Developing a Fuzzy Value-for-Money Analysis Model for Annuity-Based Public-Private Partnership Infrastructure Projects under Consideration of Risk Mitigation Capability

Abstract

Optimal allocation of risk between the public and private sector is instrumental to the enhancement of value-for-money (VFM) for public-private partnership (PPP) infrastructure projects. This study offers a novel method that considers the risk mitigation capability (RMC) of the public and private sector to evaluate VFM of a PPP infrastructure project under the performance-based annuity (PPP/AP) scheme. It is the first attempt to incorporate both the RMC and risk allocation decisions into VFM development quantitatively. This model applies a combination of the Takagi-Sugeno fuzzy inference system and statistical methods. The perceptional data from Indonesian PPP experts were collected to estimate model parameters and assess the VFM of a 73 km Indonesian public road, and then used to illustrate the application of the model. The result shows that moderate levels of RMC for both the public and private sector, worsened by suboptimal risk allocation, lead to a no-go decision with PPP/AP. The proposed model makes earlier PPP decision-making possible for the public sector before invitations for bids.