Performance indicators for public private partnership (PPP) projects in Malaysia

Rosnani Mohamad (International Islamic University Malaysia, Kuala Lumpur, Malaysia)
Suhaiza Ismail (Department of Accounting, International Islamic University Malaysia, Kuala Lumpur, Malaysia)
Julia Mohd Said (Accounting, International Islamic University Malaysia, Kuala Lumpur, Malaysia)

Journal of Economic and Administrative Sciences

ISSN: 1026-4116

Publication date: 2 July 2018

Abstract

Purpose

The purpose of this paper is twofold: first, to identify the important performance indicators used in assessing public private partnership (PPP) performance in terms of the two aspects of PPP which are “financing and markets” and “innovation and learnings”; and second, to investigate the differences in the perception between public and private sectors on the importance of performance indicators in terms of the two aspects of PPP.

Design/methodology/approach

Using a questionnaire survey, 237 completed questionnaires were received representing 51.52 per cent response rate. In examining the importance of performance indicators, the descriptive statistical tests of mean, standard deviation and mean score ranking were used. The independent t-tests were conducted to investigate the differences in the perceptions between the two respondents’ groups on the importance of performance indicators.

Findings

In relation to the two areas of indicators used in assessing PPP performance, the findings show that the top three important performance indicators for financing and markets are: “Operational cost”, “Construction cost” and “Construction period”. While the top three important performance indicators for innovation and learning are: “Technology innovation”, “Employee training” and “Financial innovation”. In terms of the differences in the perceptions between the public and private sector groups, the test results indicate that there is only one significant statistical difference for each aspect of performance indicators.

Originality/value

This study offers empirical evidence on key financial performance indicators for PPP projects as perceived by two key parties in a PPP contract that are public and private sectors.

Keywords

Citation

Mohamad, R., Ismail, S. and Mohd Said, J. (2018), "Performance indicators for public private partnership (PPP) projects in Malaysia", Journal of Economic and Administrative Sciences, Vol. 34 No. 2, pp. 137-152. https://doi.org/10.1108/JEAS-04-2017-0018

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Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited


1. Introduction

The public private partnership (PPP) has been used worldwide as a mechanism for the public sector to procure public facilities and services. Since the introduction of PPP under the term private finance initiative (PFI) by the Conservative Government in the UK in 1992, the scheme has been adopted by many other countries including France, China, India, Singapore, Thailand and also Malaysia. However, the characteristics and structure of the PPP are unique to each individual adopting country (Ismail, 2014). More importantly, different countries have different justifications and objectives for adopting the PPP scheme (Winch et al., 2012).

In Malaysia, the official introduction of the PPP under the Ninth Malaysia Plan in 2006 had the main objective of encouraging the greater involvement of the private sector in providing infrastructure facilities and public services by streamlining the existing Privatisation Policy (Ninth Malaysia Plan, 2006; PPP Guidelines, 2009). Although the Privatisation Policy, which was first introduced in 1983, was reported to be successful and received a positive response from stakeholders, contentious issues regarding the implementation of the Privatisation Policy led to the unveiling of the PPP initiative in 2006 (Ninth Malaysia Plan, 2006; Tenth Malaysia Plan, 2011; Ismail, 2012). As the PPP initiative is a continuation of the Privatisation Policy, the ultimate justifications for adopting it are similar to the objectives of privatisation, to improve the performance of the public sector in delivering public facilities and services through the participation of the private sector and to reduce government expenditure on providing public services (Ninth Malaysia Plan, 2006; Takim et al., 2009).

However, after several years of PPP implementation in Malaysia, several weaknesses in the implementation of government projects were highlighted in the 2012 Auditor General’s Report, (National Audit Department, 2012). In particular, one of the issues raised was the lack of planning, monitoring and performance evaluation of PPP projects which resulted in negative impacts on projects, such as project delay, low quality output and inefficient use of resources. The report states:

[…] the weaknesses observed include improper payments, works/supplies did not adhere the specifications or of inferior quality, unreasonable delays, wastages and weaknesses in the management of revenue and assets. These weaknesses were caused by negligence in complying with Government regulations and procedures; lack of meticulous planning on projects/activities and in determining the scope and specification of tenders; lack of close and effective monitoring on works of contractors/consultants/suppliers; lack of […].

(National Audit Department, 2012, p. 10)

Another related issue addressed in the Auditor General’s Report (2012) in relation to PPP procurement and implementation was the lack of enforcement of performance-based payment in repaying the private sector consortium upon completion of the construction of PPP projects. In sum, the issues addressed in the Auditor General’s Report (2012) pertaining to PPP project implementation concern a lack of proper planning and insufficient performance monitoring.

