About the Researcher

Peter Mukalula is a registered Quantity Surveyor and is a Fellow of the Surveyors Institute of Zambia. He is also a lecturer at the Copperbelt University in the School of the Built Environment. Peter did his Master’s degree at Heriot-Watt University in Edinburgh. His PhD thesis was on ‘Risk allocation decision-making in Public-Private Partnership development projects in Zambia. Cell number is +260-976-782789.

Abstract: Ever since the Zambian government introduced the Public Private Partnership (PPP) mode of development, construction professions face challenges in dealing with contractual complexities. One crucial area affected regards the evaluation and monitoring of PPP projects. The government introduced the PPP law in 2009 in order to narrow the infrastructure gap in the country.  Tight budgetary constraints have recognised the need for the private sector to participate in national development through PPPs. Evaluation and monitoring of such projects is essential for concession agreements as well as for timely project implementation.  The goal of undertaking the study was to assess the accuracy of methods used in handling the complexities associated with PPP projects particularly in a developing world context. Investments are fraught with a plethora of risks, which discourage developers. To ascertain methods used in appraising and scrutinising such schemes, a mixed research approach was used consisting of interviews and administration of a questionnaire. Focus group interviews of construction professionals ascertained knowledge of evaluation methods.  The industry wide questionnaire on the other hand gauged the efficacy of the methods in decision-making processes for PPP contracts utilised for concession agreements. Spearman’s rho weighed the accuracy of the methods used for estimating and examination of projects.  The results illustrated that the preferred evaluation and monitoring methods targeted short span scrutiny of the concession rather than the long term. Conclusions drawn using Spearman’s rho showed that financial appraisals gave greater accuracy for decisions made regarding PPP project funding and supervision. This encourages conservation of financial resources as well as the timely implementation of PPP schemes owing to lengthy durations for concession discussions and implementation. The proposed decision-making support framework shortened the evaluation and monitoring process.

Keywords: Decision-making system, Evaluation, Implementation, Monitoring, Public private partnership

1. Introduction

In spite of Africa’s turbulent economic, social and political challenges, PPPs have become increasingly accepted in Africa (Zulu and Muleya, 2009).  Implementation of such projects in developing countries is considered a risky undertaking. Over 90% of PPP developments on the continent are externally funded. Finance lenders, therefore, assume about 70 – 75% of risks on capital costs for large scale infrastructure ventures (Bull and McNeill, 2007). As an option for development, multilateral lending agencies deem evaluation and monitoring procedures critical for the successful execution of such schemes. This also deepens the developer’s desire to readily own risk during the project life cycle amid several challenges. Developing economies adopting this method of growth face various problems of using professionals unable to handle arising technical complexities. PPPs signify greater private sector involvement in the delivery of public services. Participation of the private sector brings with it risk complexities concerning the adequacy of funding for development and assessment of project details. In Zambia, execution of PPP projects is confronted with an inappropriate regulatory framework as well as an underdeveloped public and private sectors – which are essential conditions for PPPs. As such projects are nascent; the necessary skills for handling evaluation and monitoring face challenges during transaction negotiations. Project risks often threaten the accuracy of projected costs which result in untimely completion times and escalated costs for construction. Further, lack of skilled PPP construction specialists has given impetus to the argument that this mode of development cannot work in Africa (Ndandiko, 2006).  This paper aims at assessing the accuracy of methods used in handling the complexities associated with PPP projects in a developing world environment. Prudent governance of PPP projects concerning evaluation and monitoring tasks are better realised with acquired skills construction specialists’ exhibit. PPPs can be a panacea for infrastructure expansion in developing countries by structuring decision-making systems that can provide construction professionals with the necessary experience. This will enable them to understand how risks affecting the project find mitigation during the concession period. Inevitably, the period for negotiating concessions for PPP contracts would be shorter.

2. Literature Review

Globalisation has been a major factor for the increase of PPP projects on the African continent bringing with it challenges regarding financial evaluation and monitoring (Angelides and Xenidis, 2009).

