The Value For Money Factors and Factors and Their Interrelationships For Smart City Public PPP
The Value For Money Factors and Factors and Their Interrelationships For Smart City Public PPP
The Value For Money Factors and Factors and Their Interrelationships For Smart City Public PPP
https://www.emerald.com/insight/1471-4175.htm
Public–private
The value for money factors and partnerships
their interrelationships for smart projects
city public–private
partnerships projects
Khalid Almarri Received 30 January 2022
Revised 12 April 2022
Faculty of Business and Law, British University in Dubai, Accepted 12 April 2022
Dubai, United Arab Emirates
Abstract
Purpose – The amount of expenditure required to scale up smart infrastructure projects is often enormous.
Public–private partnership (PPP) is one of the proposed and viable solutions for addressing the financial
issues of smart infrastructure projects. However, the most important criterion in choosing PPP over other
procurement methods is that the project under the PPP method should deliver the best value for money (VFM)
while also including defined economic and social objectives, rather than relying exclusively on efficiency
factors. While PPP provides a variety of advantages for developing infrastructure, significant challenges may
arise as a result of smart infrastructure initiatives. Diverse PPP approaches have been used to build smart
infrastructure around the world, with varying degrees of success. The purpose of this study is to identify the
VFM factors that are suitable for smart infrastructure projects and to examine the impact of their
interrelationships.
Design/methodology/approach – The methodology for this study consisted of three stages: identifying
VFM factors in PPP for smart cities based on an extensive literature review, analyzing data from a sample of
90 PPP practitioners using a Likert scale questionnaire and estimating interrelationships among VFM factors
using structural equation modeling (SEM).
Findings – After performing a SEM analysis on the gathered data, the best fitted measurement model
consisted of 11 VFM factors acting as indicators of three latent variables for smart infrastructure projects
(clear output specification for measuring performance, efficient dispute resolutions, optimized risk allocation
and business models, improved and integrated community services, economic sustainability, appropriate
capital structure and collaterals, smart asset management, diffusion of smart technologies, technical
innovation, Ince) and three clusters of their interrelations (economic sustainability, integration drive,
optimization and smart technology).
Practical implications – This research has resulted in a useful and readily applicable list of factors and
clusters of value for money criteria for the implementation of PPP in smart infrastructure projects, assisting
public sector management by providing a measure of pre-conditions that can be used as an assessment tool
when determining whether a PPP should be used instead of conventional methods.
Originality/value – In addition to the theoretical and methodological contributions, this study produced a
usable and readily adaptable list and clusters of value for money factors for the implementation of PPP in
smart infrastructure projects.
Keywords Public procurement, PPP, Value for money factors, Smart cities
Paper type Research paper
1. Introduction
According to a United Nations report, by 2050, 68% of the world’s population will live in cities
Construction Innovation
and city dwellers will outnumber rural dwellers by a factor of two (Abubakar and Aina, 2019). © Emerald Publishing Limited
1471-4175
Rapid urbanization exacerbates a variety of issues, including environmental degradation, DOI 10.1108/CI-01-2022-0020
CI resource depletion, unequal spatial development and traffic congestion. Various governments
have emphasized the need of developing a smart infrastructure as a means of improving urban
administration and development. The majority of research agree that smart infrastructure
projects entail the use of cutting-edge technology to improve the efficiency of municipal
processes (Liu et al., 2020; Tan and Taeihagh, 2020).
Additionally, there is growing understanding that smart infrastructure development
should prioritize enhancing residents’ quality of life by fulfilling local requirements (Huang-
Lachmann, 2019). A smart infrastructure is believed to provide novel answers to a variety of
social, economic and environmental challenges confronting expanding cities (Yigitcanlar
et al., 2018). By 2025, it is estimated that smart infrastructure development would provide
over US$2tn in commercial potential (Liu et al., 2020; Lam and Yang, 2020).
There are several obstacles to the establishment of smart cities. Lam and Yang (2020)
noted that governments worldwide are confronted with fiscal limitations and aging
infrastructure. According to Alim and Polak (2016), public funding restrictions impede the
development of smart infrastructure programs. Additionally, smart infrastructure
development involves a diverse range of stakeholders, including municipal governments,
people and for-profit and nonprofit organizations with a range of interests and requirements.
Additionally, creating a smart infrastructure demands a high degree of innovation, which
involves significant commercial and business creativity on the part of service providers (Liu
et al., 2020). Cruz and Sarmento (2017) asserted that cities can overcome funding and
management challenges associated with smart infrastructure projects by demonstrating
new technology’s potential for cost reduction, repurposing existing and legacy
infrastructure assets, unlocking value and bringing together key stakeholders. As a result,
collaborations with private organizations is required to promote smart infrastructure
projects. Public-Private Partnerships (PPPs) provide the platform for the public and private
sectors to collaborate on smart infrastructure projects (Liu et al., 2020). Furthermore, PPPs
are recommended and proven strategies for overcoming smart infrastructure project
funding issues (Selim and ElGohary, 2020).
