Policy Brief: Public and Private Partnerships
Executive Summary: Public and Private Partnerships (PPP's) describes the partnership between the Public Sector (Government) and the Private Sector (Business) working together through financing, design, constructions, renovation, management or maintenance of infrastructures to provide public services for citizens. National, state, and local governments worldwide all face tremendous budget gaps and therefore are increasingly adopting Public-Private Partnerships (PPPs) models as a means to provide critical infrastructure service delivery. As Public Administration Students it will be important for us to understand the role of PPP's as well as how to use them efficiently, relevant to Public Financial Management. It will also discuss the social, economical, and political factors that play a role in PPPs. Overall PPP's should be used because they provide much-needed capital for projects; they can also serve as models of efficiency and reliability and be champions of high levels of accountability and transparency. In addition, PPPs can be cost-effective and time efficient.
Statement of Issue: How can Governments use PPP's effectively? Improving the delivery of services for "Wicked Problems" is a critical need for many governments. "Wicked Problems" often include emergency policy challenges in transportation, the environment, and health and human services (Battagilo)
Background information: PPPs were initiated in the United Kingdom in the early 1980s. (Sadka) Since then they have spread world wide. Over the past two decades more than 1,400 PPP deals were signed in the European Union, representing a capital value of approximately $260 billion dollars. (Blanc). The problem that occurs with PPP is the lack of accountability which leads to negative outcomes in all aspects socially, economically, and politically. When multiple organizations are involved there needs to be transparency so that everyone understand their roles and and know what is expected of them. Ongoing questions remain about how to design, manage, and assess PPPs. [pic]
Approaches and Results: The proponents argue that this model allows the government to focus the scarce public resources on areas not covered by PPP projects, or that the competition and the scrutiny of the capital markets done by the private sector make the use of capital resources more effective. Popular avenues that PPPs have been used are in Public Transportation, Public Water, and Project Development. An example of the approach can be seen in China. There has been a transformation of urban water services in China since the late 1990s focusing on the interaction between the government and private players in the form of public private partnership projects. China used 4 different models of PPP. 1) Cooperative Joint Venture: (CJV) is a business agreement in where the partners jointly incur unlimited liability for the debts of the enterprise with no separate legal person being created

2) The model of the Wholly Foreign Owned Enterprise (WFOE) are limited-liability corporations organized by foreign nationals and capitalized with foreign funds.

3) The Equity Joint Venture (EJV) In the EJV mode, the partners share profits, losses and risk in equal proportion to their respective contributions to the venture's registered capital

4) A joint-stock company is a business entity which is owned by shareholders. Each shareholder owns the portion of the company in proportion to his or her ownership of the company's shares (certificates of ownership) (Lee)

Overall it is found that these PPP's have brought progress by competing with water TNCs based on their advantage of access to market information and a good relationship with local governments. Private water companies provided water services to 38% of the total population in China in 2008, and the expansion of PPP projects in urban water services seems to increasingly accelerate. An assessment has been created ton determining the success of PPP projects has been widely addressed. Garvin describe the P3 Equilibrium framework as a means of determining the effectiveness of PPP implementation. They divide the success of a project into four main components: state, society, market, and industry. The success of a project is determined by mapping the four factors. A balanced project, wherein all factors are dominant, is considered to be a successful implementation of PPP projects.
[pic]
The main controversy to consider when using PPP's regarding its accountability and transparency. While PPPs can enhance project funding and completion, they create the possibility of agency loss, that is, public means-tax dollars, public powers, and other resources-being diverted toward private purposes. There are 6 dimensions to closely study and consider before proceeding with PPPs. (Forrer) 1) Risk: The first dimension that is important in assessing PPP accountability involves understanding and allocating risk among the partners.

2) Cost and Benefits: Cost-benefit analysis is critical for determining which projects are appropriate for PPPs (Rendell 2009). While controlling the cost of a PPP is vital and also a major reason for government entering into the partnership, it is also important to weigh the benefits in order to fully appreciate the overall value of the endeavor.

3) Social and Political Impact: The partnership may affect a variety of social and environmental systems, including educational, health-related, legal, and environmental systems.