 

2.1 PPP demand

Demand for public services has led to a new set of challenges. Much of the projected 3% growth of the world economy by the year 2030 will be in developing countries (Bull and McNeill, 2007). With this expected growth, Governments in developing countries undertaking infrastructural service delivery through PPP decentralised management, face challenges with skills development (Heider et al, 2015). According to the Mukalula and Muya (2017), Zambia should have spent US$1.6 billion a year over the 2006 – 2015 decade for the development of its infrastructure to the level found in the rest of the developed world. This estimate was equivalent to 20% of the country’s gross domestic product (GDP) though outstripped with the pace of urbanisation even though the construction industry contributed 18.9% to the GDP shown in Figure 1.

Figure 1: Construction contribution to GDP

2.2 Evaluation and monitoring necessity

PPPs are advantageous contracts as they integrate the public and private sectors in a long-term partnership (Yescombe, 2007). As developing economies seek to institute New Public Management approaches to expand their infrastructure, they are faced with evaluation and monitoring challenges (Kumaraswamy and Zhang, 2003). Project appraisal and censorship is a precursor to the performance measures used for success (Villalba-Romero and Liyanage, 2016). Hence, governments are willing to collaborate with private sector developers. Overseers are aware of the capital-intensive nature of basic infrastructure and of the competitive demands on scarce financial resources (Bull and McNeill, 2007).  The aim is to reduce the demand-supply infrastructure gap as well as fulfill social commitments. Public provision of services in developed countries using PPPs includes projects for education, wastewater management, public buildings, health services, power and road sector projects (Akintoye, 2009). Akintoye (2009) further argued that telecommunications sector has also been a recipient of huge investments in terms of physical infrastructure in developing countries. In fact, Akintoye argued further that the telecommunications sector develops faster owing to quick financial returns.

2.3 Necessity of PPP skills

With the availability of such skills development, PPP project control becomes manageable. This entails having governance structures that achieve accountability, transparency, fairness, efficiency, participation and decency. Frank and Shen (2016) defined governance as a decision-making process. Ultimately, governance aids the process of evaluation that culminates in decision-making (Alfen et al; 2009). Lack of transparency erodes trust and control of all supervisory processes. Abednego and Ogunlana (2006) good project governance (GPG) concept raised the importance of prudent performance in evaluation procedures for PPPs. They saw PPP project allocated risk achievable through clearly laid out procedures. Better performance, as they postulated, would inevitably lead to successful projects. Contract fairness, they stated, was a crucial feature of the framework for prudent governance that respects the rule of law (Abednego and Ogunlana, 2006). Ndandiko (2006) argued that procedures in Africa lack impartiality in their evaluation and monitoring structures. In fact, he further argued that professionals entrusted to enforce fairness between the parties of the project, were ill equipped to undertake the task. Justification of the project obviates mandatory aspects of a risk matrix and more importantly, a public sector comparator (PSC) (Akintoye, 2009). Lack of transparency further evidences difficulties of single sourcing of the developer (Mukalula and Muya, 2017) due to non-exposure to the international community.

Several factors affect the successful operation of PPPs needing skills in the area of assessment. Zulu and Muleya (2009) singled out risk management and procurement as well as economics and finance are the critical areas needing careful attention. Knutson and Huettel (2018) and Akintoye (2009) stated that developing countries lag behind in terms of PPP experience.   Lack of experience that greatly challenges construction professionals in accurately evaluating and monitoring PPP projects. The nomenclature of the pattern of the risks particularly for developing countries embarking on using this mode of development is a factor that has not been studied (Akintoye 2009). Various options for predicting the influence of risk over the concession period remain available. Zhang (2009) has suggested methods that evaluate projects over the short and long term. Risk influences determine mitigation methods employed before and during the defined concession period Rwelamila et al. 2003). Kumaraswamy and Zhang (2003) examined a list of risks for the Build Operate and Transfer (BOT) power projects for Shajiao B, Laibin B and Shandong Zhonghua. The list gave options of mitigating risks aiding the monitoring process of projects. To encourage foreign investment in China at project commencement, developers needed to adhere to bid evaluation procedures. Such measures limited negotiation procedures and improved the implementation time. Yescombe (2007) listed the required skills for construction professionals to cover areas of:

• the choice of the project;
• project management;
• single-point responsibility particularly if local authorities are involved;
• contract efficiency for the venture to be profitable;
• PPP innovatory methods of hedging;
• clarity and culpability of public sector procurement;
• management of the process of PPP delivery; and
• the amelioration of the PPP capital structure.