While PPP has several advantages in the development of built infrastructure, significant
obstacles may arise as a result of complicated decision-making, ineffective risk
management, a lack of transparency and a lack of market competition (Jayasena et al., 2020;
Almarri and Boussabaine, 2020). Diverse PPP models have been used globally to construct
smart infrastructures, with varying degrees of success. As Jayasena et al. (2020) cited, a
variety of issues have arisen while implementing various PPP models.
In underdeveloped nations, a lack of information and knowledge in the private sector
was identified as an obstacle to adopting PPPs (Jayasena et al., 2020; Sharma and Bindal,
2014). According to De Oliveira and Pinhanez (2017), challenges to PPP adoption in smart
infrastructure projects include a significant risk associated with investing in new solutions,
policy uncertainty and long lead times to profitability.
According to Jayasena et al. (2020) and Lam and Yang (2020), variations in PPP models
are also necessary to account for the unique characteristics of smart infrastructure
development projects. As a result, it is argued that there exist barriers to PPP adoption in
smart infrastructure developments and that these barriers might be overcome by identifying
the drivers for PPP benefits realization in smart infrastructure development (Jayasena et al.,
2020).
The PPP approach has made significant progress in recent years because individuals
and organizations believe it provides more value for money (VFM) (Malek and Gundaliya,
2021). However, according to a study that reviews the UK government’s PPP schemes, the
majority of PPP projects are costly and fail to deliver on their promise of ensuring the best
value for money (Meyer, 2012). The current PPP industry’s biggest problem is ensuring that Public–private
all programs will be funded in such a manner that they can provide successful VFM results. partnerships
Some scholars argue that the weakness of PPPs may be due to a lack of reliable tools for
measuring PPP project success. According to studies, there are a variety of value for money
projects
factors that can increase the success of PPP programs (Malek and Gundaliya, 2021). In
project management literature, VFM variables are viewed as success enablers that may be
handled in the environment in which they can be used to maximize a project’s chances of
success (Lam and Yang, 2020; Jayasena et al., 2020).
Most studies show that VFM is critical to the effective implementation of PPP programs
(Malek and Gundaliya, 2021; Lam and Yang, 2020; Jayasena et al., 2020). Liu et al. (2014)
cited Yuan et al. (2009), who stated that value for money in a project can be described as the
ability to accomplish the objectives established by the public client in a PPP project. Liu
et al. (2014) further cite the studies of Henjewele et al. (2011) and Akintoye et al. (2003), who
describe VFM as a benchmark target for PPP projects. They further stated that the public
client’s requirements could be used to measure the output standards of PPPs. However,
according to Lam and Yang (2020), smart cities are new domains and more emphasis should
be made on developing additional factors for investment decision-making beyond the
efficiency criterion. It is also critical to improve the social and economic objectives of a PPP
project to meet the VFM objectives. (Lam and Yang, 2020). The value for money in a long-
term project should mean that all relationships are constantly built to achieve the necessary
monetary and social objectives (Yuan et al., 2012). The United Nations Economic
Commission for Europe (UNECE) (2008) report also emphasizes the importance of including
clear economic and social objectives, rather than relying solely on efficiency criteria.
The rationale for this study is that to scale up smart infrastructure initiatives, PPPs are
essential to handle the financial challenges connected with these projects, as well as to
ensure that these programs meet economic and social objectives. The VFM factors are
always used as criterion to ensure that the PPP is the most feasible choice. By identifying
the value for money factors and constructs impacting the selection of PPP procurement
options for smart infrastructure projects, stakeholders would be able to make collective and
informed decisions relevant to this type of projects prior to project award, increasing the
success rates of PPP in smart infrastructure projects.
The aim of this research is to establish the value for money factors in smart cities PPP
projects and try to experimentally develop a structural equation model (SEM) of the
relationships between the value for money latent variables. This statistical approach
evaluates and estimates the strength of causal linkages using a combination of data and
qualitative causal assumptions, which are commonly obtained from theories. The model will
represent the causal interrelationships among the value for money constructs that can help
better evaluate the capability of the procurement method of meeting the public client’s
economic and social objectives.
This paper is divided into five sections to convey the whole concept. Section 2 provides
background information as well as a critical review of existing studies to update the existing
value for money factors to fit smart infrastructure projects. Section 3 describes the
methodological technique used to arrive at the findings. Section 4 offers an analysis of the
data, as well as a discussion and implications of the findings of the research and suggestions
for future research.
