Allocating risks in public-private partnerships using a transaction cost economics approach : a case study

Public-private partnership (PPP) projects are often characterised by increased complexity and uncertainty due to their idiosyncrasy in the management and delivery processes such as long-term lifecycle, incomplete contracting, and the multitude of stakeholders. An appropriate risk allocation is particularly crucial to achieving project success. This paper focuses on the risk allocation in PPP projects and argues that the transaction cost economics (TCE) theory can integrate the economics part, which is currently missing, into the risk management research. A TCE-based approach is proposed as a logical framework for allocating risks between public and private sectors in PPP projects. A case study of the Southern Cross Station redevelopment project in Australia is presented to illustrate the approach. The allocation of important risks is put under scrutiny. Lessons learnt are discussed and alternative management approaches drawing on TCE theory are proposed.