2.4 Investor due diligence

Due diligence must be done for investors eager to undertake projects for purposes of deriving profit. Investment suggests an adequate return to the investor. Weighted average cost of capital (abbreviated as WACC) is what investors often use to balance their equity and debt as they do so. Companies that will have readily available resources (i.e. their own money; equity); make decisions to invest in projects that are floated on the international market (Frank and Shen, 2016). It is to the advantage of the company investing to have a high gearing value in order for it to embark on Greenfield projects. The gearing (the ratio between equity and debt) must be high at the beginning of the project and taper towards the end. Such decisions are weighed against a ‘risk free environment’ although such is inconceivable. But for purposes of analysis, this comparison is done to weigh the company’s worthiness of undertaking the project. For this, a capital asset pricing model (or CAPM) is utilised that compares the company’s business against the government’s debt. Essentially, corporate investment is negatively related to the cost of capital (Frank and Shen, 2016). Lower interest rates in developing countries, therefore, encourage investment. Companies that vie for investment must therefore have their risk profiles that must equate the WACC (Yescombe, 2007) that will be able to match the project’s eventualities.

2.5 PPP decision-support framework

The PPP mode of development is different from the traditional procurement system. It evolves on the precept of greater private sector involvement. In fact, legal frameworks necessary for use of PPPs becomes fundamental for their introduction in any country (Walsh, 2003). A major component of the need for PPPs often challenges the status quo required for change (Grimsey and Lewis, 2009). For continental Africa, it was the difficulties of achieving infrastructure development competing for the scarce resources in hand (Akintoye, 2009). Inevitably, decision-support frameworks would be set up to assist and assure developers’ investment (Kartashova, 2018). Such a framework would provide the process through which evaluation and monitoring of the PPP project would get beyond ‘business case’ presentation (Pipattanapiwong et al 2003). Developer’s accepted understanding regarding frameworks have been shaped by the following conclusions (Davies et al, 2018):

• the assertion that allocated risk structures vary according to contract types placing risk with the contractual party concerned. For instance, Build-Operate-Transfer (BOT) contracts allocate risk to the private sector as opposed to service and management ones;
• economic factors existing in countries such as exchange rates and interest rates need to be constantly monitored by investors using the PPP method of development;
• that private firms using PPPs are exposed to various risks as they execute projects on other continents than their own; and
• the contractual party able to handle a particular risk should have the capacity to monitor as well as manage it.

Owing to lack of clarity about PPPs can have them presented as ‘bundled entities’ (Grimsey and Lewis, 2009).  Project recipients appreciate investment coming to their doorstep but are unable to see apparent challenges that come with the ‘gains’ of the scheme. In as much as the framework becomes a shift from conventional construction, the adoption of the PPP mode of development is fraught with challenges (Pipattanapiwong et al, 2003).

2.6 Risk evaluation

For PPPs to succeed, public and private entities have to evaluate risks. These risks can arise from a variety of areas and must be included in contract conditions. Critical risks affecting the scheme are assessed allowing informed decisions to be made during the projects’ implementation. These risks encapsulate a combination of the political, legal, economic and the social environment prevailing in the country (Joslin and Konchitchki, 2018). Merna and Lamb (2002) listed eight time-related risks that affect loan repayments before and after the commissioning of a project. These were:

• currency risk;
• interest rate risk;
• equity risk;
• commercial risk;
• liquidity risk;
• counterparty risk;
• country or political risk; and
• accounting and economic risk.