2. Literature review
A smart infrastructure “provides the foundation for all of the key themes related to a smart
city, including smart people, smart mobility, smart economy, smart living, smart
CI governance and smart environment” [United Nations Commission on Science and
Technology for Development (UNCTAD), 2016]. The basic feature that underpins the
majority of these components is that they are linked and create data, which can be used
intelligently to ensure maximum resource use and performance.
In today’s economic situation, infrastructure developers have a difficulty in achieving
the desired degree of performance while staying within a given budget, in addition to the
complexities and high investment costs of Smart Infrastructure Projects (Selim and
ElGohary, 2020). PPP is one of the recommended and potential strategies for addressing the
finance issues of smart infrastructure projects, and it is one of the (UN) objectives for
sustainable development (Selim and ElGohary, 2020). PPPs are agreements between groups
of stakeholders from the government (public sector) and businesses (private sector) to share
money, risks and projected rewards in infrastructure projects (Alfen, 2010).
PPPs may be used in infrastructure projects in the following ways:
Pan city model: providing smart solutions to existing cities by merging design and
information technology.
City retrofitting model: Smartly retrofitting the existing built-up area and
strengthening the current infrastructure to reach the smart city goal.
City redevelopment model: Replace existing infrastructure with new infrastructure
that meets the needs of the future.
City extension model: determine the city’s potential urban extension trends and
then support current infrastructure in these directions to accommodate this
potential future extension, which will have a significant impact on lowering the total
cost of potential urban extension phases, beginning with planning, implementation
and maintenance (Selim and ElGohary, 2020; Vadgama et al., 2015).
PPP projects often aim to leverage the private sector’s knowledge and resources to help
operate public services and deliver the advantages of creativity, efficiency and increased
quality with better funding (Osei-Kyei and Chan, 2015). One of the most critical factors to
choose PPP over the other procurement options is that certain projects through PPP provide
the highest value for money under certain circumstances (Malek and Gundaliya, 2021). In a
PPP project, value for money can be defined as the capacity to meet the objectives
established by the public client and effectively meeting the needs of the broader population,
who will eventually use the product (Almarri, 2021). The value for money delivered in a PPP
is also contingent on precisely identifying risks in a project and then distributing them to
parties most suited to managing them to efficiently manage the project (Almarri, 2021). The
idea here is to ensure that each risk is assigned to a party who has shown a demonstrated
capacity to manage the risk and reduce its effects on a project. The party should therefore be
prepared to face the consequences of risky propositions with the least financial effect [Lam
and Yang, 2020; The World Bank Institute (WBI), 2012].
Cruz and Sarmento (2017) defined three classifications for PPP development to show how
PPPs are used at different phases of smart projects: typical PPPs, incremental innovation
PPPs and breakthrough innovation PPPs. Build-operate-transfer (BOT) projects or
concessions are referred to as typical PPPs. These usually entail long-term contracts of more
than 20 years as well as considerable private-sector finance. Incremental innovation PPPs
are those that are built for partial subsystems, such as ticketing systems or electric fleet
operations. These are technical enhancements to current systems that do not reflect a
reorganization of the system’s backbone and do not take a disruptive approach.
Groundbreaking innovation PPPs bring about significant changes by establishing new Public–private
business models and completely reorganizing existing structures. partnerships
Increasing the usage of PPPs in soft systems, such as ICT systems, has been a rapidly
developing area over the previous decade. Some of these systems are inextricably linked to
projects
“hard” infrastructure operations (Cruz and Sarmento, 2017). Many characteristics of PPP
projects, such as long durations, numerous stakeholders, complex processes and high risks,
capture the interest of researchers. Many studies have been conducted to examine the PPP
model in a systemic way to determine how these projects perform. Some scholars have also
looked at these studies and discovered that they are experiencing significant changes (Malek
and Gundaliya, 2021; Lam and Yang, 2020; Jayasena et al., 2020).
According to Aizawa (2018), VFM in PPP projects often requires the provision of
additional benefits at the lowest possible expense in the realm of public services. VFM is a
primary criterion used by the public sector to determine if a particular project will perform
better using the PPP model rather than the conventional procurement processes. Yuan et al.
(2009) examined the key objective of a PPP, which is to provide the highest value for money,
by taking into account the client’s overall strategic plan and project priorities, the private
sector’s long-term development and payoff approach and the general public’s expectations
of reliable public facilities and services. According to Henjewele et al. (2011) and Akintoye
et al. (2003), improving VFM is one of the benchmark goals of any PPP. According to
Henjewele et al. (2011), meeting client’s specifications should be regarded as a central
criterion of performance measurement of PPPs.
