Affordability means the “ability to be accommodated within the inter-temporal budget constraint of the government”.[130] Due to the long-term and contingent nature of PPP costs, it is not easy to decide whether they are affordable. In practice, affordability is assessed by considering the medium-term (typically three years or longer) expenditure framework, and then the annual budget constraint.

A government’s fiscal commitments – both direct and contingent – will be established by the PPP contracts. The value of direct liabilities will be relatively simple to quantify. In many cases its value will be explicitly expressed in the contract. Valuing contingent liabilities is more complicated and requires a good understanding of both the size of the potential liability and the likelihood of its occurring.

Fiscal commitments to PPPs can be payments for services, capital contributions, or subsidies to reduce costs for users, or a means to share risk. The wide range of fiscal commitments can usefully be divided into the following categories.

Public financial management of PPPs relates to how fiscal commitments under PPPs are controlled, reported, and budgeted. Public financial management aims to reduce the risk of PPPs costing the government more than expected or placing undue burden on future generations.

Many governments with successful PPP programs have created a dedicated unit (either as a separate entity, or within an existing department) tasked with implementing, facilitating, or advising on PPPs. (see box 2.15 for example) These are referred to as PPP units. Their roles often include the following.[106]

Most governments have rules for approving capital investment projects that is, defining who can give approval at various points in the life of the project for the project to proceed to the next phase. Because PPPs often do not require capital investment by the government, they may not automatically be subject to these approval rules. Many governments therefore define similar approval requirements for PPPs.

PPP programs create direct and contingent liabilities. The government will need to ensure that there is sufficient fiscal space to fund direct liabilities, as well as to deal with situations where contingent liabilities translate into fiscal expenditures. The financial management of PPPs is normally the responsibility of the procuring authority under the oversight of a finance ministry or treasury.

Sector agencies may lack some of the skills needed to identify and develop PPP projects successfully. Particularly at the early stages of a PPP program, sector agencies may have little experience in engaging with the private sector on privately financed projects. Sector agencies may also lack expertise in rigorous project analysis, or they may have an inadequate focus on achieving Value for Money for the government as a whole. Moreover, coordination across the government is needed, something that sector agencies cannot provide.

Projects can be identified and championed by the procuring authority or central authorities. The procuring authority is the public party to the PPP contract. The procuring authority is responsible for conducting the PPP deal and managing the PPP contract. This role typically falls to the entity with responsibility for ensuring the relevant asset or service is provided.

In developing a PPP framework, it is useful to consider the main responsibilities and identify an existing institution, if available, that is suitable for each one. The main responsibilities include the following.