What measures are instituted to curb risks spiraling out of control once the project is underway, needs prowess in financial accounting and with mitigatory instruments. Various hedging instruments must be used by the developer to avert financial failure of the project. Aggarwal et al (2011) found Chinese Corporations with risk exposure of between 20 – 40% as being extremely high. Extended periods of project implementation require financial instruments that have longer maturity to abate interest risk. Raising construction equity for large PPP projects is a challenge in the context of developing countries. Financial distress of the project as well as asymmetric information occasions choice of either one of these equities. The safer choice is to have the public share the risk (Kartashova, 2018). PIPE investments from the private sector have the positive resultant effect of developing the sector; the very essence of using the PPP mode of development. Reduced exposure of the commercial risk needs decisions aimed at a PPPs project speedy implementation. Liquidity risk must be evaluated to curb a developer’s insolvency. Credit risk of this nature can be mitigated by enacting laws that would enhance sharing of information through banks (Kusi et al, 2017:1130). Saunders and Cornett (2008) suggested the use of forwards, futures, swaps and options in curbing lack of national liquidity

Counterparty risk is rated highly as it seeks to assure project lenders of the financial standing of the developer. Country or political risk raises the question of a country’s ability to service external debt on time. Warnes and Warnes (2014:20) argued that political risk presented a negative effect and raised the cost of equity for investors. The consequences would include expropriation or worse still, cancelation of the project. This would impede the progress of the project. Accounting risk is a retrospective assessment of a company’s risk structure while economic risk focuses on their wider repercussions to project operations (Toumi et al: 22). In terms of implementing a project on time, these risks oversee effects that interest rates have on loans obtained from multinational companies and are used by proprietors during the development process (Davies and Giovannetti, 2018). Low interest rates are an advantage to investors in accelerating construction activities on projects while higher ones have the opposite effect. With high interest rates, developers slow down on their projects.

Walsh (2003:173) pointed out five methods that give an overview of cost and time in the context of risks. These are:

• Sensitivity analysis that gauges the effects of suppositions on project net present values and total costs;
• Scenario planning involves evaluating the project in different situations;
• Monte Carlo analysis examines the chances of obtaining the reality of the project in light of postulations made in cost projections;
• Decision rules/trees analyse options against set measures; and
• Discount rate accounts for the envisaged risk for the recovery of invested funds in the project.

3. Risk mitigation

The quantification of risks requires measures to mitigate arising challenges to the project.  Wang et al (2000:316) suggested the following mitigation measures in Table 1 below.

Table 1: Mitigation measures

Risk type	Possible mitigation measures
Currency risk	(a) Weighing the position of foreign reserves (b) acquisition of authority to transfer of convertible currency (c) obtaining support from government for privileged access
Expropriation risk	(a)      Forging relations with other international funding agencies (b) Obtaining off shore insurance for loans and equity investments
Change in law risk	(a)      Obtaining government guarantees for export and import restrictions (b) Sharing of risks for loan borrowers and output purchasers
Political violence risk	Obtaining political insurance with multilateral and bilateral political insurers
Government approval risk	Obtaining all government approvals and guarantees
Loan security risk	Foreclosure and insolvency, security measures

During the evaluation process, due diligence of the developer needs to be investigated for actions to be instituted against various risks that can affect the project. Surmounting risks instills confidence in achieving the intended business goal (Warnes and Warnes, 2014).

3. Methodology

A mixed method approach was adopted for the research and data was collected using structured interviews and questionnaires. To achieve the aim of the study, a two-stage focus or panel group interview was used that lasted for half an hour. The first stage of interviews was used as a pilot survey to understand the challenges of evaluation and monitoring faced by construction professionals. In the second stage, Likert scales were provided for the responses in the first stage. Interviews offered interviewees the freedom to express themselves and elaborate on issues that were not clear regarding assessment of PPP projects. The two main areas of data requested in the interviews included the choice of evaluation and monitoring methods by way of structured questions. 11 stakeholder interviewees were selected based on their knowledge of the PPP procurement mode. The National Council for Construction (NCC) also indicated that the interviewees had been part of the inception group for PPP introduction in Zambia. To ensure validity of the instrument, interview questions were pre-tested for their wording as well as chronological order.