While PPPs are backed by optimistic analyses, they are subject to unexpected obstacles
that can impede their efficiency. These impediments involve financial, technical and
coordination issues that may hinder the normal operation of a PPP project (Henjewele et al.,
2011). All of these challenges reduce a project’s VFM and will alter the project’s overall
dynamics, as they are often long-term prospects. The emergence of these issues implies that
there is still a need to find solutions to these issues. The significant factors will then be
defined and used by stakeholders to make informed decisions.
This study will take into account the VFM factors mentioned in Li’s et al. (2005) analysis.
There are several studies that specifically recognize the practices and factors presented in
this study (Cheung, 2009; Chou and Pramudawardhani, 2015; Hwang et al., 2013; Robert
et al., 2014; Ismail, 2013; Osei-Kyei and Chan, 2015). Li and others (2005) performed an
extended literature review to find the important value for money factors in the UK. Each
factor was chosen only if it was supported by a sufficient number of research studies. These
factors were subjected to a thorough literature review of current value for money studies to
make them reflective of the value for money aspects in smart infrastructure projects (Malek
and Gundaliya, 2021; Lam and Yang, 2020; Jayasena et al., 2020; Lomoro et al., 2020).
According to Li et al. (2005), the following factors improve project value for money: VM1-
Clear output specification, VM2-Competitive bid process, VM3-Early service delivery, VM4-
Efficient dispute resolutions, VM5-Reduced negative environmental impact, VM6-
Appropriate capital structure, VM7-Improved facilities to the users, VM8-Optimized risk
allocation, VM9-Improved services to the community, VM10-Incentives for private party,
VM11-Long-term engagement, VM12-Low life-cycle cost, VM13-Low tariffs, VM14-
Optimization of assets efficiency, VM15-Private sector’s project management skills and
VM16-Technical innovation.
To check for the suitability of value for money factors established in Li’s et al. (2005)
model, Malek and Gundaliya (2021) investigated if the VFM metrics created in Li’s study
are still applicable to enhancing decision-making between PPPs and the traditional
procurement approaches. The study was focused on a group of Indian PPP road
CI construction projects and yielded the following measures: reduction in litigation, claims and
conflicts, no cost on Government consideration, extent of substantial and insubstantial
advantages of the users, economic tolls, environmental deliberation, variety of financial
innovation, private organization’s profitability, economical cost of project life cycle, private
sector’s expertise sector, transferring risk, output based specification, quick delivery of
project, technological modernization of private organizations, better roads to government,
moderate tender, long-term nature contracts, systematic, risk allotment and optimal
utilization of road and effectiveness of project. There is a similarity with Li’s et al. (2005)
criteria with some minor rephrased statements of the same content. Therefore, the whole 16
value for money factors seem to be suitable to answer current day value requirement.
However, United Nations Economic Commission for Europe (UNECE) (2008) report stresses
on including clear economic and social objectives and not only relying on the efficiency
criteria for selecting PPP frameworks to deliver the type of services that satisfy the basic
needs for human well-being, such as transparency, equity, accountability, accessibility and
inclusiveness.
As for the suitability of these value for money factors for the consideration of selecting
PPPs in smart infrastructure projects, in a study titled “Factors influencing the
consideration of PPP for smart infrastructure projects: Evidence from Hong Kong” Lam and
Yang (2020) on an attempt to identify the factors that influence the selection of PPP in smart
cities posited that smart cities are new domains and more emphasis should be put on
identifying additional criteria for the procurement decision-making. The authors argued
that the following measures would improve making such a decision: Availability of finance,
availability of expertise, availability of needed data, efficiency drive, need to share risk, rate
of technology becoming obsolete, rate of technology diffusion, suitable business models can
be devised to share income/saving, asset availability, capability of measuring performance,
possibility of procurement by competition, possibility to maintain transparency of
procurement and monitoring of operation, complexity of coordination of government
departments. This, as well, was further complimented by another comprehensive study on
PPP in smart infrastructure projects. In their study “A systematic literature review and
analysis toward developing PPP models for delivering smart infrastructure”, Jayasena,
Chan and Kumaraswamy (2020) argued that PPP procurement method may alleviate the
challenges of inadequate expertise in smart infrastructure and lack of funding for the
successful development of such infrastructure. In addition to identifying the needs, barriers
and drivers for overcoming current urban challenges, the authors have highlighted some
objectives to be considered as the basis for the selection of PPP over other conventional
procurement models. These include growth for impacting on outcomes of sustainability,
guarantee the sustainability, enhance the fineness of citizens’ lives, competitive and
innovative commerce, good maintenance system and leverage the collective intelligence.”
Based on the above, the value for money factors from Li et al. (2005) were modified to suit
the type of procurement assessment they should produce in smart infrastructure PPP
projects (Malek and Gundaliya, 2021; Lam and Yang, 2020; Jayasena et al., 2020; Lomoro
et al., 2020). It is therefore hypothesized that the following value for money factors improve
PPP in smart infrastructure projects (Table 1).
