The effect of completion risk and project profitability on the investment decisions of the private sector in PPP projects

Public-private partnership (PPP) is becoming increasingly popular around the world for the development of infrastructure. However, it is vital that the private sector knows how to make its investment decisions, especially when it bears the burden of completion risk, and the cash flow of PPP projects is hard to predict. In previous studies, completion risk and project profitability have been recognized as critical factors that influence the involvement of the private sector in PPP projects. This study further investigates how these two factors affect private sector investment decisions, including its involvement, withdrawal, and capital structure decisions. First, a continuous real option method is built to explore the investment boundary and default boundary of the private sector. The results show that an increase in completion risk does not necessarily increase the investment boundary; rather, the relationship between them depends on the degree of private sector risk tolerance. The results also indicate that the investment boundary decreases with the expected rate of return and increases with the tax rate, risk-free rate, and volatility of cash flow. The default boundary decreases with the expected rate of return and volatility of cash flow and increases with the risk-free rate. Second, by comparing two different financial arrangements, the results suggest that using debt capital can help lower the private sector's investment boundary. Third, the results reveal the optimal debt level of private sector investment in PPP projects by showing that the optimal debt level increases with the tax rate and decreases with the default loss rate. These results can provide some managerial insights for the private sector as it makes decisions on PPP project investments. They can also provide some policy insights for governments to better promote private sector investment in PPP projects

A value-based network analysis for stakeholder engagement through prefabricated construction life cycle: evidence from China

Over the past decade, prefabricated construction has increasingly gained popularity in addressing environmental concerns while meeting the high construction demand, particularly in developing countries. Accordingly, the concept of stakeholder engagement increasingly garnered attention as it is highly relevant for understanding and explaining the relationships among various stakeholders, like contractors, suppliers, and producers, especially within the fragmented context of prefabrication. To further the field, this study aims to provide a comprehensive qualitative and quantitative analysis for stakeholder engagement in the realm of prefabricated construction via a value-based network. This value-based network analysis is utilized to model multiple relationships between stakeholders as value exchanges, thus enabling to engage them though management with a focus. Specifically, A total of 110 values were identified and analyzed among 12 stakeholders throughout the whole lifecycle via an extensive literature review, interviews, and questionnaires directed at prefabrication practitioners in China. This data collection process garnered 194 valid responses with a 64.7% response rate. The findings show that enhancing stakeholder engagement requires improvements in both the abilities and experiences of developers, and in the collaborative relationships among key stakeholders. These improvements can be achieved by prioritizing the engagement of prefabrication consultants and encouraging the government to issue policies that support developers, producers, and consultants in fostering collaboration. This in-depth network analysis offers practical insights for decision-makers in the management of core stakeholders and value-based relationships, thereby improving stakeholder engagement. Additionally, it expands the current body of knowledge on stakeholder engagement by incorporating the value-based network analysis into the exploration of its stakeholders and relationships

Balancing private investment and community expectations in public-private-partnership projects : a novel approach for evaluating long-term value

Balancing private investment and community expectations is always crucial in social Public-private-Partnership (PPP) projects, such as schools, public housing, and hospitals. Evaluating the value of such PPPs requires the governments to accurately assess costs, risks, and benefits through their Public Sector Comparator (PSC). The Public Sector Comparator (PSC) focuses on the economic benefits and tangible value offered by bidders, such as whole-of-life financing costs, capital costs, operation, maintenance costs, and risk allocation as proposed by the government. Non-monetized benefits, which are vital during the delivery of social infrastructure, are typically evaluated heuristically by comparing specific solutions proposed by bidders. However, assessing uncertainties in government requirements and materialized risks when comparing a bid to Public Sector Comparator (PSC) using discounted cost techniques at a specific point in time is challenging. Therefore, this paper proposes a novel approach for evaluating investments that considers non-monetary benefits over a PPP project’s life cycle, based on the risks and benefits seen in recent social PPP projects. Engineering reliability analysis is preferred in this study to emphasize the performance reliability of investment decisions. The proposed reliability-based evaluation considers not only cost uncertainty and non-monetary benefits based on project observations but allows for time-based decision-making by being used at multiple points in time, to be incorporated into the original investment decision. Future case study is expected to demonstrate that the proposed approach allows for predicting long-term value by using a performance reliability index to measure the robustness of the original investment assumptions such as demand projections and future sustainability outcomes

Developing a framework for dynamic organizational resilience analysis in prefabricated construction projects : a project life cycle perspective

Prefabricated construction has recently played an increasingly significant role in social, environmental, and economic developments in the construction sector. Because prefabricated construction projects (PCPs) are interorganizational in nature, their successful delivery, especially under uncertain circumstances, relies on organizational resilience performance throughout the life cycle. The purpose of this study is to develop an ethnography-based methodological framework for the PCPs to evaluate, analyze, and improve the dynamic organizational resilience regarding efficiency, flexibility, and robustness from a life cycle perspective. A two-part framework is developed. The qualitative first part identifies the roles and relationships of participating stakeholders during each project phase, and the second quantitative part measures and analyzes the PCP's organizational resilience. A typical engineering, procurement, and construction (EPC) contract PCP in China is used as a case analysis to assess the validity of this developed framework. The results show that the robustness and flexibility of the PCP should be improved. Such improvement can be achieved by managing and enhancing the workflow control and how stakeholders communicate. This scenario was examined via a comparative analysis of employing building information model (BIM) and decentralized collaboration platform (DCP) within the case project. Finally, this developed framework could be used as a practical decision-making tool for managers to improve the organizational resilience in the aspects of efficiency, flexibility, and robustness of PCPs in case unforeseen events are encountered. It contributes to the current knowledge body of PCPs by incorporating organizational resilience theory into its performance evaluation and improvements