Furthermore, 120 questionnaires were administered to architects, civil engineers, quantity surveyors, planners, accountants as well as middle and high management directors involved with the construction industry. Data requested from these professionals included mitigatory measures used for methods of valuation and monitoring used in the industry. Before distribution, the questionnaire was also tested for depth of inquiry on the subject using the Statistical Packages for Social Sciences (SPSS). Eigenvalues and extraction sums of squared loadings generated a cumulative percentage of 83.329% indicating a high degree to which the factors under valuation and monitoring dealt with the subject of PPPs. The total variance calculated in the variables used was 96.918% in eigenvalues showing greater consistency of answers given by respondents. Of the 53 questionnaires returned, with five contained errors in the given answers. Hence, the analysis was based on 47 responses. The second stage of the focus interviews used Likert scales to aid quantification of the responses.  Evaluation and monitoring in decision-making used Spearman’s rho to ascertain the accuracy of the methods. The discussion triangulated the results of the two methods.

5. Descriptive statistics for interviews

The aim of the interviews was to establish the ontological and epistemological understanding of evaluation and monitoring methods used for PPP projects. Descriptive analysis interpreted the collected qualitative data (Silverman, 2010). Responses on the monitoring methods were further analysed quantitatively using Spearman’s rho.  Eight of the respondents had over 15 years of experience in the construction industry while three had served for 10 years. Respondents with PPP experience were 72.72% while 27.28% had none as shown in Table 2 below.

Table 2: Focus group descriptive statistics

	Middle management	High management
Position held	8	3
Qualification	Basic degree	Master’s degree
Years served	15	10
PPP experience	72.72% (Yes)	27.28 (No)
Professions	Architects – 3 Quantity Surveyors – 2 Planners – 1 Accountants – 2	Civil Engineer – 1 Quantity Surveyor – 1 Architect – 1

5.1 Descriptive results of evaluation tools

The focus group identified six financial tools in the monitoring of PPP projects. Table 3 below shows the response frequencies.

Table 3: Financial evaluation tools

	Monitoring tool	Responses	% response
1	Financial appraisals	5	45.50%
2	Cash flow analyses	2	18.18%
3	Profit and loss analyses	1	9.08%
4	Development concept	1	9.08%
5	Cost benefit analyses	1	9.08%
6	Life cycle costing	1	9.08%
	Totals	11	100%
	% response	100%

 

Financial appraisals were the preferred monitoring tool by financial institutions as noted by five respondents (giving a response of 45.5%). ‘Cash flow analyses’ followed getting two occurrences from respondents (18.18%). Monitoring tools for ‘profit and loss analyses’, ‘development concept’, ‘cost benefit analysis’ and ‘life cycle analysis’ each had responses of 9.08%.

4.2 Accuracy of Spearman’s rho for evaluation tools

 Likert scales used structured questions to quantify the data obtained from the survey.   Spearman’s rho calculations determined the accuracy of use of the five financial tools recommended by the focus group (shown in Table 4 below). Typically, these are tools used for evaluating the financial management of projects. Spearman’s rho gives the relative strength of a relationship. The resultant assessment between 0 and 1 indicates no direct construal. By squaring the rho value, a proportional reduction in error (PRE) in the use of the tools is conceivable (Healey, 2009:318).   The given equation for obtaining the desired rho value was:

r_s = 1 –  …………. (Healey, 2009:318) where; N is the ranking of the tool; while D is the difference in the mean ranking and group ranking and D² is the sum of differences in the ranks of the groups.

