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Public private
Drivers of value for money partnership
public private partnership projects
projects in Malaysia
Suhaiza Ismail 241
Department of Accounting, Faculty of Economics and Management Sciences,
International Islamic University Malaysia, Gombak, Malaysia

Abstract
Purpose – The purpose of this paper are twofold. First, it aims to investigate the factors that enhance
the VFM achieved from PPP projects in Malaysia. Second, it aims to examine the differences in the
perceptions of public and private sectors pertaining to the VFM factors of PPP implementation in
Malaysia.
Design/methodology/approach – A questionnaire survey was used to elicit the perceptions of the
public and private sectors concerning the VFM drivers for PPP projects in Malaysia; 122 usable
responses were obtained and analysed using SPSS to rank the importance of the factors and to
examine the differences in the perceptions between the government and private sectors.
Findings – The results reveal that two factors are perceived as “most important” to enhance the
achievement of VFM for PPP implementation in Malaysia – “private sector technical innovation” and
“competitive tender”. In terms of the differences in the perceptions of the public and private sectors
concerning the level of importance of the VFM drivers, the results reveal that there are significant
differences for half of the VFM factors.
Originality/value – The exclusive contribution of this paper is that it highlights not only the factors
that enhancing the VFM achievement for PPP projects in Malaysia, but also offers evidence
concerning the differences in the perceptions of public and private sectors pertaining to the importance
of the VFM factors.
Keywords Public private partnership (PPP), Value for money (VFM), Partnership, Malaysia
Paper type Research paper

Introduction
Value for money (VFM) is one of the crucial requirements before a project can go ahead
with public private partnership (PPP) procurement (HM Treasury, 1997; Bell, 2002;
Shaoul, 2002; Ismail and Pendlebury, 2006). One of the popular measures to assess
VFM is by comparing the present value cost of a PPP project against the present value
cost of a public sector comparator (PSC). The option with the lower present value cost
provides the better VFM (Ismail and Pendlebury, 2006). Besides using a PSC, each
potential PPP project can be assessed for VFM by taking into account both the
financial and the qualitative aspects, such as quality and impact on users, which are
not easily quantifiable (Grimsey and Lewis, 2004).
PPP is expected to provide better VFM as it is the private sector that normally bears
significant responsibility in a PPP contract and is perceived as being more innovative and
efficient in meeting the needs of the customers (Treasury Taskforce, 1999a, b). In Malaysia,
PPP was introduced to streamline the procurement process of the privatisation programme
in order to ensure better VFM is achieved from the public infrastructure and facilities Asian Review of Accounting
Vol. 21 No. 3, 2013
provided via PPP (Ninth Malaysia Plan, 2006; Takim et al., 2009). Therefore, it is crucial to pp. 241-256
identify the factors that contribute to the achievement of VFM; hence, this present study r Emerald Group Publishing Limited
1321-7348
intends to investigate the factors that enhance the VFM for PPP projects in Malaysia. DOI 10.1108/ARA-06-2013-0042
ARA The exclusive contribution of this paper is that it highlights not only the factors that
21,3 enhance the VFM achievement for PPP projects in Malaysia, but it also offers evidence
concerning the differences in the perceptions of the public and private sectors
pertaining to the importance of the VFM factors. It is vital to put forward the
differences in the opinion of the two parties because each party plays a different role in
a PPP contract. The remainder of this paper is structured as follows. The next section
242 offers a brief background of the PPP in Malaysia. Then, the following section reviews
relevant literature concerning VFM in PPP implementation. This is followed by a
methodology section, which describes the instrument used, sample and data collection,
and analysis procedures. The results are discussed in the next section, followed by the
implications, limitations, suggestions for future research and conclusion.

Theoretical framework
The requirement for a project to demonstrably provide VFM before it can go ahead with
PPP procurement is based on the rational choice theory which explains the rational for
preferring one mode of procurement over another due to its being the optimal choice
(Green, 2002; Moll and Hoque, 2006). The rational choice theory provides a framework to
consider the social and economic behaviour in choosing the most cost effective means
without ignoring the quality. In particular, according to Green (2002) in opting for PPP
procurement, the expected outcomes of the public sector and the desired production and
profits generated by the private sector provides are considered to ensure both parties
successfully achieved their optimal choice from the PPP arrangement.
This is consistent with the underlying concept of VFM in PPP which refers to the
“optimum combination of whole-life costs, benefit, risks, and quality (fitness for
purpose) to meet the user requirement and getting the best possible outcome at the
lowest possible price” (Li and Akintoye, 2003; Grimsey and Lewis, 2004; English, 2006).
As earlier mentioned, VFM is one of the fundamental requirements before it can be
decided that a project should be delivered via a PPP scheme (HM Treasury, 1997; Bell,
2002; Shaoul, 2002; Wynne, 2002; Edwards and Shaoul, 2003; Sciulli, 2008; Unit
Kerjasama Awam Swasta, 2009). Based on the theory the present study focuses on the
determinants for VFM as perceived by key players in PPP that are public and private
sectors in ensuring optimum achievement of VFM from PPP projects in Malaysia.

