The EU faces a significant investment challenge to meet its ambitious goals of decarbonising the economy, modernising infrastructure, strengthening defence, and improving social services. Public–private partnerships are frequently proposed as a solution, but their effectiveness is debated. The fourth LTI Report presents new empirical evidence on public–private partnerships in Europe and a framework for evaluating and optimising such partnerships, emphasising not the avoidance of renegotiations but rather the design of contracts that manage renegotiations effectively.
The EU faces a significant investment challenge, requiring an additional €750 to €800 billion per year – equivalent to 4.4-4.7% of EU GDP – to meet its ambitious goals of decarbonising the economy, modernising infrastructure, strengthening defence, and improving social services, according to the Draghi Report (Draghi 2024). With public budgets already under considerable strain, bridging this substantial financing gap demands innovative solutions. Public–private partnerships (PPPs), frequently touted as a means to attract private investment, remain a focal point of policy debate, balancing between strong support and ongoing scepticism.
In the fourth LTI Report, an initiative of the Long-Term Investors (LTI@UniTO) think tank launched by the University of Torino and hosted by Collegio Carlo Alberto since 2017, we provide a fresh perspective on PPPs in Europe, not only by presenting new empirical evidence but also by introducing a theoretical model that reshapes how PPP performance should be assessed – particularly in the context of contract renegotiations (Auriol and Saussier 2025b).
Investment in infrastructure and the limits of current data
The report dissects infrastructure financing in the EU into two broad categories: public and private investments. According to EIB data, public investment, primarily managed through traditional public procurement, accounts for 0.8% of EU GDP (approximately €125 billion in 2022), while private investment – including corporate spending, non-PPP projects, and public–private partnerships – makes up 1.1% of GDP (approximately €175 billion in 2022). Within private investment, PPPs represent less than 0.05% of GDP in 2022, suggesting a marginal role despite frequent emphasis on their potential in policy debates (EIB 2024).
This perspective shifts when alternative data sources, particularly Tenders Electronic Daily (TED), are considered. Unlike broader metrics, TED data focus on work public procurement contracts exceeding €5 million, providing a more precise – albeit conservative – estimate of infrastructure spending. This data reveal that, across all sectors, PPPs (primarily concession contracts) accounted for between 2.5% and 12% of public infrastructure investments from 2016 to 2023. When the analysis is refined to sectors most frequently examined by the EI – such as education, health, transport, and utilities – the share of PPPs rises significantly, ranging from 5% to 20%.
The discrepancy between the TED and EIB data is primarily methodological. A major challenge identified in the report is the fragmented nature of infrastructure financing data. The EIB and other sources use gross fixed capital formation (GFCF) as a proxy for infrastructure investment, which can lead to significant overestimation by including non-infrastructure assets such as machinery and vehicles. While the EIB’s reliance on GFCF tends to overestimate total infrastructure investments, it simultaneously underestimates the scale of PPPs. Examination of TED data challenges the prevailing narrative that PPPs play only a marginal role in EU infrastructure financing. It underscores the critical role of data sources and classification methods in accurately assessing the scope and impact of PPPs, suggesting that their contribution to public investment has been consistently underrepresented in analyses based on GFCF. A similar conclusion has been drawn regarding PPPs in Italy (Chiodi et al. 2025).
The report also emphasises the pivotal role of institutional investors in infrastructure financing. Despite managing approximately $9.8 trillion in assets, only 3% is allocated to infrastructure projects (OECD 2024). To unlock this vast pool of capital and direct it toward infrastructure and other public priorities, the report advocates for improved risk-sharing frameworks and targeted incentives that enhance the attractiveness of such investments.
The PPP renegotiation paradox
Traditional critiques of PPPs often highlight frequent contract renegotiations as evidence of poor public management and strategic manipulation by concessionaires (Fabre and Straub 2023). These renegotiations are typically viewed as a reflection of the public sector’s failure to commit and the private sector’s exploitation of contractual loopholes, which can result in cost overruns and public dissatisfaction.
The report completely upends this argument. Drawing on the model in Auriol and Saussier (2025a), it demonstrates that renegotiations can be economically efficient – and even desirable – when they enable contracts to adapt to exogenous shocks (e.g. economic crises, natural disasters, or unexpected regulatory changes). In long-term infrastructure projects, such shocks are not anomalies but rather statistical certainties. Rigid contracts designed to avoid renegotiations may result in higher initial costs, as private partners incorporate significant risk premiums to account for these uncertainties.
The model: Balancing risk, flexibility, and public interest
The model in Auriol and Saussier (2025a) centres on comparing two contractual frameworks: traditional public procurement (TPP) and PPP concession contracts. In TPP arrangements, the public sector assumes full responsibility for project risks, encompassing construction, operational, and demand uncertainties. Conversely, PPP concession contracts transfer these risks to the private partner, who may seek renegotiation in response to unforeseen shocks. As a result of the risk transfer, the concessionaire invests more in the infrastructure design, leading to higher quality under a PPP framework (Iossa and Martimort 2015).
The model introduces a critical factor: the public budget constraint. While many economic models assume that public entities are risk-neutral with unlimited borrowing capacity, in reality, fiscal pressures and political limitations make it costly – or even impossible – for governments to absorb all project risks or finance the irreversible costs of infrastructure investments. In this context, the willingness of private investors to step in enhances the appeal of PPPs, as they help alleviate the fiscal burden on public coffers. By explicitly integrating these constraints, the model highlights scenarios where PPPs can outperform traditional procurement. Our data indicates a correlation between PPP investments and average government debt, suggesting that fiscal pressures often serve as a key driver behind the pursuit of PPPs (see Figure 1).