Table 4: Spearman’s rho calculation for financial evaluation tools 

Financial decision-making tools	Mean	Mean Ranking	Group rating	Group ranking	D	D2
Payback period	4.30	1	5	1.5	-0.5	0.25
Internal rate of return	3.98	2.5	4	3	-0.5	0.25
Life cycle costing	3.98	2.5	3	4.5	-2	4
Discounted cash flow	3.74	4	3	4.5	-0.5	0.25
Net present value	3.62	5	5	1.5	3.5	12.25
					0	17

Spearman’s rho value = 0.15

From the squared Spearman’s rho value of 0.15, the value of 0.0225 was obtained giving a proportional reduction in error (PRE) of 2.25% of using the financial monitoring tools.

5. Descriptive statistics of questionnaire

An administered industry-wide questionnaire survey expanded the structured questions devised from the focus group interviews. The draft questionnaire was pre-tested to improve response clarity as well as remove grammatical ambiguities.

5.1 Survey composition

It was necessary to investigate factors that could assure good project evaluation and monitoring over the life cycle of the PPP scheme. A key component of this was to ascertain whether the construction industry was ready to accept the PPP mode of development. The complexity of PPP contracts necessitates having industry professionals with skills to handle arising technical difficulties.  This response consisted of 12 quantity surveyors; 11 valuation surveyors; 9 architects; 10 civil engineers and 5 contracting firms. All the respondents were in management positions. The average age obtained for the final 47 respondents was 47 years. In terms of education, all stated to have a minimum of first degree with at least 14 years’ experience while five had a postgraduate masters’ degree. The survey response rate was therefore 39.17% (Table 5).

Table 5: Questionnaire distribution and response 

	Category	Questionnaires (Distribution composition)	Questionnaires (Response composition)	% Response rate
1	Quantity Surveyors	33	12	25.53
2	Valuation Surveyors	13	11	23.40
3	Architects	25	9	19.15
4	Civil Engineers	28	10	21.28
5	Contractors	21	5	28.57
6	Totals	120	47	39.17

 

Researches of a similar nature by Jang (2011) and Awodele (2012), gave responses of 53% and 32%, respectively.

5.2 Respondent’s PPP experience

Respondents indicated their service in the construction industry, industrial experience as well as their practice with PPPs.

Figure 2: Respondents PPP experience

Sixty-six percent (representing 31 respondents) indicated that the organisations worked for had done PPPs. 34% (i.e. 16 respondents) indicated that they had never participated in PPP projects. The respondent with the highest years of working construction experience had 14 years while the lowest had a year (Figure 2).

6.3 Descriptive results of PPP monitoring methods

 As noted above, 31 respondents had participated in PPP contracts. These indicated the monitoring methods used on PPP projects. Table 6 shows respondent’s frequencies and means of preferred monitoring methods listed using a Likert scale of 1 to 5. ‘1’ indicated ‘most preferred’ while ‘5’ was for the ‘least preferred’.

Table 6: Preferred monitoring methods 

S/N	Type of monitoring method	Frequency	Mean	% Response
1	Budgeting	25	4.45	81
2	Cash flows	21	4.36	68
3	Profit and loss analysis	17	4.32	55
4	Return on investment analysis	14	4.26	45
5	Life cycle costing	11	4.02	34
6	Sensitivity analysis	9	3.77	29

From Table 6, 81% of the respondents indicated that ‘budgeting’ was the most preferred method for monitoring PPP projects. This was followed by ‘cash flows’ (68%); ‘profit and loss analysis’ (55%); ‘return on investments analysis’ (45%); ‘life cycle costing’ (34%); and ‘sensitivity analysis’ (29%).

5.4 Accuracy of monitoring methods

Spearman’s rho calculations determined the accuracy of use for project monitoring of the six monitoring tools shown in Table 7 below. Again, a proportional reduction in error (PRE) of 3.4% was calculated. With a PRE of 3.4%, these monitoring methods can achieve an accuracy of 96.6%.