Literature review
PPP in Malaysia
The concept of PPP has existed since the mid 1980s, as a result of Malaysia’s previous
privatisation programme and the adverse impact of the world economic recession that
caused the government to seek assistance from the private sector for the development
and economic activities of the country (Ismail and Rashid, 2007; Rusmani, 2010).
Malaysia has focused on Private Finance Initiative (PFI), a subset of PPP, to improve
the shortfall of the previous privatisation programme meant for better VFM and more
stringent control over projects (Takim et al., 2009).
Since Malaysia has the target to become an industrialised and developed nation by
the year 2020, as stated in its Vision 2020, which was introduced by the fourth Prime
Minister, Tun Dr Mahathir Mohamad, several policies have been introduced to enforce
the relationship between the public and private sectors in delivering public projects
(Nambiar, 2007; Rusmani, 2010). The evolution of PPP regulation in Malaysia started
from privatisation in the Fourth Malaysia Plan incorporated in 1981, the Fifth
Malaysia Plan Privatisation Policy in 1985, Sixth Malaysia Plan Privatisation Master
Plan in 1991 as well as PPPs in the Eighth Malaysian Plan, Ninth Malaysia Plan and Public private
Tenth Malaysia Plan (Ismail and Yusof, 2009; Tenth Malaysia Plan, 2010). partnership
Under the Ninth Malaysia Plan, the government officially announced the
implementation of public projects using the PPP or PFI scheme (Ninth Malaysia projects
Plan, 2006). The PPP is formally defined in the Ninth Malaysia Plan report (2006) as:
[y] the transfer to the private sector the responsibility to finance and manage a package of
capital investment and services including the construction, management, maintenance, 243
refurbishment and replacement of the public sector assets which creates a standalone
business. The private sector will create the asset and deliver a service to the public sector
client. In return, the private sector will receive payment commensurate with the levels,
quality and timeliness of the service provision throughout the concession period (Ninth
Malaysia Plan, 2006, p. 230).

The main objective of PPP in Malaysia is to revise and improve the implementation
process of the existing privatisation policy (Ninth Malaysia Plan, 2006; Tenth Malaysia
Plan, 2010). PPP will be employed for infrastructure and service development projects
that meet two conditions. First, the implementation of PPP must be able to make
government projects more efficient where the risks and rewards are optimally shared
between the two parties. Second, PPP is to be used where government support
enhances the viability of the private sector projects in strategic or promoted areas
(Ninth Malaysia Plan, 2006).
In addition, another main reason for procuring projects through PPP is to enhance
VFM by inviting the private sector to handle public works projects (Cheung, 2009).
Hence, this present study focuses on factors that enhance the VFM achievement for
PPP projects in Malaysia. In addition, the study also investigates the differences in the
perceptions of the public and private sectors pertaining to the factors that increase the
VFM of PPP implementation in Malaysia.