Even though there is a PPP Guidelines issued by the Public Private Partnership Unit or Unit Kerjasama Awam Swasta (UKAS), the guideline only provides a general mechanism to evaluate PPP projects to ensure the achievement of value for money (VFM). This is a critical issue as emphasised by Jones (2013), who states that an appropriate mechanism is needed to monitor the performance of the project as inadequate monitoring and evaluation may result in negative consequences to a project.

Key performance indicators (KPIs) constitute one of the commonly used mechanisms to measure achievement or performance (Yuan et al., 2009). Applying management processes in the context of the PPP, when the objectives for PPP implementation have been formulated, it is essential to monitor the extent to which the objectives are achieved by using relevant indicators (McWatters et al., 2008). Moreover, the private sector providers and the government are the two key players in a PPP arrangement. Therefore, to ensure the successful implementation of a PPP project, it is crucial to explore the differences in the performance indicators used to evaluate the PPP achievement between the private sector and the public sector. In essence, this paper aims to achieve two objectives. First objective is to identify the importance of performance indicators for two aspects of PPP implementation, which are financing and markets, and innovation and learnings. Second objective is to investigate the differences in the perception of the public and private sectors of the importance of the performance indicators in terms of the two aspects.

This study is significant as it is expected to contribute in a number of ways. First, it contributes to the existing literature on performance measurement particularly in the context of the PPP in a developing country, namely, Malaysia. Second, the findings of the study can provide inputs to assist the relevant government authorities such as UKAS with respect to improving the existing PPP guidelines, which could help to ensure the achievement of PPP objectives through the effective monitoring of relevant performance indicators. Third, identifying the performance indicators that are perceived by the public and the private sectors as important will assist in preparing both of these key stakeholders to have a better and common understanding concerning the PPP project performance indicators used to assess PPP project performance, which should lead to better decision making. The remainder part of the paper is structured as follows: review of previous literatures is provided in Section 2, followed by the research methodology employed in Section 3. Section 4 describes the findings and discussion and the paper is concluded in Section 5 with implications, limitations and suggestions for future research.

2. Literature review

Prior studies on performance of PPP have focused on the various performance measurement mechanisms used in evaluating PPP projects (see Colman, 2000; Froud and Shaoul, 2001; English, 2007; Pollock et al., 2007; Coulson, 2008; Garvin and Bosso, 2008; Morallos and Amekudzi, 2008; Marty et al., 2005). Froud and Shaoul (2001) carried out a study on the appraisal procedures used for evaluating VFM and the affordability of a PPP option. The study found trivial problems with the appraisal mechanism used at that time. Likewise, Colman (2000) and Coulson (2008) closely examined the UK treasury guidelines for assessing the VFM of PFI proposals and projects. Coulson (2008) commented on the quantitative elements of the public sector comparator (PSC) including risk transfer, transaction costs, imputed lifecycle and discounted cash flows and he concluded that in reality PPP may not always give better VFM. Adding on to the similar area of works, Morallos and Amekudzi (2008) rigorously evaluated the VFM assessment adopted by various countries including the UK, Australia and Canada and based on the information gathered from the evaluation, the authors offered guidelines for future use of the VFM mechanism.

Furthermore, in improving the performance evaluation of PPP projects, Garvin and Bosso (2008) proposed a framework to assess the effectiveness of PPP projects taking into account various factors including the interests of society, the state, industry and the market. Moreover, PPP performance audit mechanism and procedures, particularly in Australia, were examined by English (2007). Concerning the VFM of PPP projects, there is no one study which found conclusive evidence that PPP has offered better VFM. For instance, Ball et al. (2007) analysed VFM based on evidence reported in the government official reports and concluded that there is no evidence of VFM from PPP projects. Similarly, perception studies by Ismail and Pendlebury (2006) and Demirag and Khadaroo (2008) on the VFM of operating PPP schools in the UK claimed to have found inconclusive evidence pertaining to VFM achievement. Hurst and Reeves (2004) even failed to produce any evidence on VFM due to insufficient information on PPP.

In further improving the mechanism to measure the performance of PPP projects, KPIs have been identified by several researchers to be useful. Yuan et al. (2008) investigated the characteristics of PPPs and identified the KPIs for assessing project performance. The KPIs are identified by using an established conceptual model for the performance indicator system and the identification of the KPIs of PPP projects. The identified KPIs are categorised into five components: (1) physical characteristics of projects, (2) financing and marketing indicators, (3) innovation and learning indicators, (4) stakeholder indicators, and (5) process indicators.

In a related study, Yuan et al. (2009) conducted research on the selection of KPIs for PPP projects to develop a KPI framework for assessing the performance of PPP projects. The developed framework is based on a conceptual model and hypothesised relationship that consists of five components: (1) physical characteristics of projects, (2) the requirements of stakeholders regarding finance and markets, (3) the requirements of stakeholders regarding innovation and learnings, (4) stakeholders, and (5) project process. The first component, which consists of 15 KPIs, is considered as the input of the projects and influences the performance of the projects in the initialisation or planning stage. The second, third and fourth components consist of nine, six and four KPIs, respectively, and are grouped into one package, namely, the requirements of stakeholders, which reflects the specific requirements of stakeholders in terms of economy, innovation, culture and the benefit to stakeholders. The last component consists of 14 KPIs that may affect the process of the PPP project.

