Look at this story told to me by Muhammad Danish, a top expert in PPP...

Pakistan.

A road to be built.

A few years ago.

Inflation was running wild.

Prices were changing so fast that a contractor could buy materials on Monday and regret being born by Thursday… until he discovered he could sell them for a fortune on Sunday.

The government’s advisers saw the problem.

If the private partner had to carry all the price escalation risk, the bids would be absurdly expensive.

Or there would be no bids at all.

So the advisers recommended sharing that risk.

The government… up to the private sector to deal with it…

One… only one bid arrived.

It came from a credible consortium.

The price was higher than the government’s original estimate.

Cue the dramatic music.

But there was a small complication.

The government’s own updated market rates had also risen to almost the same level as the bid.

The advisers reviewed it and recommended acceptance.

The senior official overseeing the PPP backed their conclusion.

The proposed contract also contained substantial protections for the government.

The decision makers said no.

They were scared…

One bid only?

Perhaps they believed that rejecting inflation would make it go away.

I have tried this with my electricity bill.

Mixed results.

A year later, the government built the road through conventional procurement.

Well.

A road.

The scope had been cut dramatically.

The existing road was left in place instead of being removed and reconstructed.

The government paid more of its own money upfront than the contribution it had rejected under the PPP.

And received an asset with a narrower scope, a potentially shorter useful life and possibly higher maintenance costs.

Bravo.

Of course, hard to compare apples with apples…

But that’s precisely why the original bid deserved a serious value for money assessment.

The lesson is not “accept every expensive PPP bid”… especially if you only received one.

Please don’t put that in a Cabinet paper.

The lesson is that an estimate approved before a period of extreme inflation is not a sacred text…

As estimates by consultants that have never delivered a megaproject under a PPP… but I leave that for another story.

Another lesson is that transferring a risk to a contractor does not make the risk disappear.

That’s wishful thinking… and more dangerous that putting Putin, Donald and Xi in a room with wine and connections to X.

You can find many, many more lessons here:

​The Room​

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