VFM in PPP
In general, prior studies on VFM of PPP projects can be classified into two types: first,
studies that actually assess the VFM achieved from PPP projects (see e.g. National
Audit Office, 1997, 1999, 2003; Arthur Andersen and Enterprise LSE, 2000; Ball et al.,
2000; Audit Commission, 2003; Parker, 2003; Ismail and Pendlebury, 2006); and, second,
studies that examine VFM determinants or mechanisms for evaluating VFM (see for
instance Arthur Andersen and Enterprise LSE, 2000; Tanaka et al., 2005; Yuan et al.,
2008; Cheung, 2009; Takim et al., 2009; Asenova et al., 2010; Ismail et al., 2011). Relevant
to the context of this present study, the literature reviewed in this section mainly
concerns the second type of VFM studies.
One of the popular methods for assessing VFM is by comparing the whole life net
present costs (NPC) of the project as financed under the conventional procurement method,
or the PSC, against the NPC of the PPP project (Heald, 1997; Shaoul, 2002). The option with
the lowest NPC is assumed to yield the greatest financial benefits. According to Owen and
Merna (1997), the VFM test has three stages of decisions and possible outcomes to be
considered. First, decide whether to proceed with the project at all. Second, if it is decided
to proceed, then decide whether to use PPP or traditional procurement. Third, if PPP is
chosen, decide on which private supplier is preferred to provide the service.
However, Broadbent et al. (2001) claimed that this assessment of VFM is based on
the assumption that there is a possibility of having public funds to spend for the
provision of the public services. If that is not the case then a PSC may not be relevant.
ARA Grout (2001) also argued that the framework used to assess VFM is flawed as it does
21,3 not compare like with like. Likewise, Froud and Shaoul (2001) identified four main
limitations in the procedures for determining whether the projects demonstrate VFM.
The limitations include poor quality of the information provided, problems facing the
determination of the best option, risk transfer problems and lack of comparability
between the PSC and PPP option. Furthermore, in deriving at the present value cost the
244 discount rate used is also questionable (Pollock and Vickers, 2000; Wynne, 2002). In
particular, Wynne (2002) claims that the 6 per cent discount rate used in the UK since
1992 does not reflect the actual current economic situation. His analysis of 11 PPP
hospitals in the UK shows that none of the hospitals would be considered to provide
VFM if the discount rate used had been changed to 5 per cent instead of the normal
rate of 6 per cent (Wynne, 2002). Tanaka et al. (2005) reviewed the VFM assessment
technique for PPP projects in the UK and revealed that the main shortcoming of
the VFM technique is due to the lack of transparency towards the general public.
Therefore, Tanaka et al. (2005) suggested that for developing countries to adopt the
VFM technique currently being used in the UK some considerations need to be taken
into account. Accordingly, the authors proposed a VFM risk assessment
methodological approach.
Takim et al. (2009) investigated the PSC components used in assessing VFM of PPP
projects by different countries (i.e. the UK, Australia and Japan) and proposed a
framework of VFM assessment for PPP projects in Malaysia. They involved six
processes – key assessment criteria (affordability, risk sharing and competition) of
VFM assessment; VFM assessment approach by using PSC; VFM appraisal by
application of three tests (financial, qualitative and cost benefit analysis); VFM drivers;
benefits; and barriers that could affect the VFM assessment process.
Besides using a PSC, in assessing VFM, other non-financial criteria are also
important and must be taken into account (Grimsey and Lewis, 2004; Takim et al.,
2009). Hall (1998) and Li et al. (2005) suggested that the gain of VFM depends on the
existence of a competitive bidding process. Moreover, as stated in the guidelines for
PPP implementation in Malaysia, VFM from PPP projects can be achieved through
“risk transfer, which allocates risks optimally between the public and private sectors”,
“long term nature of contracts”, “the use of output specification, which allows bidders
to innovate”, “competition that provides fair value of the project”, “performance-based
payment mechanism”, and “private sector management expertise and skills” (Unit
Kerjasama Awam Swasta, 2009).
A study by Arthur Andersen and Enterprise LSE (2000, pp. 18-19), which was
commissioned by the Treasury Taskforce, identified six key drivers of VFM: risk
transfer, output based specification, long-term nature of contract, performance
measurement and incentives, competition and private sector management skills. Out
of the six drivers, risk transfer scored the highest rank. Pitt et al. (2006), who also
investigated the principal factors that enhance VFM of PPP projects, revealed that
competition and better risk management are the two key VFM factors.
Yuan et al. (2008) developed a conceptual model to identify the key performance
indicators (KPIs) in assessing PPP performance in terms of VFM achievement. The
authors claimed that KPIs are useful tools for project performance management and
performance measurement in identifying the strength and weakness of the projects,
and, thus, an appropriate decision can be adopted for improving efficiency,
effectiveness and economy, which, ultimately, provides VFM to both the public
and private sectors. The study identified a set of indicators from five attributes:
“the physical characteristics of projects”, “financing and marketing”, “innovation and Public private
learning”, “stakeholders”, and “process”. partnership
Cheung (2009) carried out a questionnaire survey to investigate the measures that
enhance VFM in PPP projects in Hong Kong. The study identified eighteen VFM measures projects
in PPP projects and the results revealed that the top three VFM measures for PPP projects
in Hong Kong are “efficient risk allocation (allocating the risk to the party best able to
manage it)”, “output based specification”, and “competitive tender”. Using the same 245
questionnaire instrument, Cheung et al. (2009) examined the VFM factors for PPP projects
in three countries: Hong Kong, Australia and the UK. Despite differences in the ranking of
the factors for each country, the study reported that “efficient risk allocation” and “output
based specification” are two factors that were ranked high in all three countries.
In another study, Asenova et al. (2010) analysed factors that hamper the
achievement of VFM and best value from PFI procurement. Based on the 68 interviews
with representatives of the main stakeholders involved in PFI procurement in the UK,
the results found that there is considerable disagreement between the public and
private sectors with regard to the sources of and solutions for current difficulties in
achieving VFM. Public sector respondents viewed that PFI procurement has to be
standardised further in order to become more cost effective and to allow for easier
manageability in order to achieve better VFM. However, private sector respondents
emphasised the need for clients to adopt a commercial ethos and to acquire a greater
degree of expertise with regard to managing market-based solutions.
More recently, Ismail et al. (2011) examined the perception of various PPP
stakeholders concerning the importance of the evaluation criteria for VFM
evaluation of PPP bids in Malaysia. Using a postal questionnaire technique, the
results revealed that six out of 20 criteria were perceived as “very critical” in the
evaluation of VFM of PPP bids. The criteria include “optimum whole life cost”,
“innovation”, “fit for purpose”, “comprehensive specification”, “compliance on time”,
and “appropriate risk allocation”. Motivated from prior studies, particularly
studies that researched the VFM of PPP projects in Malaysia (i.e. Ismail et al., 2011),
this present study aims to extend the prior research by not only assessing the
factors enhancing VFM, in general, but also intends to examine the differences in
the perceptions of the two key players (i.e. public and private sector parties) on the
drivers for VFM of PPP implementation in Malaysia.