To explore the perception of PPP stakeholders, Yuan et al. (2012) conducted a structured questionnaire survey based on the framework developed in Yuan et al. (2009). The results show that all the 48 performance indicators are perceived as important by the respondents. For the first component, the respondents perceive “commitment and responsibility between public and private sector” as the most important indicator, while “appropriate risk allocation, risk sharing and risk transfer”, “concessionaire’s knowledge of PPPs”, “government’s knowledge of PPPs” and “project technical feasibility, constructability and maintainability” are ranked second, third, fourth and fifth, respectively. The “type of construction” indicator is ranked last by the respondents.

As for the second component, the finance and markets indicator, the top five most important indicators as perceived by all the respondents are “sound financial analysis”, “sustainable profitability”, “construction and concession period”, “financial ability of whole shareholders” and “perfect tariff/tolls or price adjustment mechanism for the project”, while “insurance coverage” is ranked as the least important. For the third component, all respondents rank “financial innovation”, “technology innovation” and “employee training” as the top three most important indicators and “establishment of learning organisation” as the least important indicator.

Based on the survey, the most important indicators for the stakeholders component are “general public/social satisfaction”, “good relationships within project team”, “public client’s satisfaction” and lastly, “good relationship among the concessionaire, subcontractors and suppliers”. For the last component, project process, all respondents perceive the most important indicator to be “good governance”. The other important indicators for project process are “high-quality control”, “cost management”, “time management” and “safety management”, while “contract management” is ranked as the least important indicator by the respondents. A confirmatory factor analysis was used to consolidate the 48 indicators and it identified only 41 performance indicators that could be used as performance indicators for PPP projects. The results of the analysis indicate that the performance of a PPP project is strongly influenced by reasonable procurement, design and planning in the public sector, effective process control in the private sector, and the ultimate satisfaction of both sectors.

A most recent study by Mohamad et al. sought the perception of the government and private sector companies involved in PPP on the importance of performance objectives of PPP projects in Malaysia. The study discovered that the five most important performance objectives for PPP implementation in Malaysia based on all respondents’ perceptions are “High-quality public service”, “Provide convenient service for society”, “Within or under budget”, “On-time or earlier” and “Satisfy the need for more public facilities”.

The review of literatures reveals that there is scant research on identifying the perception of stakeholders of the performance indicators for PPP in the context of Malaysia as the focus of the study by Mohamad et al. is on performance objective of PPP in general and not specifically on performance indicators. Moreover, as PPP characteristics and performance is unique to individual country, thus, the aim of this study is to fill this gap in the literature by evaluating the important KPI for PPP implementation in Malaysia.

3. Research method

To achieve the objectives of the current study, a questionnaire survey method is used to gather the perceptions of the public and private sectors concerning the performance indicators for PPP projects in Malaysia. Particularly, the study adopted with permission the questionnaire developed by Yuan et al. (2010). The Part A of the questionnaire seeks information on the background of the respondents while the Part B consists of performance indicators of PPP projects. However, several modifications were made to the original instrument to better suit the context of the PPP in Malaysia. The modifications were made to the demographic part and the list of KPIs (Part B). In the demographic part (Part A), a modification was made to clearly represent the nature of both sectors – public and private, and the respondents’ experience of PPP in Malaysia.

In Part B, one indicator for financing and market, “construction and concession period” was split into two items, “construction period” and “concession period” since the respondents in the pilot study stated that this item represented two different indicators. This resulted in Part B having 12 indicators in the final questionnaire instead of 11 indicators in the original questionnaire. Part B is divided into two sub-components that seek to obtain information on the perception of respondents about performance indicators for PPP projects with respect to: financing and markets, and innovation and learnings. Respondents are given five levels of importance to choose from based on the following scale intervals: 1: unimportant; 2: of little importance; 3: moderately important; 4: important; and 5: extremely important. In addition, respondents are given an opportunity to make any suggestions and comments about other performance indicators that may be missing from the questionnaire that respondent perceives as important for the performance and success of PPP projects.

The finalised set of questionnaires were distributed to the respondents via postal mail. The target respondents for the current study are officers of government departments and private sector companies who may have been involved in PPP projects or who are familiar with the PPP scheme. Based on the information obtained from the UKAS, the monitoring body for PPP projects in Malaysia, 21 out of 24 ministries in Malaysia have implemented projects using the PPP scheme. A total of ten questionnaires were sent to each of the 21 ministries. In addition, ten questionnaires were also sent to each of the 14 state governments, specifically to the Economic Planning Unit of each state. As for the private sector companies, five questionnaires were sent to each one of 22 public listed construction companies that had indicated their interest in participating in the study. The data collection, which is inclusive of follow-ups with the representatives, took about two months. Table I provides a summary of the number of questionnaires distributed and the number of completed questionnaires received.

