Part 3: Providing an environment to support public private partnerships

Managing the implications of public private partnerships.

In this Part, we discuss the rationale and importance of supporting and sustaining the environment for the public and private sectors to work together and outline some international experiences and lessons learned in expanding PPP markets.

The rationale and importance of providing a support environment for public private partnerships

PPPs offer the potential for mutual benefit by encouraging and realising the possibility for innovation in delivering public sector services effectively and efficiently.

However, to successfully achieve this mutual benefit, each partner relies on the other. As the range of PPPs expands, that reliance grows. The public sector relies on continuing competition, capability, and contestability throughout the private sector to maintain efficiency and an innovative spirit. The private sector relies on continued governance, stewardship and accountability throughout the public sector to ensure that the public's interest is effectively represented, monitored, and, ultimately, satisfied.

The latest PPP model includes more private sector involvement, risk transfer and interdependence. Assuming that this trend continues and PPPs remain important deliverers of public sector services, then:

  • how these partnerships perform will become more evident and important; and
  • each sector will be more exposed to the other's challenges and opportunities.

Successfully managing a programme of PPPs will require an equal focus on choosing the best projects or programmes and sustaining the appropriate sector environments to allow the projects and partnerships to work as effectively and efficiently as possible.

For this to happen, the public and private sectors need a high level of:

  • knowledge and expertise;
  • participation;
  • resources and supporting structures;
  • transparent information flows; and
  • trust and accountability in the process.

Setting up and sustaining these components will allow all participants to make the most informed decisions based on the best possible information from the most sources at an affordable cost. For all PPPs, this is essential to encourage creativity and innovation and to correctly allocate and price risk. These components will encourage transparency and accountability in the projects and programmes.

In a similar way to how the sharemarket provides an organised, supporting environment for the efficient pricing and contractual exchange of shares for money, so in a PPP context, the public and private sector environments provide the market platform for the efficient pricing and (longer-term) contractual exchange of public services for money.

Lessons from international experience

Most international observations and analyses of PPPs have focused on the structures, mechanics, and economic evaluation of individual projects or programmes. However, as PPP markets have matured, there has been more focus on improving and sustaining the wider environment.

Because the more mature markets have large and diversified commercial, industrial, and financial sectors, the main focus was on the public sector environment and its PPP policies, governance, and structures. However, in 2008, as the effects of the financial crisis unfolded, it became clear that sustaining the private sector environment was just as important and a combined responsibility of both sectors.

In addition to those risks referred to in our 2006 report, international experience suggests that as the range of partnerships in New Zealand expands, other issues will need to be considered. These are summarised in Figure 4.

Figure 4
Risks when public private partnership markets expand

Public sector risks Private sector/stakeholder risks
Reduced overall governance from shortages of, and inability to retain, public sector skills to interact with the private sector and to manage and monitor PPP projects or programmes

Lack of dissemination of good practice through all layers of government

Low accountability and a lack of transparency because of more complexity, information asymmetry, and commercial confidentiality

Little focus or support for local government

Difficulties in managing change and uncertainty within the project, programme, and organisation
Greater potential for conflicts of interest between advisors and professional experts

Communities disempowered by increasing complexity and lack of knowledge

A lack of appropriate local capacity and capability

Failure to keep communicating with government and stakeholders

We spoke with several public sector agencies involved in PPPs and confirmed similar issues. One particular point was the public sector's difficulty understanding and appreciating the private sector's approach to uncertainty, innovation, change, and doing business.

An important part of any partnering process is to recognise and manage each partner's motivations and incentives. This will require most public sector agencies to think differently and is one of the reasons why, in 2009, Britain's National Audit Office published a report on better commercial skills for complex government projects.

Reflecting on two decades of PPPs in Australia, the International Handbook on Public-Private Partnerships noted that "both sides have come closer together in what they know, and both have learned from each other."13

13: Hodge, G, Greve, C, and Boardman, A (eds) (2010), International Handbook on Public-Private Partnerships, Edward Elgar, Cheltenham UK, page 420.

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