Table 7: Monitoring methods

Monitoring tools	Mean	Mean ranking	Group rating	Ranking	D	D2
Budgeting	4.45	1	5	1.5	-0.5	0.25
Cash flows	4.36	2	5	1.5	0.5	0.25
Profit and loss analysis	4.32	3	1	6	-3	9
Return on investment analysis	426	4	4	3	1	1
	4.02	5	2	5	0	0
	3.77	6	3	4	2	4
					0	14.5

 

Spearman’s rho value = 0.58 

6. Result and discussion

Results and discussion of the evaluation and monitoring challenges are below.

6.1 PPP experience for the interview and questionnaires

Interviewees for the focus group interviews all held high and middle management positions with a minimum of a bachelor’s degree and three had master’s degrees. All the interviewees had more than 10 years of experience and were able to articulate views on evaluation and monitoring methods used. However, their experience was limited to responding to requests for proposals and submission of the same to client organisations. Only one chief executive had gone beyond submission in terms of advising clients over implementation procedures. Akintoye (2009) noted that this was basic and insufficient experience for handling PPP complexities.

Results from the questionnaires also pointed to inadequate PPP skill noticeable in the disparity in terms of the years worked, industrial experience and PPP knowledge. However much working experience respondents had, this was not synonymous to handling complexities of negotiation for Build Operate and Transfer (BOT) type of contracts (Zulu and Muleya, 2009). Admittedly (for the professions interviewed), the attendant learning curve helps in understanding PPP transaction processes in light of project risks. Funding modalities in terms of the type of bonds and loan transactions were the major sphere of difficulty (Angelides and Xenidis, 2009). Owing to the long-term nature of PPP projects, construction specialists need understand the mitigation measures to be implemented (Wang et al, 2000).

6.2 PPP evaluation

Respondents of both the interviews and questionnaires indicated use of a combination of evaluation tools in order to get in-depth examination of projects. The most common combination was use of financial appraisals and cash flow analysis. Application of these would enable parties to the PPP contract evaluate various costs and benefits. Merna and Lamb (2009) suggested that a public sector comparator (PSC) tests the validity of privately financed projects. For in-depth financial analysis, the Net Present Cost (NPC), Net Present Value (NPV) and the Internal Rate of Return (IRR) are used to derive value for money (VFM) on projects. Kumaraswamy and Zhang (2003) argued that use of NPC, NPV and IRR in curbing threats associated with developers’ allocated risks. They further pointed to other assessment methods involving the use of the Kepner-Tregoe technique that obtains information from bidders based on a given criteria.  Yescombe (2007) argued that the NPV method prepares the developer against drastic future threats to the project. However, day to day returns could be carefully evaluated using IRR (Vickermore, 2017). This is why the developer’s gearing value (equity and debt ratio) and financial worthiness must be examined (Frank and Shen, 2016). An under-developed financial sector compromises hedging tools such as forwards, futures, swaps and options employed in instances of lack of liquidity (Saunders and Cornett, 2008).

6.3 PPP monitoring

Budgeting and cashflows were the main monitoring tools used on PPP projects. However, contention was raised over the accuracy of the methods in carrying out such proceedure. For instance, most budgets are done for a limited period of time of one to five years. PPP projects on the other hand normally exceed 25 years. Budgets were preferred by developers because they showed the profitability of project in a determined period (Ronnie, 2018). Inevitably, this means that methods of monitoring must be focused on the different phases of the PPP project (Warnes and Warnes, 2014:18). These fall into two categories; the short and the long term. Responses from the respondents, however, preferred short term methods (budgeting, cash flows and profit and loss) than ones that gave a long term perspective (Return on Investment, Life Cycle and Sensitivity analysis). However, such tools are very basic in monitoring the financial worthiness of PPP projects. Vickermore (2017) recommended the use of methods that had potential for monitoring the effect on the total outlook of the project. Simulation methods such as the Monte Carlo model are capable of giving such an overview (Smith et al, 2014).