Data analysis

The data are analysed using the Statistical Package for the Social Sciences (SPSS) Software Version 17. For this study, the central tendency (mean) score and standard deviation for each objective and performance indicator were computed for the five-point Likert scales. Then, based on the mean scores, the factors were ranked according to their importance as perceived by all the respondents, as well as separately by the public sector respondents and private sector respondents. Furthermore, an independent samples t-test was conducted with regards to the differences in the perceptions of the public and private sectors regarding the importance of each performance indicator at the 10 per cent significance value (Table II).

4. Findings and discussion

Response rate and demographic profile of the respondents

The respondents of this study are from the public and private sectors, which are the two main parties in PPP projects. Out of 460 questionnaires distributed, 253 were returned, which represents a 55 per cent return rate. Of the total responses, 237 responses (51.52 per cent) were usable while 16 responses were excluded as they were incomplete. Table III provides information on the response rate which shows that a total of 172 responses were received from the public sector and 65 were received from the private sector. Out of 172 public sector responses, 152 responses were received from the federal level and 20 responses were from the state governments. Of the responses from the private sector, contractor respondents and facilities management respondents had the highest response rate, with 23 and 21 responses, respectively. These sectors represent almost half of the responses from the private sector.

Table IV presents the demographic information of the respondents in terms of work experience, involvement year and number of project involved. The table also shows respondents’ familiarity or not with the PPP scheme. Although the majority of the respondents (78.7 per cent) have less than five years’ work experience, 67.2 per cent of the respondents declared that they are familiar with the PPP scheme with over 50 per cent of the respondents claimed to have been involved in at least one PPP project. Therefore, to some extent, the respondents are credible in terms of being able to provide their perception of the subject of the current study.

Performance indicators for PPP

The following sub-sections present the findings on the important performance indicators and the differences in the perceptions of the public and private sectors on the importance the indicators for each of the two aspects of PPP performance that are “finance and market” and “innovation and learning”.

Performance indicators for finance and markets

Overall perception on the importance of the performance indicators

Table V shows the mean scores and the mean score ranking for the relative importance of 12 financing and market performance indicators as perceived by all respondents as well as separately by the public and private sector groups of respondents. The mean scores for the overall results range from 3.43 to 4.24, which indicates that, on average, the respondents are of the opinion that all the performance indicators are important. The top five performance indicators in terms of financing and markets as perceived by all respondents were “Operational cost”, “Construction cost”, “Construction period”, “Financial ability of contractor and investors” and “Concession period”. The least important indicator perceived by all respondents was “Increased marketability”.

“Operational cost” was ranked first as an important performance indicator for the financing and markets component of PPP by all respondents. The result was expected because, besides the construction cost, the “operational cost” represents a huge portion of the overall PPP cost. This is because out of the total PPP contractual period of 25-30 years, only the first 2-3 years are for construction, while the remaining 22-27 years are for operation. Throughout the operating period, the private sector is responsible for maintaining and operating the PPP facility or asset. On the other hand, the government is responsible for making regular payments to the private sector consortium for the facilities and services provided throughout the operation period (PPP Guidelines, 2009; Ismail, 2009; Takim et al., 2009). The second most important performance indicator as perceived by all respondents in relation to PPP financing and markets was “Construction cost”. This is because most PPP projects are large projects that involve a high construction cost. Therefore, the construction cost component is equally as important as the operation cost for a PPP project. The importance of this performance indicator is consistent with Ismail (2009), who found that the construction cost was the most preferred sub-component of the Economic sub-category.

“Construction period” was perceived by all respondents as the third most important performance indicator. This is an important performance indicator for the PPP financing and markets component because repayment to the private sector consortium is only made upon completion of the construction of the PPP assets or facilities (Takim et al., 2008., 2009; PPP Guidelines, 2009; Ismail, 2012). Moreover, a delay in the completion of the construction also leads to a severe penalty for the private sector consortium. This finding is consistent with Ismail (2009), who found that construction time is a preferred and well-accepted performance indicator among respondents because a delay or overrun in the construction period may result in an increase in costs.

The fourth ranked performance indicator for PPP financing and markets as perceived by all respondents was “Financial ability of contractor and investors”. The financial credibility of the contractor is important because PPP projects are huge projects with a large amount of capital value. In fact, in a PPP project the private sector consortium is responsible for financing the project as well as designing, constructing and maintaining the assets. The need to have a sound financial position is also emphasised in the PPP Guidelines. (2009) in relation to the criteria for selecting the private sector provider; the company should have paid up capital to be at least 10 per cent of the project value (PPP Guidelines, 2009). The importance of this performance indicator is also in line with Ismail (2013a), who found that the capability of the private sector to finance a PPP project through flexible and attractive financial instruments is one of the most critical factors for PPP project success.