Methodology
Research instrument
The research adopted the questionnaire survey by Cheung (2009) with minor
modifications. The questionnaire comprises 20 measures that enhance the
achievement of VFM in PPP projects, as shown in Table I. The rationale for
adopting similar measures to those used in prior studies, particularly by Cheung
(2009), is that the measures identified have received recognition by the industry and
academics, as a number of papers that used the questionnaire have been published
in reputable refereed journals (Cheung et al., 2009; Ismail, 2013). As also claimed
by Cheung et al. (2009), there is no strong justification to reinvent work that
has previously been discovered by other researchers. Moreover, using the same
instrument by researchers from different countries will allow future studies to make
a comparison concerning the attractive factors for PPP adoption in various countries
(Cheung, 2009). The data reveal a Cronbach’s a value of 0.886, which implies that the
VFM measures have adequate internal reliability.
ARA No Measures
21,3
1 Competitive tender
2 Efficiency risk allocation (allocating the risk to the party best able to manage it)
3 Risk transfer (transferring a substantial amount of risk from the public to the private)
4 Output based specification
246 5 Long-term nature of contracts
6 Improved and additional facilities to the public sector
7 Private management skill
8 Private sector technical innovation
9 Optimal use of asset/facility and project efficiency
10 Early project service delivery
11 Low project life cycle cost
12 Environmental consideration
13 Profitability to the private sector
14 “Off the public sector balance sheet” treatment
15 Reduction in disputes, claims and litigation
16 Nature of financial innovation
Table I. 17 Government support
List of the measures that 18 Performance-based payment mechanism
enhance the achievement 19 Bidding cost
of VFM in PPP projects 20 Commissioning programme

Sample and collection procedures

A total of 250 questionnaires were distributed to the participants of the national
seminar on Malaysian PPP Framework organised by the PPP unit, which was held on
24 February 2011. The respondents were politely approached by the researcher to
request for their participation in the survey. Each potential respondent received a cover
letter and a copy of the questionnaire. The cover letter explained the purpose of the
study and assured the confidentiality of answers given by respondents. It took
respondents, on average, 10 minutes to complete the questionnaire. The completed
questionnaires were collected at the end of the seminar. A total of 185 respondents
completed the questionnaire; however, six questionnaires were excluded as they were
incomplete. In addition, another 57 responses were omitted from the analysis, as the
respondents had no experience with PPP projects. Hence, there were a total of 122
questionnaires that were used in the analysis, which represents a usable response rate
of approximately 48.8 per cent.