4) Expertise: Governments are often assumed to seek out private or nonprofit alliances in an effort to access a wider range of resources and expertise (Bryson, Crosby, and Stone 2006; Wood and Gray 1991). The concept of expertise entails involving people with the insights and skills needed, from bodi the private and public sectors, to accomplish the tasks of the partnership.

5) Partnership Collaboration: The strength of the human connections within a PPP affects the overall ability of a government agency to monitor compliance and reward success or punish failure by the private partner.

6) Performance Measurement: Performance measures are critical in PPPs for establishing trust between workers with diverse orientations and backgrounds; helping managers on both sides engage, assess, and continuously improve organizational results; and strengthening accountability in the partnership.

These questions must be answered and evaluated before a PPP project is attempted.
Recommendations and Implications: If properly designed and transparently reported, PPP's will enhance the efficiency of the provision of services that were formerly provided by the government. The following are 8 rules developed through PPP analysis to avoid high transaction cost and PPP's failures: Rule 1: Establish A Jurisdictional P3 Constitution: Adopt, as closely as possible, quasi-constitutional provisions to ensure transparency for all PPPs.

Rule 2: Separate the Analysis, Evaluation, Contracting/Administrating, and Oversight Agencies: These separations may seem like bureaucratization gone mad, but otherwise any huge PPP agency will turn into an agency that sees its main job as boosting PPP's

Rule 3: Ensure That the Bidding Process Is Reasonably Competitive: ideology should be kept in check and public sector entities should be permitted, even encouraged, to bid. Generating high number of bidders should trump inevitable political pressures to favor local bidders or restrict bidding to domestic producers.

Rule 4: Be Wary of Projects That Exhibit High Asset-Specificity, Are Complex or Involve High Uncertainty, and Where In-House Contract Management Effectiveness Is Low: too much risk and uncertainty can end up costing tax payers more then they bargained for

Rule 5: Include Standardized, Fast, Low-Cost Arbitration Procedures in All PPP Contracts: directly reduces transaction costs from lawsuits

Rule 6: Avoid Stand-Alone Private Sector Shells With Limited Equity From the Real Private Sector Principals: ensure that the private sector partner or partners have sufficient equity at risk to give them the proper incentives

Rule 7: Prohibit the Private-Sector Contractor from Selling the Contract too early: if a Contractor thinks that it can sell a contract before all of the bugs are known, they will have an incentive to under invest in the project, especially in the early phases.

Rule 8: Have a Direct Conduit to Debt Holders: If the private sector equity participant declares bankruptcy, there should be a clear, legally enforceable conduit to the debt holders. Without it, governments may face serious delays and difficulties as the trustee in bankruptcy or courts will normally control this negotiation.

Governments should feel comfortable implementing and moving forward with PPP's if all the accountability questions are answered and the government follows the rules listed above. PPP provide a great alternative to provide services efficiently and effectively if managed properly.

References:
Aidan R. Vining and Anthony E. Boardman (2008) Public--Private Partnerships : Eight Rules for Governments. Public Works Management Policy 2008 13: 149 DOI: 10.1177/1087724X08323843
Blanc-Brude, F., H. Goldsmith, and T. Välilä (2007): “Public-Private Partnerships in Europe: An update”, Economic and Financial Report, EFR 2007-03, EIB.
Battaglio, R Paul; Khankarli, Ghassan A. Public Works Management & Policy[pic]13. 2[pic] (Oct 2008): 138-148.
Forrer, J., Kee, J. E., Newcomer, K. E., & Boyer, E. (2010). Public-private partnerships and the public accountability question.Public Administration Review, 70(3), 475-484,347. Retrieved from http://search.proquest.com/docview/853274318?accountid=13758
Garvin, M. J., & Bosso, D. (2008). Assessing the effectiveness of infrastructure public-private partnership programs and projects. Public Works Management & Policy, 13(2), 162-178. doi:http://dx.doi.org/10.1177/1087724X08323845
Lee, S. (2010). Development of public private partnership (PPP) projects in the chinese water sector. Water Resources Management, 24(9), 1925-1945. doi:http://dx.doi.org/10.1007/s11269-009-9531-1

Questions to Discuss:
1) What are the difference between PPP's and contracting out? Do either have a distinct advantage over the other?
2) What are the potential social benefits of using PPP?
3) Why have some types of partnerships succeeded where others have failed?