The lowest ranking performance indicator for financing and markets as perceived by all respondents was “Increased marketability”. This performance indicator is related to the ability of the entities to optimise the cash flow of PPP projects and improve marketability, to overcome and deal with financial issues faced by the Special Purpose Vehicle (Yuan et al., 2008, 2012). The result is consistent with Yuan et al. (2012), who also found this performance indicator is not viewed as important.

Differences in the perceptions of the public and private sectors

As illustrated in Table V, both sectors perceived all the 12 performance indicators of financing and markets as “important” with the mean scores for the public sector ranging from 3.60 to 4.63 for the public sector and from 3.32 to 4.00 for the private sector. Moreover, the public sector respondents perceived all the performance indicators as more important than did the private sector respondents. This is evidenced by the higher mean scores for each indicator in the public sector group. The top five performance indicators as ranked by the public sector were “Operational cost”, “Construction cost”, “Construction period”, “Financial ability of contractor and investors” and “Concession period”.

As for the private sector respondents, they ranked “Operational cost” as the most important performance indicator, followed by “Sustainability profitability”, “Financial ability of contractor and investors”, “Construction cost” and “Realistic schedule of investment, revenue”. However, both sectors ranked “Increased marketability” as the least important performance indicator. “Sustainability profitability” was ranked ninth by the public sector respondents, but the private sector group ranked it as the second most important performance indicator for the financing and markets component. It is likely that the private sector perceived it as a more important performance indicator because private sector companies are profit-oriented and therefore profitability is one of the fundamental performance measures besides other measures such as share values.

To further investigate the differences between the two groups of respondents in terms of the perceived importance of the performance indicators for financing and markets, an independent t-test was conducted. Table VI provides the results of an independent t-test on the performance indicators for PPP financing and markets. Based on the results, the difference in terms of importance as perceived by the two groups of respondents was statistically significant for only one of the performance indicators.

The result that the public sector group perceived “construction period” as significantly more important than the private sector is expected. This is because one of the justifications for the government to engage private sector in delivering public facilities via PPP is to overcome the issue of delay in completion of government projects under the traditional procurement (Abdul Aziz and Kassim, 2011). Moreover, the public sector has the primary responsibility to provide infrastructure to the public within a stipulated period of time, hence fulfilling such responsibility is of utmost importance for good governance and political edge. However, the less rating of this indicator by the private sector was unexpected because repayment to the private sector consortium is only made upon completion of the construction of the PPP projects (PPP Guidelines, 2009).

Performance indicators for innovation and learnings

Overall perception on the importance of the performance indicators

Table VII depicts the mean scores and the mean score ranking of the relative importance of each of the performance indicators related to the innovation and learnings component of PPP as perceived by all respondents and by each group of respondents. Based on the mean scores, all six indicators were perceived by all respondents as important because the mean scores range from 3.91 to 4.10. The top three performance indicators for innovation and learnings in descending order of preference were “Technology innovation”, “Employee training” and “Financial innovation”. The least important performance indicator was “Investment in research and development of new technology”. The “Technology innovation” performance indicator was ranked first by all respondents. Innovation in technology, design, construction and operation is an important feature of a PPP project. According to the study by Ismail (2013b), innovation introduced by a private sector consortium in a PPP project is one of the fundamental VFM drivers. In other words, the greater the innovation introduced in a PPP project, the greater the VFM from the project. The result is consistent with Yuan et al. (2012), who found that this performance indicator is among the most important indicators in relation to innovation and learnings in PPP.

“Employee training” was the second most important performance indicator as perceived by all respondents. Staff as the main resource in an organisation should be given continuous training and learning opportunities to gain new knowledge, information and skills to improve individual performance as well as organisational performance (Yuan et al., 2008., 2009). Furthermore, because PPP projects are complex and require new skills and support services, intensive and appropriate training is fundamental to enhance the competency of public sector officers, especially in monitoring PPP projects (Ninth Malaysia Plan, 2006). However, the result is inconsistent with Yuan et al. (2012), who found that this performance indicator is viewed as less important.

The third most important indicator for innovation and learnings in relation to PPP projects in Malaysia as perceived by all respondents was “Financial innovation”. Financial innovation refers to the advances over time in the financial instruments and payment systems used in the lending and borrowing of funds. It is a fundamental aspect of PPP implementation as PPP projects are mostly huge, high-cost projects. Therefore, having other options for financing PPP projects is crucial to ensure the sustainability of the PPP scheme in Malaysia. The result is in line with the finding in Yuan et al. (2012). Of the six performance indicators, “Investment in research and development of new technology”, with a mean value of 3.91, was ranked last by all respondents. A possible reason for this result might be that investment in the research and development of new technology involves a huge amount of funds and a longer period to accomplish. Furthermore, the output is still at the experimental stage and the efficiency of the new technology has not been tested. The result contradicts that in Yuan et al. (2012), who found that the “Establishment of learning organisation” indicator is the least important performance indicator.