Never let a good crisis go to waste: exploring the effects of psychological distance of project failure on learning intention

Project failure is unfortunate but common in the construction sector. However, as the Chinese proverb says, ‘failure is the mother of success’. In other words, learning from failure can be considered an effective way to prevent the occurrence of failure in future projects. Surprisingly, the learning effect from failed projects is under-examined both theoretically and empirically in construction activity. This research aims to explore the effects of psychological distance of project failure on learning intention by deploying construal level theory (CLT). Primary data is collected by a questionnaire survey of construction practitioners and analyzed using regression analysis. It is discovered that experience of project failure does influence practitioners in their learning intention via psychological distance. That is, the psychological distance of project failure plays a mediating role in the relationship between the experience of project failure and learning intention. Employing CLT, the study contributes to the body of knowledge pertaining to the domain of learning – by revealing the impact of psychological distance of project failure. Reducing the psychological distance of project failure is recommended to promote employees’ learning intention and advance the prosperity of construction enterprises

Attracting private investment in public-private-partnership : tax reduction or risk sharing

With the financial burden of government increasing, the Public-Private-Partnership (PPP) model has become an alternative method to develop public infrastructure. To efficiently promote the private sector to participate in PPP, making a proper incentive policy is critical for the government. This paper examined the effects of two governmental support policies, i.e., tax reduction and risk-sharing, on the investment decision of the private sector, and further compared the relative efficacy of these two policies. The results manifest that: first, both tax reduction and risk-sharing policies motivate private sector to invest earlier; second, although the capital structure decision of the private sector is free from the influence of the risk-sharing policy, the optimal debt level under tax reduction policy shows a U-shape relationship with the incentive ratio; third, when completion risk is large, there exists efficiency loss for total benefits of the project under the risk-sharing incentive policy. Besides, the efficacy of two incentive policies varies depending on the scenario. Firstly, given the same incentive ratio, the risk-sharing policy proves to be more effective than the tax reduction policy. Secondly, when considering the same level of incentive loss for government, tax reduction policy outperforms than risk-sharing policy in terms of efficacy. Thirdly, the efficacy of these policies also depends on the completion risk level: under small completion risk, risk-sharing policy is more effective, whereas under large completion risk, the tax reduction policy takes precedence. Based on these findings, some managerial insights that could assist government in formulating more effective incentive policies are proposed

Measuring embodied carbon of buildings : a review of methodologies and benchmarking towards net zero

As the world strives towards achieving Net Zero emissions, reducing the carbon footprint of buildings has become a crucial consideration in sustainable development. This research aims to review the current methodologies for measuring embodied carbon of buildings and explore benchmarking strategies towards achieving Net Zero. The literature review covers various methodologies for measuring embodied carbon, including life cycle assessment (LCA) and Whole Building LCA. It also examines the limitations of these methodologies, such as the lack of standardisation and difficulty in measuring embodied carbon for complex building systems. The report highlights the importance of benchmarking embodied carbon, which involves comparing the embodied carbon of a building to a standard industry average. This study also explores the strategies that can be used to reduce embodied carbon in buildings, including material substitution, design optimization, and construction waste reduction. The study emphasizes the need for a holistic approach to reducing embodied carbon based on considering the entire life cycle of building materials and components. It highlights the potential benefits of implementing circular economy principles in reducing embodied carbon, as exemplified by material reuse and recycling. The study concludes that measuring embodied carbon is essential for achieving Net Zero emissions in the building industry. However, there is a need for standardisation and more robust methodologies to measure the embodied carbon of complex building systems. The study recommends the use of benchmarking as a strategy to incentivize the building industry to reduce embodied carbon. The report emphasises the importance of a holistic approach to reducing embodied carbon considering the potential benefits of implementing circular economy principles

[In Press] Evaluating uncertainties to deliver enhanced service performance in education PPPs : a hierarchical reliability framework

Purpose: This study aims to develop a hierarchical reliability framework to evaluate the service delivery performance of education public–private partnerships (PPPs) effectively and efficiently during long-term operations. Design/methodology/approach: The research design included development and test phases. In the development phase, three performance layers, i.e. indicator, component and system, in the education service delivery system were identified. Then, service component reliability was computed through first order reliability method (FORM). Finally, the reliability of the service system was obtained using dynamic component weightings. A PPP school example in Australia was set up in the test phase, where performance indicators were collected from relevant contract documents and performance data were simulated under three assumptive scenarios. Findings: The example in the test phase yielded good results for the developed framework in evaluating uncertainties of service delivery performance for education PPPs. Potentially underperforming services from the component to the system level at dynamic timepoints were identified, and effective preventative maintenance strategies were developed. Research limitations/implications: This research enriches reliability theory and performance evaluation research on education PPPs. First, a series of performance evaluation indicators are constructed for assessing the performance of the service delivery of the education PPP operations. Then, a reliability-based framework for service components and system is developed to predict service performance of the PPP school operations with consideration of a range of uncertainties during project delivery. Practical implications: The developed framework was illustrated with a real-world case study. It demonstrates that the developed reliability-based framework could potentially provide the practitioners of the public sector with a basis for developing effective preventative maintenance strategies with the aim of prolonging the service life of the PPP schools. Originality/value: Evaluating education PPPs is challenging as it involves long-term measurement of various service components under uncertainty. The developed reliability-based framework is a valuable tool to ensure that reliability is maintained throughout the service life of education PPPs in the presence of uncertainty

CRC#30: Critical Impact through Productisation

This report investigates the scheduling benefits and challenges of prefabricated construction in medium-rise timber buildings, specifically focusing on the critical path impact of productisation. The study explores various aspects of modular construction, productised risk, dynamic scheduling and systems integration in productised building projects