3. Methodology
Survey item scores are a common source of input to the analysis for SEM as they provide a
covariance matrix of measurable variables (Manhas et al., 2013). Out of the 326 distributed
questionnaires, 90 qualifying questionnaires were returned from PPP specialists with
varying exposure to smart infrastructure initiatives in the UAE and the UK, to ensure a
Factor code Factor Sources
Public–private
partnerships
VM1 Clear output specification for measuring Malek and Gundaliya (2021) projects
performance Lam and Yang (2020)
VM2 Competitive and transparent bid process and Jayasena et al. (2020)
operations Lomoro et al. (2020)
VM3 Early service delivery and efficiency drive Osei-Kyei and Chan (2015)
VM4 Efficient dispute resolutions Chou and Pramudawardhani (2015)
VM5 Quality of life and the growth of social, technical Robert et al. (2014)
and economic aspects Hwang et al. (2013)
VM6 Appropriate capital structure and collaterals Ismail (2013)
VM7 Improved facilities to the users Henjewele et al. (2011)
VM8 Optimized risk allocation and business models Cheung (2009)
VM9 Improved and integrated services to the Akintoye et al. (2003)
community Li et al. (2005)
VM10 Multi-benefit objectives of all stakeholders
VM11 Incentives for private party
VM12 Economic sustainability
VM13 Low tariffs Table 1.
VM14 Smart asset management Identification of the
VM15 Diffusion of smart technologies value for money
VM16 Technical innovation factors
diverse input. For SEM analysis, a minimum sample size of 50 and a maximum sample size
of 100 can be adequate to provide reliable results (Hair et al., 2010; Molwus et al., 2013).
Purposive sampling was used were practice groups participated via an online five-point
Likert scale questionnaire to measure the significance of the modified 16 value for money
factors for smart infrastructure projects. 52.2% of respondents were from the private sector,
29.3 from the public sector and 18.5% of the respondents identified themselves as
researchers. As for the organizational level, 30.4% of the respondents identified themselves
as top managers, 47.8 as middle managers and 21.8% as general staff. As for the experience,
8.7% had under 6 years of experience, 22.8% had between 6 and 10 years, 48.9% between 11
and 20 years and 19.6% had above 21 years of experience.
The principal component analysis demonstrated the presence of more than one factor in
each group, indicating that data commonality was not an issue (Hair et al., 2010). Cronbach’s
alpha coefficient for the measured variables was 0.904. Cronbach’s alpha is a widely used
test that accurately measures the internal consistency of a study’s measurement set,
showing a high degree of reliability (Hair et al., 2010).
To check the suitability of the data, Kaiser–Meyer–Olkin (KMO) and Bartlett’s test of
sphericity were used. The value of KMO indicates if the data is suitable for factor analysis.
The KMO index should be between 0.5 and 1.0 to be considered suitable Brace et al. (2012).
The value for the KMO measure of sampling adequacy was 0.824, which suggested that the
sample is factorable (Brace et al., 2012). Bartlett’s Test of Sphericity was large (Chi-Square =
786.1, significance = 0.000), indicating it is unlikely that the correlation is an identity matrix,
confirming that there is no need to eliminate any factor (Brace et al., 2012).
Exploratory factor analysis (EFA) is essential for establishing the number of latent
variables that can be obtained from the theoretically established measurement items, which
should reflect the conceptual model the study is attempting to validate (Hair et al., 2010). To
establish the EFA, the data was analyzed by means of principal component analysis, where
factor grouping through a Varimax rotation was conducted to establish the total variance
CI explained by each factor. When the Eigenvalue was set to be greater than one, five factors
were found sufficient to represent the value for money factors for considering PPP methods
in smart infrastructure projects (Brace et al., 2012).
Structural equation modeling is a technique that allows researchers to examine the
theoretical propositions about the many ways that the study constructs are linked. It
also allows for establishing the relationships and the direction of such relationships of
any latent variable, which are improved iteratively to arrive at the best fit model
through establishing many decision indices (Russell et al., 2011). Confirmatory factor
analysis (CFA) is used to assist in developing a measurement model that is based on the
theoretical exploratory factor analysis Matsunaga (2010). Another criterion is to check
if the obtained population covariance is equal to the implied one. This is the Chi-
squared ( x 2) test and the model fit should yield an insignificant value at 0.05 (Moss,
2016). The acceptable ratio for this test when divided by the degree of freedom varies,
but generally a value under 3.0 is considered desirable (Ullman, 2001). Root mean
square error of approximation (RMSEA) is another model fit test, where the null
hypothesis of the baseline in constantly evaluated under common situations. For the
best model, the lower limit value should be close to 0, while the upper limit should not
exceed 0.08 in general (McQuitty, 2004).