Differences in the perceptions of the public and private sectors

Based on the mean score results illustrated in Table VII, both sectors (public and private sectors) perceived all six performance indicators as important. In addition, the public sector respondents perceived all the indicators as more important than the private sector respondents. This is evidenced by the higher mean scores of each indicator in the public sector group. The public sector group ranked “Technology innovation” and “Technology transfer:” as the first and second most important performance indicators, respectively, of the innovation and learnings component, while the third most important indicator was “Employee training”. As for the least important performance indicator, the public sector respondents ranked “Investment in research and development of new technology” last.

In the case of the private sector, the group also ranked “Technology innovation” as the most important performance indicator of the innovation and learnings component, while they ranked “Financial innovation” and “Employee training” as the second and third most important indicators, respectively. As for the last ranked performance indicator, the private sector respondents perceived “Establishment of learning organisation” as the least important. Based on the mean score ranking results, there is not much difference between the two groups in terms of their rankings of all the performance indicators for innovation and learnings, except for “Technology transfer” where the public sector respondents ranked it higher (second) than the private sector group (fifth). The result was expected because the idea of a having PPP scheme is to take advantage of the greater capability of the private sector in delivering a high technology project (Akintoye et al., 2003; Li et al., 2005; Ismail, 2013b). In other words, the spirit behind having private sector involvement in development projects via a PPP is for the public sector to learn and gain the benefit from private sector expertise such as through technology transfer.

To further scrutinise the differences between the two groups of respondents in terms of the perceived importance of the performance indicators for innovation and learnings, an independent t-test was conducted. The results in Table VIII show that there is no significant difference in the perceptions of the public and private sectors pertaining to the indicators of innovation and learnings for the PPP scheme at the 1 per cent significance level except for one indicator with marginally significant, i.e. “Investment in research and development of new technology”.

The result that the public sector group perceived “Investment in research and development of new technology” significantly more important than the private sector is commensurate with the recent emphasis that has been placed on research and development by the Malaysian government, which has allocated a significant budget for that purpose. In the 2013 budget, the Malaysian government allocated RM600 million to five research universities to do high-impact research on strategic aspects such as nano-technology, bio-technology and aerospace (Mohd Najib, 2012). In addition, the Government introduced the Research Incentive Scheme for Enterprise in the 2015 budget, allocating RM10 million to encourage companies to establish research centres for high technology, information and communication technology and the knowledge-based industry (Mohd Najib, 2014). As for the private sector, investment in research and development is already part and parcel of their business activities.

5. Implications, limitations and future research

The present study aimed to explore the perception of the two key PPP players, namely, the government or public sector and private sector companies of the performance indicators of various aspects PPP implementation in Malaysia. In addition, the study also sought to explore the differences in the perceptions of the two parties on these issues. The current study contributes to knowledge as well as to practice.

First, this study contributes to the literature on the performance of PPP projects in developing countries, and specifically in the Malaysian context, by investigating the perception of the relative importance of the performance indicators of PPP projects. In addition, the findings of the present study on the important performance indicators specifically for “financing and markets” and “innovation and learnings” of PPP implementation offer insightful evidence, particularly for UKAS who may wish to consider having a systematic monitoring mechanism of PPP performance in terms of construction cost, operational cost, construction period and technology innovation. Emphasising on these critical aspects of PPP performance may ensure the achievement of better VFM from PPP implementation in Malaysia.

Second, the results may provide useful information to various parties including academicians, practitioners and regulatory bodies on the importance of performance indicators of PPP implementation in Malaysia. In particular, the findings to some extent may provide ideas for and guidance to regulatory bodies such as UKAS regarding improving and revising the PPP guidelines and procedures related to financial and innovation aspects of PPP implementation. This is because the implementation of PPPs is continuously progressing in Malaysia. Therefore, clear and more detailed guidelines and procedures on PPP financing and better innovation should be made available.

Third, with regards to the differences in the perceptions of the public and private sectors concerning the construction period and investment in research of new technology performance indicators, a better understanding of the roles and responsibilities of each party particularly in these aspects of performance is necessary to ensure both parties benefit, which will lead to the maximum benefit being gained from the project not only by the government and the private sector companies but more importantly the public at large (Ismail and Haris, 2014b).