Data analysis
The data were analysed using the Statistical Package for the Social Sciences (SPSS)
software. Basically, the descriptive statistic of mean score and standard deviation were
computed for the five-point Likert scale concerning the importance of each of the 20
measures. Then, based on the mean scores, the VFM measures were ranked according
to the importance, as perceived by the overall respondents, as well as by the public and
private sectors group independently. An independent sample t-test was carried out to
statistically examine the differences in the perceptions of the two respondents’ groups.
Preliminary analyses to assess for normality and homogeneity of the two groups were
also conducted. The skewness and kurtosis values are within the acceptable range of
71 and 72, respectively, for overall respondents as well as for individual groups,
which indicate the normality of the data. Likewise, the significance values for the
Levene’s test are more than 0.05 (refer to Table V), which imply that the assumption of Public private
homogeneity of variance of the two groups of respondents is not violated. partnership
Findings and discussion projects
Demographic information
The total number of respondents was 122, with 52 (42.6 per cent) engaged in the public
sector and 70 (57.4 per cent) engaged in the private sector. Table II illustrates that there 247
are respondents from different levels of the government (i.e. federal, state and local
government) and private sector companies with various backgrounds (i.e. financier,
facilities management and construction). The majority of the respondents are either
attached to the public sector at the federal level (44 respondents) or serving the
construction companies (44 respondents). This result is expected as most of the PPP
projects in Malaysia are initiated at the federal level and construction companies are
normally the key players in setting up the special purpose vehicles for the PPP projects.
The respondents for the questionnaire comprised experienced practitioners from the
industry. As shown in Table III, almost 74 per cent of the respondents possessed more
than five years of working experience with 20 per cent of respondents having over 21
years of industrial experience. In addition, all of the respondents have prior experience
with at least one PPP project and about one-third of the total respondents have
previously been involved with at least five PPP projects. Based on the information, it
shows the credibility of the respondents in responding to the questionnaire, which,
ultimately, reflects the reliability of the results reported in this study.

Total
Roles of respondents Frequency % Sector Frequency %

Federal government 44 36.1

State government 4 3.3 Public sector 52 42.6
Local government 4 3.3
Financier 9 7.4
Facilities management 25 20.5 Private sector 70 57.4 Table II.
Construction company 36 29.5 Distribution of
Total 122 100 122 100 respondents

Survey respondents’ characteristics Frequency %

Years of experience
Less than 5 years 32 26.2
6-10 years 28 23.0
11-15 years 19 15.6
16-20 years 18 14.8
21 years above 25 20.5
Number of PPP projects
1 36 29.5
2 31 25.4
3 12 9.8 Table III.
4 5 4.1 Characteristics
5 and above 38 31.1 of respondents
ARA Table IV illustrates the mean scores, standard deviations and rank of the relative
21,3 importance of each of the 20 VFM measures based on the overall respondents, as well
as based on sector (i.e. public and private sectors).
The results indicate that all 20 VFM measures are perceived by respondents as
either “most important” or “important” in PPP projects implementation except for two
measures. The following sub-sections discuss the detailed results for overall
248 respondents as well as based on sector.

Overall respondents’ perceptions concerning the importance of VFM measures in PPP

projects
Based on the mean scores of overall respondents’ results, as shown in Table IV, there
are two factors that are perceived as “most important” in enhancing the achievement of
VFM for PPP implementation in Malaysia. The two factors, in descending order of
importance are: “private sector technical innovation” (mean: 1.43 and SD: 0.629) and
“competitive tender” (mean: 1.44 and SD: 0.592). In addition, 16 other measures were
perceived as “important” since the mean scores range from 1.77 to 2.40. However, two
factors were perceived as neither important nor not important as VFM measures: “off
the public sector balance sheet treatment” (mean: 2.73 and SD: 0.9) and “reduction in
disputes, claims and litigation” (mean: 3.20 and SD: 1.142).
“Private sector technical innovation” was ranked first by the overall respondents.
This result is consistent with the findings in Australia and Hong Kong, which also
reported the factor as among the top five important VFM measures; however, this was
not the case in the UK, as the factor is not in the top ranking and it was perceived as
neither an important nor not important factor to enhance VFM for a PPP project
(Cheung et al., 2009). The innovativeness of private sector companies was evidenced in
several PPP projects in the UK. The National Audit Office (1997, 1999, 2003) and Audit
Commission (2003) in their audits found that the private sector contractors for PPP
prisons, roads and schools had introduced an innovative form of design for the
buildings and services. However, Ball et al. (2000) in their study reported that the
innovation in PPP projects, particularly schools, seems to be more limited than
originally expected. Nevertheless, the importance of this factor is reflected in the
characteristics of a PPP project. Specifically, Ball et al. (2001) and Turner & Townsend
Management Solutions (2002) stated that the private sector company needs to adopt
innovation in coming up with a PPP design as it leads to VFM optimisation.
Furthermore, Hall (1998) claimed that private sector companies are inherently more
efficient and innovative, and, therefore, their involvement in delivering public
infrastructure via PPP will result in VFM. Likewise, in the context of Malaysian PPP,
private sector innovation is a crucial VFM element, as emphasised in the Malaysian
PPP Guidelines (Unit Kerjasama Awam Swasta, 2009, p. 5).
The second factor, as ranked by the respondents is “competitive tender”. This result
is expected, as in Malaysia, tendering is a compulsory procedure before a private sector
company is awarded a PPP project. Furthermore, “Lembaga Tender and Perolehan”
was set up and is the committee responsible for running the tendering process and
ensuring that at least three private companies are shortlisted before the best company
is chosen (Unit Kerjasama Awam Swasta, 2009, pp. 10-11). The result is consistent with
a prior study by Ismail et al. (2011) who claimed that in order to achieve the best VFM
from PPP projects, the selection of the private sector contractor should be based on
competition. This is because, in a more competitive environment, the private sector will
take the necessary steps to improve performance, which, consequently, increases the
 Public sector Private sector Overall
No Measures Mean Rank SD Mean Rank SD Mean Rank SD