Figure 1 Correlation between PPP investment and government debt from 2000 to 2022
Note: The bubble size represents the amount of PPP investment in one country between 2000-2022.
Sources: EPEC (PPP investment), Eurostat (GDP and General Government Gross Debt [sdg_17_40]) and Office for National Statistics for the UK.
When introducing risk into the analysis, the main trade-off revolves around balancing flexibility and cost efficiency. On one hand, more flexible PPP contracts that permit renegotiations help reduce the risk premiums demanded by private investors, as they can adapt to unforeseen events. On the other hand, increased flexibility also raises the likelihood of opportunistic renegotiations, which introduce additional transaction costs. The model suggests that the optimal contract design lies in a balanced approach, incorporating carefully structured clauses that enable renegotiations in response to verifiable external shocks while penalising opportunistic behaviour.
Empirical insights: Variations in renegotiation dynamics across contract types
The report presents an EU-wide dataset of Contract Modification Notices (CMNs) from 2016 to 2023, first introduced in Auriol and Saussier (2025a), providing in-depth insights into PPP renegotiations across the EU, including their frequency, scale, and impact across different contract types. 1
While most renegotiations result in contract adjustments within a range of [-10%; 10%], renegotiations in PPPs are far from uniform. As shown in Table 1, which summarises our econometric findings, the probability of renegotiation varies significantly across contract types. Moreover, their scale, frequency, and public perception – assessed through sentiment analysis of the reasons cited for renegotiation – vary depending on the specific type of contract.
Traditional public procurement contracts, used as a baseline in the analysis, are generally more rigid, resulting in a lower probability of renegotiation compared to other contract types. However, when renegotiations do occur, they tend to involve significant modifications and are often perceived negatively by public authorities, indicating a lack of built-in flexibility that can hinder adaptive management in long-term projects.
Availability-based contracts, commonly used for social infrastructure like hospitals and schools, demonstrate a moderate likelihood of renegotiation. These contracts tend to involve small-scale modifications. The sentiment surrounding these renegotiations is generally positive, reflecting public authorities’ perception of them as part of contract oversight.
Infrastructure concession contracts (for highways, bridges, etc.), which are typically financed through user fees, show a high probability of renegotiation. This is primarily due to the long-term nature of these projects, which expose them to a wide range of risks. However, renegotiations in these contracts often involve moderate changes in contract value and tend to be viewed positively by public authorities, likely because they typically address necessary adjustments for maintaining service levels and infrastructure quality in response to unforeseen changes in economic conditions.
In contrast, service concession contracts emerge as the most problematic. These contracts exhibit the highest probability of renegotiation and often lead to the largest contract modifications. Renegotiations in service concessions are frequently contentious, with changes in contract value averaging substantially higher than in other PPP types. Public authorities consistently associate these renegotiations with negative sentiment, reflecting concerns over cost overruns, strategic behaviour by private partners, and public dissatisfaction.
Table 1 Contract types and renegotiations
Our analysis also shows that the role of public authorities is pivotal: renegotiations led by local bodies result in an average 20% higher cost increase compared to national authorities. Local and regional authorities engage in more frequent and larger renegotiations than national agencies, probably due to weaker technical expertise.
Policy implications: Designing more effective and resilient PPPs
The model’s nuanced perspective on PPP renegotiations, coupled with the empirical analysis, provides clear and actionable policy recommendations. Renegotiations are not inherently negative. When prompted by external shocks typical of long-term contracts, they can enhance project efficiency. However, when driven by poor planning or strategic manipulation, they can become costly liabilities. Recognising this distinction is essential for designing more effective PPP policies.
First, the increasing complexity of PPP contracts, driven by the need to anticipate and address every possible scenario, leads to more rigid agreements that limit flexibility in responding to unforeseen events. This complexity also absorbs a significant portion of the contract costs (typically 10% to 15%), contributing to the decline in their adoption over time. Simplifying PPP contracts would enhance their appeal and drive greater adoption.
Second, contracts should be designed with flexibility but within clearly defined limits. Policymakers need to include pre-established triggers for renegotiations, such as macroeconomic shocks, while incorporating safeguards like penalties to prevent opportunistic claims by private partners. Allowing for renegotiation in case of exogeneous shocks will help simplify the contracts.
Third, strengthening public sector expertise is essential. Managing complex PPP contracts requires specialised knowledge that many public agencies currently lack. Establishing dedicated PPP units within governments can help manage efficient renegotiations and ensure better contract oversight.
Fourth, improving data transparency is crucial. One of the report’s striking findings is the significant data gap in infrastructure finance. Inconsistent figures on private versus public investment hinder informed decision-making. Standardising data collection practices across the EU would facilitate better monitoring, evaluation, and policymaking.
The bigger picture: Every source of funding counts
The EU’s ambitious goals – carbon neutrality, the digital transformation, strengthened social infrastructure, and defence – demand unprecedented levels of investment. Public funds alone won’t be enough. However, blindly scaling up PPPs without considering their inherent complexity and trade-offs would be equally misguided. The report introduces a new framework for evaluating and optimising PPPs, emphasising not the avoidance of renegotiations, but the design of contracts that manage them effectively. Rethinking the structure of public–private collaborations difference be the key to achieving – or falling short of – our development goals.
Source : VOXeu