Nonetheless, this study has some limitations that should be noted. First, a common limitation of the postal questionnaire method is the issue of losing control over who completes the questionnaire. The respondents who answer the questionnaire may lack the time to do so due to job commitments, the possibility of questions being ambiguous and lead to misunderstand and the non-completion of some parts of the questionnaire. The respondents may also not truthfully answer the survey because fear of negative consequences as a result of reveal perception about the future effect. Second, this study only used the survey method to gather data on the perceptions of the two groups of respondents. The use of the questionnaire method to determine the perceptions of the public sector and private sector on key elements of PPP in Malaysia might not be able to fully capture the overall understanding and perception of the respondents. Therefore, future research may opt to use focus groups, case studies or interviews as research methods. The third limitation of the present study is that it involves only two stakeholders of PPP projects – the public and private sectors. These sectors seem to be the most appropriate stakeholders to contribute to this study because both sectors are directly affected by and involved in PPP projects. However, other stakeholders such as the general public and academicians could be the respondents of future research.

6. Conclusion

Despite the above-mentioned limitations, this study has provided relevant information and has obtain findings to stimulate more interest in this area of research and pave the way for future studies on the performance indicators of PPP projects in the Malaysian context. Thus, this exploratory study is only an initial step in exploring the topic of performance indicators in PPP projects. There is no doubt that future research in this area is called for.

Questionnaire distribution and response rate

No. of respondents No. of questionnaires distributed No. of questionnaires returned (%) Usable questionnaires (%)
Public sector
Federal government 210 152 (72%) 152 (72%)
State government 140 36 (26%) 20 (14%)
Private sector 110 65 (45%) 65 (59%)
Total 460 253 (55%) 237 (52%)

Reliability test using Cronbach’s α test

Research objective No. of items Cronbach’s α value
Performance indicators (PIs) 18 0.981
1. PIs – finance and markets 12 0.967
2. PIs – innovation and learnings 6 0.955

Distribution of respondents

Total
Sector Role of respondents Frequency Percentage Frequency Percentage
Public sector Federal 152 64.1 172 72.6
State 20 4.2
Private sector Contractor 23 9.7 65 27.4
Facilities management 22 9.7
Operator 6 2.5
Consultant 6 2.5
Financier 2 0.8
Others 6 2.5
Total 237 100 237 100

Demographic information of respondents

Respondents’ characteristics Frequency Percentage
Years of experiencea
Less than 5 166 78.7
6-10 23 10.9
11-15 14 6.6
16-20 5 2.4
21+ 3 1.4
Number of PPP projectsb
None 94 45.2
1-5 93 44.7
6-10 6 2.9
11-15 6 2.9
More than 15 9 4.3
Familiarityc
Yes 127 67.2
No 62 32.8

Note: an=211, missing = 26; bn = 208, missing = 29; cn = 189, missing = 48

Perception of survey respondents concerning the relative importance of performance indicators in relation to financing and markets

Overall Public sector Private sector
No. Performance Indicator Mean SD Rank Mean SD Rank Mean SD Rank
 1. Operational cost 4.36 0.981 1 4.63 0.947 1 4.00 1.039 1
 2. Construction cost 4.22 0.994 2 4.34 0.955 2 3.91 1.035 4
 3. Construction period 4.18 1.001 3 4.29 0.975 3 3.88 1.016 6
 4. Financial ability of contractor and investors 4.14 0.947 4 4.21 0.917 5 3.94 1.006 3
 5. Concession period 4.13 1.002 5 4.23 0.973 4 3.86 1.037 8
 6. Sound financial analysis and operation 4.10 0.950 6 4.18 0.934 6 3.86 0.957 7
 7. Realistic schedule of investment, revenue 4.02 0.985 7 4.06 0.969 8 3.89 1.025 5
 8. Insurance coverage 4.01 0.996 8 4.09 0.993 7 3.80 0.979 9
 9. Sustainable profitability 4.00 0.948 9 4.02 0.946 9 3.95 0.957 2
10. Perfect tariff/tolls or price adjustment mechanism for the project 3.83 0.914 10 4.01 0.900 10 3.71 0.930 10
11. Low financing cost 3.76 1.00 11 3.85 1.01 11 3.55 0.979 11
12. Increased marketability 3.43 0.989 12 3.60 0.974 12 3.32 1.027 12

Independent t-test results for performance indicators in relation to financing and markets

No. Performance Indicator F-value t-value Significant
 1. Construction period 1.774 2.869 0.000***
 2. Perfect tariff/tolls or price adjustment mechanism for the project 1.637 2.035 0.202
 3. Increased marketability 0.876 0.993 0.350
 4. Realistic schedule of investment, revenue 0.425 1.131 0.515
 5. Low financing cost 0.292 1.781 0.589
 6. Sound financial analysis and operation 0.002 2.367 0.964
 7. Concession period 0.168 2.492 0.682
 8. Construction cost 0.160 2.932 0.689
 9. Financial ability of contractor and investors 0.059 1.882 0.808
10. Sustainable profitability 0.030 0.617 0.863
11. Insurance coverage 0.013 2.016 0.909
12. Operational cost 0.010 2.316 0.918