Comparative fit index (CFI) is another index that can be used to compare the sample
covariance matrix with the obtained null model. An acceptable fit model will have a cut-
off CFI of 0.90 (Bentler, 2007). Finally, the last index that will be used in this study is
Tucker–Lewis Index (TLI) this index in a non-normed fit index introduced by Tucker
and Lewis in 1973. The value should be between 0 and 1, the lower the value the less
acceptable will be the model (Bentler, 2007). The EFA analysis yielded five new latent
clusters (Table 2). Two items loaded on the first cluster, VM1-Clear output specification
and capability of measuring performance and VM2-Competitive and transparent bid
process and operations.
Two items loaded on cluster two, VM12-Low life-cycle cost and economic sustainability
and VM7-Improved facilities to the users. Three items on cluster three, VM3-Early service
delivery and efficiency drive, VM4-Efficient dispute resolutions and VM5-Quality of life and
the growth of social, technical and economic aspects. Two items on cluster four, VM14-
Optimization of assets efficiency and connectivity to smart functions and VM16-Technical
innovation.
And finally, two items on cluster five, VM10-Incentives for private party and VM11-
Long-term engagement and knowledge management. Items VM6-Appropriate capital
VM2 / 1 1.000
VM1/ 1 1.242 0.205 6.063 0.000
VM12 / 2 1.000
VM7 / 2 0.783 0.159 4.932 0.000
Table 2. VM5 / 3 1.000
VM3 / 3 1.153 0.208 5.541 0.000
Standardized
VM4 / 3 1.255 0.209 6.007 0.000
regression weights of VM16 / 4 1.000
the best fitting VM14 / 4 1.155 0.174 6.642 0.000
measurement model VM10 / 5 1.000
for VFM VM11 / 5 1.545 0.359 4.301 0.000
structure and the availability of assets and finance, VM8-Optimized risk allocation and Public–private
business models, VM9-Improved services to the community and integration with other partnerships
smart services, VM13-Low tariffs and VM15-Private sector’s expertise and diffusion of
smart technologies did not load successfully on any cluster; however, they will not be
projects
eliminated yet and will be checked again if they have any significance on the model fit
through the CFA analysis.
In the new model (Table 3), the minimum was achieved where Chi-square was
insignificant at 0.185 with a value of 40.08 (degrees of freedom = 33), which indicated that
the model has a good fit. The model suggested significant regression paths as shown in
Figure 1.
However, RMSEA is greater than the threshold of 0.08. The model suggested possible
improvement regression relationships of VM3-Early service delivery and efficiency drive
with VM14-Optimization of assets efficiency and connectivity to smart functions and VM16-
Technical innovation. Furthermore, a regression between VM16 and latent 3 (Growth and
efficiency). The model is further modified to improve the indices all the while keeping
theoretical sense to achieve the objectives of the study.
A final model was produced with three latent variables (Figure 2) that were sufficient to
explain the variance by replacing and deleting some of the measures to achieve the best fit
model.
The final model (Table 4) had a TLI = 0.969, CFI = 0.981 and RMSEA = 0.049. At the
current state and to maintain the theoretical objectives of the study, it can be concluded that
the model fit of the confirmatory factor analysis for the modified model of PPP value for
money factors is acceptable, as it successfully meets the cut-off values.
The modified latent clusters consisted of the following measures: Cluster one (VM1-
Clear output specification and capability of measuring performance, VM4-Efficient
dispute resolutions, VM8-Optimized risk allocation and business models, VM9-
Improved services to the community and integration with other smart services and
VM12-Low life-cycle cost and economic sustainability. Cluster two: (VM6-Appropriate
capital structure and the availability of assets and finance, VM14-Optimization of
assets efficiency and connectivity to smart functions, VM15-Private sector’s expertise
and diffusion of smart technologies and VM16-Technical innovation. And Cluster three
(VM10-Incentives for private party and VM11-Long-term engagement and knowledge
management).
Figure 1.
Conceptual
measurement model
for value for money
factors
(Gottschalk and Solli-Sæther, 2005). Transaction costs arise because complete contracting is
sometimes impossible and partial contracts need recurrent renegotiations when the power
balance between the transacting parties shifts (Gottschalk and Solli-Sæther, 2005). Agency
theory is concerned with two difficulties that may emerge during agency interactions. The
first is the agency problem, which happens when the principal’s and agent’s objectives or
goals clash. The second problem is risk sharing, which happens when the risk preferences of
the principal and agent differ (Eisenhardt, 1989).
