability constructs at a p < 0.05 significant level or above. Given that several critical success factors are reported in the literature, this research was able to determine the principal critical success factors that are key in value for money viability analysis. This study found that government guarantees, macroeconomic conditions, shared authority between the public and private sectors, social support, and transparent procurement process all provide a great opportunity for achieving better value for money from PPP projects. Further empirical study should confirm if this is the case. This study provides a foundation for further research to investigate the complexity of interaction among all the variables that are part of the PPP project. This investigation has several limitations, among them the fact that the research applies mainly to the UAE and UK contexts. Also, the analysis is based on data from surveys rather than empirical analysis.

References

Alfen, H., Kalidindi, S., Ogunlana, S., Wang, S., Abednego, M., Frank-Jungbecker, A., & Zhao, G. (2009). Public-private partnership in infrastructure development: Case studies from Asia and Europe [Online]. Retrieved from http://www.econstor.eu/handle/10419/56429

Akintoye, A., & Chinyio, E. (2005). Private finance initiative in the healthcare sector: Trends and risk assessment. Engineering, Construction and Architectural Management, 12(6), 601–616.

Alfen, H. (2010). Public private partnership (PPP) as part of infrastructure management solutions: A structural approach of delimiting PPP from other private sector participation models. 18th CIB World Building Congress, May 2010, Salford, United Kingdom [Online]. Retrieved from http://www.irbnet.de/daten/iconda/CIB_DC24060.pdf#page=18

Almarri, K., & Blackwell, P. (2014). Improving risk sharing and investment appraisal for PPP procurement success in large green projects. Procedia—Social and Behavioral Sciences, 119, 847–856.

Ameyaw, C., Adjei-Kumi, T., & Owusu-Manu, D. (2015). Exploring value for money (VfM) assessment methods of public-private partnership projects in Ghana: A theoretical framework. Journal of Financial Management of Property and Construction, 20(3).

Andersen, A. (2000). Value for money drivers in the private finance initiative. Report from Arthur Andersen and Enterprise LSE Commissioned by the Treasury Taskforce. London, England: Office of Government Commerce.

Boussabaine A. H. (2013). Risk pricing strategies for public-private partnership projects. Hoboken, NJ: Wiley-Blackwell.

Boussabaine, A. H. (2006). Cost planning of PFI and PPP building projects. Abingdon, England: Taylor & Francis.

Broadbent, J., & Laughlin, R. (2003). Public private partnerships: An introduction. Accounting, Auditing & Accountability Journal, 16(3), 332–341.

Broadbent, J., & Laughlin, R. (2004). PPPs: Nature, development and unanswered questions. Australian Accounting Review, 14(33), 4–10.

Cheung, E. (2009). Developing a best practice framework for implementing public private partnerships (PPP) in Hong Kong. PhD Thesis. Queensland University of Technology [Online]. Retrieved from http://core.ac.uk/download/pdf/10894601.pdf

Cheung, E., Chan, A. P., & Kajewski, S. (2009). Enhancing value for money in public private partnership projects: Findings from a survey conducted in Hong Kong and Australia compared to findings from previous research in the UK. Journal of Financial Management of Property and Construction, 14(1), 7–20.

Cheung, E., Chan, A. P., Lam, P. T., Chan, D. W., & Ke, Y. (2012). A comparative study of critical success factors for public private partnerships (PPP) between Mainland China and the Hong Kong Special Administrative Region. Facilities, 30(13/14), 647–666.

Chou, J. S., & Pramudawardhani, D. (2015). Cross-country comparisons of key drivers, critical success factors and risk allocation for public-private partnership projects. International Journal of Project Management, 33(5), 1136–1150.

Chou, J. S., Tserng, H. P., Lin, C., & Yeh, C. P. (2012). Critical factors and risk allocation for PPP policy: Comparison between HSR and general infrastructure projects. Transport Policy, 22, 36–48.

Ellsberg, M. C., Heise, L., & World Health Organization. (2005). Researching violence against women: A practical guide for researchers and activists. Geneva, Switzerland: World Health Organization.