Perception of survey respondents concerning the relative importance of performance indicators in relation to innovation and learnings

Overall Public sector Private sector
No. Performance indicator Mean SD Rank Mean SD Rank Mean SD Rank
1. Technology innovation (e.g. designing, construction, planning, etc.) 4.10 0.950 1 4.21 0.910 1 3.80 0.995 1
2. Employee training 4.05 0.958 2 4.17 0.955 3 3.70 0.885 3
3. Financial innovation (e.g. creative financial package) 4.03 0.982 3 4.13 0.946 4 3.77 1.035 2
4. Technology transfer 4.01 1.015 4 4.18 0.971 2 3.55 0.991 5
5. Establishment of learning organisation 3.94 0.974 5 4.08 0.943 5 3.55 0.958 6
6. Investment in research and development of new technology 3.91 1.000 6 4.03 0.964 6 3.56 1.022 4

Independent t-test results for the perception of performance indicators in relation to Innovation and learnings

No. Performance Indicator F-value t-value Significant
1. Investment in research and development of new technology 2.900 3.207 0.000***
2. Financial innovation 1.813 2.482 0.179
3. Establishment of learning organisation 1.114 3.826 0.292
4. Technology innovation 0.804 2.889 0.371
5. Technology transfer 0.771 4.426 0.381
6. Employee training 0.122 3.554 0.727

Note: *Significant at 1 per cent

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Further reading

Abdul Aziz, A.R. (2010), “Housing private public partnerships: perspective from the government agencies”, paper presented at 4th NAPREC Conference organised by INSPEN, September.

Abdul Rashid, K. (2013), “Implementation of the Malaysian Public Private Partnership (PPP)”, in Ismail, S. (Ed.), Public Private Partnership (PPP) Malaysia Studies, IIUM Press.

Chan, A.P.C. and Chan, A.P.L. (2004), “Key performance indicators for measuring construction Success”, Benchmarking: An International Journal, Vol. 11 No. 2, pp. 203-221.

Cooper, D.R. and Schindler, P.S. (2011), Business Research Methods, McGraw-Hill, Irwin, IA.

George, D. and Mallery, M. (2010), SPSS for Windows Step by Step: A Simple Guide and Reference, 17.0 update, 10a ed., Pearson, Boston, MA.

Ghalayini, A.M. and Noble, J.S. (1996), “The changing basis of performance measurement”, International Journal of Operations and Product Management, Vol. 16 No. 8, pp. 63-80.

Grimsey, D. and Lewis, M.K. (2002), “Accounting for public private partnerships”, Accounting Forum, Vol. 26 No. 3, pp. 245-270.

Hampton, G., Baldwin, A.N. and Holt, G. (2012), “Project delays and cost: stakeholder perceptions of traditional v. PPP procurement”, Journal of Financial Management of Property and Construction, Vol. 17 No. 1, pp. 73-91.

Henjewele, C., Sun, M. and Fewings, P. (2014), “Comparative performance of healthcare and transport PFI projects: empirical study on the influence of key factors”, International Journal of Project Management, Vol. 32 No. 1, pp. 77-87.

Ismail, S. (2011). Private Finance Initiative in the United Kingdom, Lambert Academic Publishing.

Ismail, S. and Abdul Rashid, K. (2007), “Private finance initiative (PFI) in Malaysia: the need for and issues related to the public sector comparator (PSC)”, Jurnal Akuntansi dan Keuangan Indonesia, Vol. 4 No. 2, pp. 137-154.

Ismail, S. and Asuhaimi, F. (2013), “Private sector involvement and Public Private Partnership (PPP) in Malaysia”, in Ismail, S. (Ed.), Public Private Partnership (PPP) Malaysia Studies, IIUM Press.

Ismail, S. and Haris, F.A. (2014a), “Constraints in implementing Public Private Partnership (PPP) in Malaysia”, Built Environment Project and Asset Management, Vol. 4 No. 3, pp. 238-250.

Ismail, K., Takim, R. and Nawawi, A.H. (2011), “The evaluation criteria of value for money (VFM) of Public Private Partnership (PPP) bids”, paper presented at 2011 International Conference of Intelligent Building and Management organised by IACSIT Press, Singapore.

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Khairuddin (2009), “Implementation of the Malaysian Public Private Partnership (PPP)”, in Ismail, S. (Ed.), Public Private Partnership (PPP) Malaysia Studies, IIUM Press.

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Zhang, X. (2009), “Best value concessionaire selection through a Fuzzy logic system”, Expert Systems with Applications, Vol. 36 No. 4, pp. 7519-7527.

Corresponding author

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