Clear output specification for measuring performance. To add to the value for money
goals of a PPP project, it is critical for the safe execution of long-term projects, such as
PPPs, to provide consistent output specifications for calculating efficiency, rather than
only inputs, as inputs are expected to change over the long lifespan of the y project
(Lam and Yang, 2020). For the economic sustainability of the project, performance
Public–private
partnerships
projects
Figure 2.
Improved fit model
for the value for
money factors
measures need to be undertaken to ensure the long-term viability and to incentivize the
contractor for quality services. This is in line with recommendations of Liu et al. (2014).
A structured approach to coping with dispute resolutions variations reduces the
likelihood of disagreements and lays the groundwork for renegotiations.
Renegotiations are the most effective way to cope with input changes for long-term
initiatives such as smart infrastructure projects to guarantee their longevity Malek and
Gundaliya (2021). Optimized risk allocation is often essential in the private party’s
commitment. Risk should be assigned to the party most suited to manage it. The public
party should not transfer any risks that the private party is not interested in handling.
If all risks are assigned to the appropriate party, less unforeseen events from the
CI already complex smart cities and infrastructure projects may be anticipated and the
private party can commit more to the project because they will feel protected from
hazards that do not belong to them. This is in line with current studies supporting the
importance of optimizing the risk allocation for the economic sustainability of the
project (Malek and Gundaliya, 2021; Lomoro et al., 2020). Improved and integrated
services to the community will be obtained by giving the private sector a buffer to
implement emerging innovations and creative growth concepts that are the
underpinning requirements for smart cities, where efficiency in development costs is
often expected. As a result, the community would benefit from improved amenities as
well as lower tariffs and utility costs for accessing those facilities and services
(Almarri, 2021; Jayasena et al., 2020). As for the economic sustainability, the value for
money gained by project sustainability is even more realistic due to the low life-cycle
cost advantage achieved through PPP models. The convergence of all production
processes, including planning, construction, management, maintenance, financing and
so on, helps reduce waste and best use resources, resulting in better value for money.
(Jayasena et al., 2020; Lomoro et al., 2020).
The second latent variable that emerged from the SEM analysis was named optimization
and smart technologies included four factors: appropriate capital structure and collaterals,
smart asset management, diffusion of smart technologies and technical innovation. There
was an obvious influence of the innovation diffusion theory in modifying this cluster, which
focuses on the study of how, why and at what rate innovative ideas and technologies spread
in a social system (Wani and Ali, 2015).
Appropriate capital structure and collaterals often provide a plethora of public
gains, as the most sustainable capital structure leads to the lowest investment
expense, which determines the public service charges. There are all advantages that
end users see as good value for money when it comes to using PPP models Lam and
Yang (2020). By giving the private party flexibility in introducing the most viable
solutions for structuring the project’s finances and offering them access to viable
collaterals and financial institutions, the most cost competitive project can be
accomplished with the state of art technology for achieving financial equilibrium,
resulting in the introduction of new technologies and techniques for the public sector
to adopt for future smart infrastructure projects. This is in line with the findings of
Weber and Wilhelm Alfen (2010). The value for money in the form of financial
efficiency is expected to be achieved by optimizing asset efficiency, and this would
entail leveraging technologies to better manage the assets, where the optimal use of all
assets to produce the best value for the project will be a priority. The activities will
often involve the asset’s alignment with other properties, as well as preventive and
corrective maintenance steps to ensure the asset’s sustainability (Malek and
Gundaliya, 2021). As for the diffusion of smart technologies, the application of new
technologies by the contractor to reduce cost, improve quality and minimize risk, e.g.
using robotics and automation and how they influence the sustainability of the project,
will become at the disposal of the public sector to use in the future in their efforts for
expanding their smart cities (Hoeft et al., 2021). Technical innovation via the use of
cutting-edge concepts and goods is projected to greatly add to the project’s long-term
viability. Such principles and products can be incorporated into the project’s processes
and operations, optimizing resource utilization and reducing redundancy while
improving the end product and providing the highest value for money spent (Lam and
Yang, 2020).
The third latent variable for assessing the viability of the PPP model was named Public–private
integration drive and consisted of two factors, incentives for private party and long-term partnerships
knowledge management. The model developed in this study emphasized the interaction and
effect of the partnership theory and the relational exchange theory (Lambe et al., 2002).
projects
Partnership has frequently been cited as an important aspect of project outsourcing.
Partnership can reduce the risk of insufficient contractual provisions, which can be
reassuring and attractive to parties contemplating outsourcing as a complex and expensive
activity (Lambe et al., 2002). Relational norms also serve as the foundation for relational
exchange theory. According to this viewpoint, the key to evaluating how well contract
governance is carried out is in the relational norms between the transactors (Gottschalk and
Solli-Sæther, 2005).
