Irish Schools: Sovereign Risk in Social Infrastructure PPP

Running head: IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
Irish schools: Sovereign risk in social infrastructure PPP
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IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
Table of Contents
Answer to question 1:......................................................................................................................2
Answer to question 2:......................................................................................................................5
References:......................................................................................................................................8

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
Answer to question 1:
A number of recognized advantages is suggested by the advocates of PPP that mobilizes
private capital along with the ability to raise additional finance in a budgetary restriction
environment. Advantages of public private partnership (PPP) procurement are as follows:
 Building of infrastructure by making arrangements of PPP procurement came as an
attraction to the government because of benefits attributable in terms of efficiencies and
innovation brought by the private sector. In addition to this, the accounting benefits
brought by the off balance sheet financing was another beneficial factor that make such
arrangement popular amongst government for building infrastructure. It was estimated
that such arrangements would enables cost savings through bundling of operations,
construction and maintenance in a single entity.
 Transfer of risk is considered as central issue of any public private projects and the
procurement of PPP helps in optimizing the risk transfer level by allocating it to the
parties that are well equipped to handle such risk. The whole life costing approach of the
project is encouraged and its execution is expedite over a long period of time by
transferring the risk to the private sector and this potentially helps in increasing the value
of money (Demirag and Burke 2016).
 The introduction of PPP by the government of Ireland intended to service deficit more
rapidly compared to traditional procurement methods alone and the procurement of such
arrangements would serve the inefficiencies, slow delivery and cost overruns of many
public sector projects. In addition to this, any public sector investments was provided
with strong incentives for making the investments to reduce their life cycle cost at the

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
initial stage of construction and also reaping the gain resulting from efficiency at the later
stage of operations. The whole life cost of the project is reduced because the private
contractor are provided with the incentive to minimize the cost and increase the long-
term efficiency over the whole life of project (Akintoye et al. 2015). This is so because
such projects involve maintenance and operation of assets over a prolonged period.
 The deficit involved in such investments by government was not allowed to exceed due
to the aspect off balancing sheet financing as it assist them to leave it out of the budget
accounting. It was estimated that the public private partnership project procurement
would result in the cost savings between 25% and 40% by way of bundling of operation,
maintenance and construction in a single entity.
 For the infrastructure project of the government, it is required by the public private
partnership company to take out insurance on the project in the phase of construction.
Such insurance ensured by PPP procurement would covering major risks associated with
the project such as delay in startup, terrorism, third party liability and environment
impairment. The procurement also helps in covering major risks during the operation
phase such as business interruption, material damage from terrorism and third party
liability. Any increase or decrease in the first 30% of the insurance premium is the
responsibility of such procurement arrangements for the bundle 2 project of Irish
government.
 Furthermore, there is an improvement in the service quality by making better use of
operational efficiencies of the private sector. Compared to the mechanism of traditional
procurement, the competitiveness and increased innovation brought by the private sector
along with harnessing the creativity would help in producing favorable results. The use of