1 Competitive tender 1.40 2 0.603 1.48 2 0.583 1.44 2 0.592

2 Efficiency risk allocation (allocating the risk to the
party best able to manage it) 1.58 3 0.696 1.81 3 0.952 1.77 3 0.857
3 Risk transfer (transferring a substantial amount of
risk from the public to the private) 1.75 7 0.860 2.17 9 0.780 1.99 9 0.838
4 Output based specification 1.63 5 0.817 2.09 8 0.959 1.89 6 0.925
5 Long-term nature of contracts 1.85 10 0.916 2.23 12 0.887 2.07 11 0.916
6 Improved and additional facilities to the public sector 1.67 6 0.678 2.20 11 0.827 1.98 8 0.808
7 Private management skill 1.79 9 0.723 2.04 6 0.806 1.93 7 0.779
8 Private sector technical innovation 1.38 1 0.565 1.46 1 0.674 1.43 1 0.629
9 Optimal use of asset/facility and project efficiency 1.60 4 0.693 1.91 5 0.697 1.78 4 0.710
10 Early project service delivery 1.90 12 0.869 2.41 15 0.909 2.20 14 0.924
11 Low project life cycle cost 2.02 14 0.980 2.39 14 0.804 2.23 15 0.898
12 Environmental consideration 1.88 11 0.900 2.51 17 0.864 2.25 16 0.930
13 Profitability to the private sector 2.04 15 0.885 2.17 10 0.868 2.11 12 0.874
14 “Off the public sector balance sheet” treatment 2.44 19 0.752 2.94 19 0.946 2.73 19 0.900
15 Reduction in disputes, claims and litigation 3.13 20 1.172 3.26 20 1.125 3.20 20 1.142
16 Nature of financial innovation 1.98 13 0.960 2.29 13 0.801 2.16 13 0.882
17 Government support 2.04 16 1.137 2.07 7 0.922 2.06 10 1.015
18 Performance-based payment mechanism 1.75 8 0.711 1.90 4 0.887 1.84 5 0.817
19 Bidding cost 2.08 17 1.118 2.43 16 0.910 2.28 17 1.014
20 Commissioning programme 2.13 18 0.991 2.60 18 0.907 2.40 18 0.968
partnership
projects