As private parties are given incentives to participate in projects, the financial
efficiency of the PPP project improves. Incentives may include tying returns to
performance, improved risk sharing, subsidies, off-take agreements, guarantees and so
on. Further incentives may be awarded for the integration with other projects and
services within the government’s smart cities initiatives. These steps are expected to
maximize the private party’s performance, the government’s gains and inching closer
to a smarter infrastructure (Hoeft et al., 2021; Lam and Yang, 2020). And the other factor
for the integration drive variable was long-term knowledge management. If the private
party is able to use their accumulated knowledge and skills in executing the project,
where prior insights and exposure to the latest technologies can be used for project
completion, value for money can be achieved in the context of time and financial
performance. Furthermore, the contractor’s digitization process to analyze and enhance
the users’ experience by employing state of the art sensors and robotics, data mining,
expert systems and connectivity media, will allow unprecedented knowledge transfer
to the public sector. It will also allow for the integration of the project with others
within the government’s portfolio of smart cities and infrastructure, in addition to the
adoption of the contractor’s new innovations (Lam and Yang, 2020; Jayasena et al.,
2020).
5. Conclusion
Despite the fact that VFM factors provided evidence of their benefits in improving the
assessment of PPP procurements, previous research did not identify the VFM aspects that
are suitable for smart infrastructure procurements, as well as investigate the influence of
their interrelationships.
PPPs are important to address the financial issues that come with infrastructure projects,
as well as to ensure that these projects achieve their economic and social goals. The purpose
of this study was to identify the VFM elements for the success of PPPs in smart
infrastructure projects and explore their interrelationships so that decision-makers may
assess whether a PPP is the best option for acquiring a project in their endeavor to scale up
smart infrastructure projects.
For this endeavor, this study followed a three-tiered approach, identifying VFM
factors for smart infrastructure projects based on an extensive literature review, data
collection using a Likert scale questionnaire and identifying the most significant
factors and estimating interrelationships among them using SEM. The SEM approach
confirms hypothesized relationships on a theoretical level. Eleven VFM factors for
smart infrastructure projects were identified (Clear output specification for measuring
performance, efficient dispute resolutions, optimized risk allocation and business
models, improved and integrated services to the community, economic sustainability,
CI appropriate capital structure and collaterals, smart asset management, diffusion of
smart technologies, technical innovation, incentives for private party, long-term
knowledge management) and three interrelated clusters (economic sustainability,
integration drive, optimization and smart technologies). The model developed depicted
the causal interrelationships among the value for money components, which may
assist better assess the procurement method’s capacity of satisfying the public client’s
aims and fulfilling the desires of the greater population. This work fills a research gap
and contributes significantly to academic literature, with a focus on PPP in smart
cities.
The structure and relationships of the theorized clusters show that numerous theories
were evaluated and merged in a creative way to improve the value for money clusters. The
theory of core competencies, the resource-based theory, the transaction cost theory, the
contractual theory, the partnership and alliance theory and the agency theory are some of
the theories (Gottschalk and Solli-Sæther, 2005; Almarri and Gardiner, 2014). None of the
current PPP studies have prioritized the categorization of value for money elements,
especially for the types of smart infrastructure projects under consideration. The purpose of
the study was to contribute to the theoretical literature through empirical analysis of
primary data. The researcher found from a survey of the literature that there is a gap in the
literature on the relationship between the PPP value for money elements for smart
infrastructure projects, the correlation of such factors and the relationships between their
clusters. This study adds to the theoretical knowledge of the aforementioned theories by
increasing their contribution in a novel way through the construction of the underlying
clusters and interrelationships. The importance of specific factors and their clusters in
boosting PPP outcomes in smart infrastructure programs was emphasized in this study.
The study generated updated value for money factors and discovered that some have grown
in importance since they not only contribute to greater success but also have a significant
impact on other factors.
This research has resulted in a useful and readily applicable list of factors and clusters of
value for money criteria for the implementation of PPP in smart infrastructure projects,
assisting public sector management by providing a measure of pre-conditions that can be
used as an assessment tool when determining whether a PPP should be used instead of
conventional methods. As a result, it assists in overcoming the issues connected with
resource allocation and meeting the bare minimum needs prior to committing to the PPP
method. When building a PPP in smart infrastructure projects, public sector managers are
encouraged to gain more information, particularly if they become aware of how a group of
factors may have greater value when weighed collectively.
This study contributes to the body of knowledge about public-sector PPP by
opening up new research possibilities for future studies. It provides a clear
methodology that is directly drawn from the need to develop new value for money
criteria that are highly adaptable for smart infrastructure projects. The updated 16
value for money factors established in this study can be used in any future study
dealing with PPP in smart cities.
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Corresponding author
Khalid Almarri can be contacted at: khalid.almarri@buid.ac.ae
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