Public-Private Partnerships: What makes them successful?
Post by Na’ama Goldberg, Project Manager at Waycare
Public-Private Partnerships (PPPs) have long been hailed as the remedy for inefficiencies in public sector projects. Through the joined force of the public and private sectors, the government can receive a good or service, and sometimes budget too, in a more efficient way. PPP’s enable costly infrastructure projects without adding more debt to an already debt-laden public balance sheet.
Let’s begin with a clear definition.
A public–private partnership (PPP, 3P, or P3) is a cooperative arrangement between two or more public and private sectors, typically of a long-term nature. It involves an arrangement between a unit of government and a business that brings better services or improves the city’s capacity to operate effectively. Public–private partnerships are primarily used for infrastructure provisions, such as the building and equipping of schools, hospitals, transport systems, and water and sewage systems.
Despite their promise of greatness, PPPs have for been controversial and in many instances ineffective. Getting two completely different sectors, whose very makeup and objectives can be highly uncorrelated, to work towards a shared goal can be extremely challenging.
After many years of experience with PPP’s, what have we learned from them?
There are two main conclusions. First: a World Bank study makes the self-evident point that governments are simply very poor, in general, at managing large infrastructure projects. When PPP projects fail, it is often because of government inefficiencies in such functions as procurement.
Second: Studies show that often, the rate of return on private investment in PPP projects exceeds the prevailing government bond rate. This suggests governments could do better by going at it alone. But the consulting firm PriceWaterhouseCooper argues that this is misleading, because severe constraints on government borrowing may imply that if the total cost of a project had to be funded by a bond issue, the political system might not approve the project at all.
A promising new model of PPP’s exists, known as PPCP [public-private-community partnership] which involves local communities as key players. Its new focus is on community wellbeing and enlisting strong local support. As federal government aid to states and cities declines, and as cities strive to independently overcome budget constraints and provide better services to citizens, we expect this model will grow in importance.
This moment in time is particularly significant for PPP’s because the transportation sector is undergoing one of the most significant overhauls in history – all with the aim of improving peoples’ ability to connect, to lead an efficient lifestyle, to open new economic opportunities and improve safety.
What, then, are the key ingredients of successful PPP’s?
There are a few obvious ones. First, a shared goals and visions. What are the objectives of the project? Do both public and private partners share a passion for achieving them? Second, effective contracts. The poet Robert Frost once wrote that good fences make good neighbors. Good clear contracts, understood and accepted by all, with as little legalese as possible, are crucial. A strong contract states clearly what each party agrees to do, and when they will do it. If necessary, take the legal contract and rewrite it in plain English, so all can understand and verify it. Third, strong budgets. Realistic cost estimates are an important component. Budget overruns cause delays, disputes, and at worst, litigation. Invest time and effort to get the numbers right, and be realistic – avoid deception just to get approval.
The private sector must use its expertise, skills and capabilities to support the government in this challenging time by creating a new vision and new future for transportation that combines creative infrastructural and technological solutions to address acute transportation problems. Instead of seeing today’s frameworks and policy regulations as inhibitors, the public and private sector must learn how to take advantage of these frameworks and find creative ways to jointly overcome collaboration barriers such as data concerns, misalignment of goals, budgetary limitations and so on.
By working collaboratively, each sector can act as a ‘check’ on the other to ensure that: mutual goals are achieved, quality is maintained and that acute issues are addressed.
- Wikipedia. 2019. “Public–private partnership”
- World Bank. 2007. “Public-Private Partnership Units: Lessons for their Designs andUse in Infrastructure”.
- PriceWaterhouseCooper. Public Sector Research Center. “The Value of PFI: Hanging in the Balance sheet?”