European Commission (EU). (2003). Guidelines for successful public–private partnerships, Directorate-General Regional Policy, Directorate General for Research. Brussels [Online]. Retrieved from http://ec.europa.eu/regional_policy/sources/docgener/guides/ppp_en.pdf

Grant, T. (1996). Keys to successful public-private partnerships. Canadian Business Review, 23(3), 27–28.

Gudienė, N., Banaitis, A., Podvezko, V., & Banaitienė, N. (2014). Identification and evaluation of the critical success factors for construction projects in Lithuania: AHP approach. Journal of Civil Engineering and Management, 20(3), 350–359.

Gupta, A., Gupta, M. C., & Agrawal, R. (2013). Identification and ranking of critical success factors for BOT projects in India. Management Research Review, 36(11), 1040–1060.

Henjewele, C., Sun, M., & Fewings, P. (2011). Critical parameters influencing value for money variations in PFI projects in the healthcare and transport sectors. Construction Management and Economics, 29(8), 825–839.

Ismail, S. (2013). Drivers of value for money public private partnership projects in Malaysia. Asian Review of Accounting, 21(3), 241–256.

Jeffares, S., Helen, S., & Boivard, T. (2009). Beyond the contract: The challenge of evaluating the performance(s) of public-private. Paper for the 13th IRSPM Conference, April 2009, Copenhagen, Denmark.

Jefferies, M., Gameson, R., & Rowlinson, S. (2002). Critical success factors of the BOOT procurement system: Reflections from the Stadium Australia case study. Engineering Construction and Architectural Management, 9(4), 352–361.

Kušljić, D., & Marenjak, S. (2013). Critical PPP/PFI project success criteria for public sector clients. Tehnički vjesnik/Technical Gazette, 20(6), 947–954.

Li, B. (2003). Risk management of construction public private partnership projects, PhD Thesis, Glasgow Caledonian University, United Kingdom [Online]. Retrieved from http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.270518

Li, B., Akintoye, A., Edwards, P. J., & Hardcastle, C. (2005). The allocation of risk in PPP/PFI construction projects in the UK. International Journal of Project Management, 23(1), 25–35.

Liu, J., Love, P., Smith, J., Regan, M., & Sutrisna, M. (2014b). Public-private partnerships: A review of theory and practice of performance measurement. International Journal of Productivity and Performance Management, 63(4), 499–512.

Liu, J., Love, P., Davis, P., Smith, J., & Regan, M. (2014a). Conceptual framework for the performance measurement of public-private partnerships. Journal of Infrastructure Systems, 21(1).

McCann, S., Aranda-Mena, G., & Edwards, P. (2015). Public private partnership projects in the operating phase: Three Australian case studies. Journal of Strategic Contracting and Negotiation, 1(4), 268–287.

McCarthy, S. C., & Tiong, R. L. (1991). Financial and contractual aspects of build–operate–transfer projects. International Journal of Project Management, 9(4), 222–227.

Medeiros Jr., A., Perez, G., & Lex, S. (2014). Using analytic network for selection of enterprise resource planning systems (ERP) aligned to business strategy. JISTEM-Journal of Information Systems and Technology Management, 11(2), 277–296.

MIT CISR. (2014). MIT CISR remembers Jack Rockart. Retrieved from http://cisr.mit.edu/blog/blogs/2014/02/05/jack-rockart/

Mohsin, A., & Zhang, X. (2013). Failure links between public and private sector partners in transportation public private partnerships failures. Journal of Traffic and Logistics Engineering, 1(2).

Osei-Kyei, R., & Chan, A. (2015). Review of studies on the critical success factors for public–private partnership (PPP) projects from 1990 to 2013. International Journal of Project Management, 33(6), 1335–1346.

Qiao, L., Wang, S. Q., Tiong, R. L., & Chan, T. S. (2001). Framework for critical success factors of BOT projects in China. The Journal of Structured Finance, 7(1), 53–61.

Roumboutsos, A., & Saussier, S. (2014). Public-private partnerships and investments in innovation: The influence of the contractual arrangement. Construction Management and Economics, 32(4), 349–361.

Sarmento, J. M., & Renneboog, L. (2016). Anatomy of public-private partnerships: Their creation, financing and renegotiations. International Journal of Managing Projects in Business, 9(1), 94–122.

Saunders, M. M., Lewis, P., & Thornhill, A. (2011). Research methods for business students (5th ed.). Harlow, England: Financial Times/Prentice Hall.