of VFM measures in
the relative importance
Public private

respondents concerning
Perception of survey
Table IV.
249

PPP projects
ARA VFM achievement of the PPP project (National Audit Office, 1997; Cheung, 2009).
21,3 Despite the importance of competition between private companies, there was evidence
that tenders for PPP projects have been less competitive due to time and cost
constraints (National Audit Office, 1999).
The factor “efficiency risk allocation (allocating the risk to the party best able to
manage it)” was ranked third by the respondents. Similar findings were reported in
250 earlier studies on the key VFM drivers for PPP implementation in other countries
including the UK, Australia and Hong Kong (Li, 2003; Cheung, 2009; Cheung et al.,
2009). The need for optimal risk allocation between private and public sectors in
ensuring VFM has also been emphasised by prior studies including Arthur Andersen
and Enterprise LSE (2000) and Checherita and Gifford (2007). Similar to the earlier two
key VFM factors and consistent with the practice in other countries, efficient risk
allocation is one of the VFM measures for Malaysian PPP as highlighted in the
Malaysian PPP guidelines (Unit Kerjasama Awam Swasta, 2009). The relationship
between risk and VFM is that as risks are transferred to the private sector, VFM may
rise until it reaches the optimum level, where any further risk transfer might cause a
fall in the VFM. This is because risk transfer becomes inefficient since the private
sector may be unable to absorb risk properly (Forshaw, 1999). Furthermore, according
to the Institute of Public Policy and Research (IPPR), certain risks that are difficult to
specifically allocate between the parties, such as demand risk and obsolescence risk,
need to be appropriately shared between the two parties (Institute for Public Policy
Research (IPPR), 2001).
The factor “off the public sector balance sheet treatment”, was perceived as neither
important nor not important and it was ranked second to last. The result is expected
because the federal government of Malaysia is still currently adopting a cash basis for
recording its transactions, and, therefore, the factor is not very relevant. However, as
the Malaysian Government is planning to fully implement accrual basis recording for
its transactions by 2015, recording PPP transactions in the government’s book might
become an issue, which, ultimately, will affect the VFM achieved from PPP
implementation. This was evidenced in the UK during the initial inception of PFI when
there were debates as to whether or not to capture PPP transactions, particularly the
assets and liabilities on the books of the government (see e.g. Warner, 1998; Broadbent
and Laughlin, 1999; HM Treasury, 1999; Hodges and Mellett, 2002, 2004). However,
from time to time revisions have been made to the existing standards to ensure
appropriate treatment for PPP transactions (Accounting Standard Board, 1994, 1998;
(Treasury Taskforce, 1997, 1999a, b). “Reduction in disputes, claims and litigation” is
also neither an important nor unimportant VFM measure for PPP implementation in
Malaysia as perceived by the respondents. The potential rationale for the finding is
because in the past there were hardly any reported cases of severe disputes between
the government and private sectors in implementing PPP projects, which meant the
factor was not perceived as one of the important VFM measures.

Perceptions of public and private sector respondents concerning the importance of VFM
measures in PPP projects
In terms of mean score ranking, as illustrated in Table IV, although there are
differences in the ranking between public and private sector respondents for the
majority of the factors, for several factors the rankings are similar for public and
private sectors as well as for the overall respondents. For example, the top and the last
three VFM measures are of the same ranking for both the public and private sectors.
In further investigating the differences in the perceptions of the public and private sectors Public private
regarding the importance of each of the 18 factors that increase the VFM of PPP partnership
implementation, an independent t-test was conducted; the results are tabulated in Table V.
Based on Table V, the findings indicate that there are significant differences in projects
the perceptions of the public and private sectors for ten out of the 20 factors at the
maximum level of 5 per cent significance. For instance, there is a significant difference
at the 1 per cent level in the perception of public and private sector respondents for 251
the factor “Risk transfer (transferring a substantial amount of risk from the public
to the private)”. In particular, the public sector respondents perceived it as significantly
more important than the private sector respondents. As the initial idea of implementing
PPP in various countries including Malaysia was to reduce government’s burden for
development activities by transferring a substantial amount of risk to the private sector,
it is expected that the representatives of the government (i.e. public sector respondents)
perceive the factor as significantly more important.
Likewise, for all other VFM factors where there is a significant difference in the
perceptions of the two groups of respondents, the public sector respondents rated them
as more important than the private sector respondents. Having a closer look at each of
the factors, it makes sense that the respondents from the government group rated them
as more important as the factors refer to the unique characteristics or benefits of PPP
that the government is looking forward to achieve, which are not currently available
using the traditional method of public procurement.