6.4 Accuracy challenge in evaluation and monitoring tools

Respondents for the interviews and the questionnaire indicated that financial evaluation and monitoring tools have greater accuracy. Spearman’s rho calculations gave a high degree of their accuracy of 97.75% and 96.6%, respectively. However, results for the interviews and questionnaires revealed that construction professionals utilise evaluation and monitoring tools that estimate the short term than the long-term range of projects. As PPPs are long-term projects, the degree of accuracy in evaluation and monitoring tools should include those that envision the long term (Smith et al, 2014). The need for accurate estimates is what developers require for investment projects. Callegari et al (2018) showed that 97.53% of contractors exceeded their initial estimates for energy projects in Brazil.  Heider et al (2015) argued that economic and financial risks on a project are priority in terms of their frequency and severity. Reducing evaluation and monitoring errors entail implementing projects on time (Soin, 2013).

7. Implications of evaluation and monitoring – a decision support framework

Decision support frameworks are a necessary for establishing procedures for new modes of development (Pipattanapiwong, 2003).  As far as implementations of PPPs are concerned, timely establishment of projects is extremely essential (Aggarwal et al, 2011). Change of mind-sets would ensure that evaluation and monitoring methods used follow a system that shortens the process of negotiation. There were 17 steps identified in the procedure of Act No. 14 of the Public- Private Partnership policy (GRZ, 2009:20) from the proposal of the project to its execution with the process taking a period of one to three years (Mukalula and Muya, 2014). A major setback in the current procedure is the difficulty of prolonged negotiations prior to project implementation. As a result, evaluated financial projects issues are often overtaken by inflation and severe year on year fiscal changes (Ronnie, 2018).

The proposed decision support system took into consideration the key element of time i.e. from the moment the project is proposed to its implementation. In order to achieve greater value for money (or benefits), allocated risks must constantly be aligned to critical success factors in order for the project to succeed (Cui et al, 2018). For this to happen, stringent project analyses of specific risks need evaluation. Such assessment must be followed by the kind of mitigation methods employed to avert failure of the accomplishing the scheme. Financial management is an important aspect in re-assessing the project’s financial viability amid known and unknown risks (Smith et al, 2014: 4; Heider et al, 2015:340). Investment ensures an adequate return to the investor. Due diligence done of the investor equates the equity and debt.  This is financial position is reflected in the profit and loss analysis as well as return on investment (or weighted average cost of capital).

 

Figure 3: Proposed Decision Support System for project implementation

Companies that are vying for investment have a duty to have their risk profiles equated to the WACC to cover project threats (Balog et al, 2017:20). The best party to handle them in the PPP contract (Joslin and Konchitchki, 2018:349) would then handle project threats. The focus group commented on the decision support framework for PPP implementation in Zambia. Various suggestions were given that aided changing of some aspects to the framework. Eventually, eight out of the 11 individuals consulted, were able to verify the workability of the framework shown in Figure 3. This gave a 72.73% response in favour of the use of the framework. 

8. Conclusions and recommendations

This research aimed at assessing the accuracy of methods used in handling the complexities associated with PPP projects in a developing world environment. In view of the number of risks that occasion implementation of such schemes, construction professionals must acquire assessment skills over the project. Findings revealed that construction professionals exhibited diminutive PPP experience. Recommendations were that the NCC and PPP Unit of the Ministry of Finance, train construction industry professionals in risk related financial disciplines. Further, construction professionals needed negotiation skills that gave understanding of concession obligations with mitigation of foreseeable project risk. Evaluation and monitoring assist the overall financial management of the project. The aim is to ensure that negotiated concession periods are not excessive. Prudently evaluated concession durations save resources. The implication of the use of the suggested decision-making framework limits project execution time by about 40%.

9. Limitations and scope of the research

For projects studied, there was perceived misunderstanding of concepts related to monitoring procedures, risk allocation and mitigation among professionals that were interviewed and those that answered the questionnaire.

Acknowledgements

The authors acknowledge the support from the Copperbelt University, Surveyors Institute of Zambia and Engineering Institution of Zambia for supporting the research regarding the effect of risk allocation in the Zambian construction industry.

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