The Canadian Council for PPP. (2011). Public-private private partnerships: A guide for municipalities [Online]. Retrieved from %20municipalities. pdfhttp://www.p3canada.ca/~/media/english/resources-library/files/p3 guide for municipalities.pdf

The European PPP Expertise Centre (EPEC). (2012). The guide to how to prepare, procure and deliver PPP projects [Online]. Retrieved from http://www.eib.org/epec/resources/guide-to-guidance-en

The Global Green Growth Forum. (2012). Accelerating green growth through public-private partnerships [Online]. Retrieved from http://3gf.dk/en/~/media/3gf/Documents/Analyticaltools/3GF Report Accelerating Green Growth Through Public-Private Partnerships.pdf

The National Council of PPP. (2012). Testing tradition: Assessing the added value of public-private partnerships. The National Council for Public-Private Partnership, Arlington, VA.

The University of Melbourne, Australia. (2012). Public private partnerships. [Online]. Retrieved from http://www.csdila.unimelb.edu.au/sis/Public_Policy_Theories/PPP.html

The World Bank Institute (WBI). (2012). Public-private partnerships, reference guide version 1.0. [Online]. Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/16055/79804.pdf?sequence=1

Williams, T. (2016). Identifying success factors in construction projects: A case study. Project Management Journal, 47(1), 97–112.

Yuan, J., Zeng, A. Y., Skibniewski, M. J., & Li, Q. (2009). Selection of performance objectives and key performance indicators in public–private partnership projects to achieve value for money. Construction Management and Economics, 27(3), 253–270.

Zhen, H., Chen, S., & Zhang, X. (2014). Value for money and its influential factors: An empirical study of PPP projects in Japan. Built Environment Project and Asset Management, 4(2), 166–179.

Khalid Almarri, PhD, is an Assistant Professor of Project Management in the Engineering and IT Department of the British University in Dubai, United Arab Emirates. He is acclaimed for setting a high standard of accomplishment by holding the first PhD award in project management in the Gulf region. Dr. Almarri has an undergraduate degree in civil engineering from the University of Arizona and a master's degree in engineering management from the Catholic University of America. After earning his degrees, he commenced his engineering career in 1996 in the Dubai Municipality and has been in government services in the Sewerage & Irrigation Department and the Roads Department as head of the Roads Construction Section.

Through a doctoral program, Dr. Almarri produced the first framework for developing projects through public–private partnerships (PPP) in the United Arab Emirates. This framework is the first to lay the foundations for a standardized PPP practice in the UAE for practitioners; it highlights the most important factors for the success of PPP projects, such as value for money, risk sharing and allocation, renegotiation, and the roles of public and private parties.

Dr. Almarri is also credited for developing a framework for establishing a nuclear research reactor project in the UAE through the utilization of public–private partnerships. This was one of the first frameworks for PPPs in research reactor projects in the world and followed strict safeguards and required full awareness of nuclear safety, security, and control of nuclear materials handling. He can be contacted at Khalid.almarri@buid.ac.ae

Halim Boussabaine, PhD, has more than 25 years of experience in risk modeling and management. He holds a PhD and MSc from Manchester University in the United Kingdom. His consistent research interest has been to pull together and integrate various modern scientific theories and state-of-the-art modeling techniques in order to gain a better understanding of the complexity of risk. Recently, his research portfolio has been expanded to encompass the impact of emerging risks on a variety of complex human decisions that affect natural systems, social systems, and human-made networks. He has published four books and more than 100 research articles and has supervised more than 20 doctoral research projects. He has acted as external PhD examiner for several UK and European universities and serves as a peer reviewer for many leading international journals. He assesses research proposals and final reports for UK and European Union research councils and has delivered training courses in the United Kingdom, Europe, Asia, and MENA regions; he is also an honorary visitor to Liverpool and Manchester Universities in the United Kingdom. His current research agenda focuses on identifying, quantifying, and modeling risk dynamics that create failure/opportunity in enterprises and projects. He can be contacted at halim@buid.ac.ae

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

Advertisement

Advertisement

Related Content

Advertisement

Publishing or acceptance of an advertisement is neither a guarantee nor endorsement of the advertiser's product or service. View advertising policy.