Levene’s test Independent t-test

No VFM measures F Significance t Significance

1 Competitive tender 0.127 0.722 1.015 0.313

Efficiency risk allocation (allocating the
2 risk to the party best able to manage it) 3.723 0.056 1.591 0.114
Risk transfer (transferring a substantial
3 amount of risk from the public to the private) 0.324 0.571 2.784 0.006**
4 Output based specification 0.407 0.525 2.798 0.006**
5 Long-term nature of contracts 0.024 0.877 2.311 0.023*
Improved and additional facilities to the
6 public sector 0.014 0.905 3.862 0.000**
7 Private management skill 0.001 0.978 1.829 0.070
8 Private sector technical innovation 2.489 0.117 0.645 0.520
9 Optimal use of asset/facility and project efficiency 1.763 0.187 2.501 0.014*
10 Early project service delivery 0.063 0.803 3.146 0.002**
11 Low project life cycle cost 0.857 0.357 2.202 0.030*
12 Environmental consideration 0.450 0.504 3.887 0.000**
13 Profitability to the private sector 0.036 0.849 0.828 0.410
14 “Off the public sector balance sheet” treatment 1.521 0.220 3.254 0.001**
15 Reduction in disputes, claims and litigation 0.015 0.904 0.581 0.563
16 Nature of financial innovation 0.282 0.596 1.860 0.066
17 Government support 2.846 0.094 0.171 0.864
18 Performance-based payment mechanism 0.956 0.330 1.036 0.302
19 Bidding cost 0.685 0.409 1.857 0.066 Table V.
20 Commissioning programme 0.350 0.555 2.659 0.009** Summary of the Levene’s
test and independent
Notes: *,**Significant at 5 and 1 percent, respectively t-test results
ARA Implications, limitations and conclusion
21,3 The present study examined factors that increase the VFM of PPP implementation in
Malaysia. Generally, the results indicate that the majority of the VFM measures were
rated as “important” and two factors – “private sector technical innovation” and
“competitive tender” – were perceived as “most important”. From the analysis of
ranking based on the public and private sector groups, the results are mixed. While the
252 majority of the VFM measures were ranked differently by the two sectors, the top and
the last three factors are of similar ranking for both groups of respondents.
Furthermore, there is a significant difference in the perceptions of the public and
private sector respondents for half of the 20 VFM measures.
As “private sector technical innovation” was found to be the most important factor
in ensuring VFM from PPP implementation in Malaysia, in evaluating PPP proposals
from private sector companies, innovation should be given greater focus. In other
words, in evaluating the PPP proposal the evaluation committee may consider giving
greater weight to the innovation component introduced besides other important
criteria, such as the financial or cost element. Furthermore, due to the subjectivity of
innovation, a special committee or taskforce may need to be established by the
government to come out with a guideline for assessing innovativeness of a PPP project
more objectively. To encourage private sector to be more innovative, the Unit
Kerjasama Awam Swasta may consider giving award for the most innovative private
sector company or PPP project of the year. Also, in supporting the private sector to be
more innovative, greater autonomy or flexibility should be given to the private sector
in deciding on the design, financing option and operation of a PPP project.
Moreover, as evidenced in this study, “competitive tender” is a very important VFM
measure for PPP in Malaysia; greater competition between private sector companies
should be further encouraged. As the current practice of the PPP unit (Unit Kerjasama
Awam Swasta) in Malaysia is to have at least three tenders for a PPP project, perhaps,
the government may want to increase the minimum number of tenders to be shortlisted
and negotiated before awarding the PPP contract to a particular private sector
company. However, from the private sector perspective, having more competitors for a
project would mean reducing the possibility to win a tender. As it is acknowledged that
preparing and submitting a project tender would incur substantial amount of cost and
time, hence, to increase competition and at the same time to encourage participation
from the private sector companies, the government may need to take into account the
various factors in revising its existing policy. A possible way is to increase minimum
number of tenders and concurrently to compensate certain portion of tender cost to the
loosing companies.
In relation to risk allocation between the public and private sectors, which is also
found to be an important VFM measure, closer attention should be given to the factor.
Specifically, the evaluation committee of the PPP unit may need to assess each
individual PPP project for the type and amount of risks to be transferred to the private
sector. This is mainly due to the subjectivity involved in quantifying risk and different
PPP project has different level of various types of risks. Although it is not an easy task,
as PPP unit experiences assessing more and more PPP projects, a reliable mechanism
or formulae to evaluate risks will be developed and can be used to optimally share the
risks of future PPP projects between the government and private sector in maximising
VFM from a particular VFM project.
There are several limitations inherent in this study that should be pointed out in
order to ensure a fair interpretation of the results. One of the limitations is that given
the unique characteristics of PPP of a country adopting VFM from other countries may Public private
not provide the exclusive list of VFM drivers for PPP implementation in Malaysia. partnership
Therefore, future studies may want to consider other factors that are relevant in the
context of Malaysia by interviewing PPP experts in Malaysia from both the public and projects
the private sectors. Another limitation is that with the unique nature of individual PPP
projects, using a questionnaire to identify the VFM measures for PPP projects in
general may not be the best method. Hence, future research may want to investigate the 253
VFM measures for a particular PPP project from a specific sector using the case study
approach. Despite its limitations, this present study offers some insights and useful
information to the government and the private sector providers concerning the key
VFM drivers for PPP implementation in Malaysia.

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Corresponding author
Suhaiza Ismail can be contacted at: suhaiza@iium.edu.my

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