This presentation was made by Dejan Makovsek, ITF, OECD, at the 12th Annual Meeting of the OECD Network of Senior PPP and Infrastructure Officials, held in Paris on 16 April 2019.

1. Lightning talk:
ITFs lessons on Private Investment
and Infra Procurement
Dejan Makovšek, Procurement and Private Investment in Infrastructure Lead
Paris 2019

2. WG: Dealing with Uncertainty in Contracts
2
20
SE, UK, DK, DE, ES, GR, US, CL, AU (SI,
RO)
SNCF Reseau (FR)
+
Traffikverket (SE)
Oresundsbron, Infrastructure Australia,
Infrastructure & Projects Authority/HMT,
UCL, Frontier Economics, ITS Leeds, S&P,
DfT…
ITF
&
+30 experts
Reports Expertise from Countries
OrganizationsVC’s

3. The outputs
3
https://www.itf-
oecd.org/private-
investment-infrastructure

4. 4
Transferred
Risk
P =
Efficiency
gains -
Value for
Moneyx
Transferred
Risk x
Three key assumptions must be met for a positive VfM:
• Credible commitment to the contract
• Competition
• Bidders have good information about risk
(efficient risk pricing)
The nature of any contract is risk transfer

5. Dimensions of uncertainty in contracts
5
Contract
signature
Risk pricing
Competition
Circumstance
surprises
Uncertainty
Project
↑E(revenues)
↓E(cost)
LT contract execution

6. Key lessons/recommendations
6
Procurement in general Private investment
Put VfM first Pursue PI for efficiency only, introduce
IPSAS32
Supplier de risking Do targeted homework to equip contractors with more info ex-ante and during
tendering
The contracting
approach
The nature of the project should drive
the contract model
(in PPP Fixed price/date EPC is default
option)
Pursuing Innovation Stimulate through targeted ECI
projects (not across the board)
In PPPs very limited potential (only
through competitive dialogue)
When to transfer
demand risk
Don’t transfer demand if it’s not
strongly endogenous
Which private
finance model when
Don’t do PPP if you should not transfer
demand, do RAB.
Start dealing with
competition
Competition (in EU) in major infra procurement is inadequate (why is it not
being addressed?)
(if you want to pursue)

7. • DBB, DB, EPC, etc
• For the contractor they affect scope of uncertainty, cost estimation accuracy.
Delivery model and risk pricing

8. Publicly financed
(“Traditional”)
Privately financed
(“PPP”)
Design Build (DB)
Design Bid Build
(DBB)
Alliancing
Lump sum/fixed time
(“Turnkey”)
Cost-share (e.g.
costs plus a fee)
Engineering,
Procurement &
Construction (EPC)
Financing
method
Delivery
models
Contract
power
Contractor
required to
price a narrow
scope
…A high
powered
contract
ECI (Phase 2)
ECI (Phase 1)
Non-price competition
.. A wide scope
Note – Solid lines denote predominant choice, with dashed lines representing less common but observed options
Contractor
engaged on
low-powered
contract
Maximum
guaranteed price
Contract design dimensions

9. Low v high contract power outcomes
Applying a fixed price contract on a complex project
• Construction risk: risk premium in roads above ex-post risk (+20% in
EU), LCC does not explain diff.)
9
Traditional procurement
Public-Private Partnership
Total cost
Cost overrunCost at contract signature
Unexplained
cost difference?
Source: Makovšek & Moszoro 2018.

10. Markets have limits…
10
Public client Market
Output
specification
Define what you
want and that’s it?
Leave it to its own
devices?

11. The take-up of competitive dialogue in the EU
• Rolled out in 2006 in EUR. Use in
transport infrastructure in 2006 –
2016:
11
Source: Base on data in Roumboutsos (2018).
15
1505
Note: Rail/road infra projects above EUR 50 m.

12. The future of procurement
12
Which activities should be
together (in a single contract)
What should be nature/type of a contract
enveloping a particular bundle
Are there activities, that would be
better handled in-house? What to
procure from the market?
Risk management should start before we even have a contract!

13. Towards scientifically grounded procurement
13
QUT model
ITF work on contracts
Research to Upgrade
QUT model
Min 3 countries
Model testing in
different countries
+
A full manual how to
transform a nation’s
approach to
infrastructure
procurement
=

14. Thank you!
Dejan Makovšek, Project Manager
Procurement and Private Investment in Infrastructure Lead
dejan.makovsek@itf-oecd.org