Posted by Francois Michel
Keeping an eye on the literature on public-private partnerships (PPPs) may be challenging because of the frequency of publication on the topic, but it is highly rewarding. A series of recent articles from major public administration reviews shed new light on three aspects of PPPs that appear particularly useful in the PFM context.
Governance and managerial aspects of PPPs. G. Hodge and C. Greve open their international survey of the performance of PPPs with a particularly comprehensive discussion of the definition of such contracts. While mentioning the crucial notions of long-term engagement and risk sharing on which PFM literature has relied to recommend certain institutional and contractual arrangements, Hodge and Greve point out that PPPs can also refer to “public policy networks in which loose stakeholders relationships are emphasized”, and to “civil and community development in which partnership symbolism is adopted for cultural change.”
As might be expected, this larger acception does not simplify the debate on the effectiveness of such arrangements—for which, the authors show, evidence gathered to date remains mixed. Overall, accountability and governance mechanisms appear weakly effective in practice. Fortunately, as this is the case with the theories of incentives, transaction cost economics, or incomplete contracting, such weak governance structures provide an interesting field of study to R. Jones and G. Noble who, for their part, focus on the managerial challenges that appear at the individual level during the implementation phase of PPPs. Building on an earlier paper and on the growing body of literature on boundary spanners (individuals working at organizational interfaces) (see in particular P. Williams, 2002), R. Jones and G. Noble provide a clear account of the managerial environment of PPPs. The inter-organizational environment characterizing PPPs is determined by the actions of boundary spanners, who operate with “a lack of a single authority figure, constant pressure to maintain tight timeframes, and the drive to ensure their own personal success and survival” and respond to pressure by trying to maintain a “synergetic momentum”.
Enlarging, to some extent, the usual emphasis on contract design and monitoring costs, these articles are particularly relevant for the PFM literature, as they further underscore the governance risks arising from PPPs (especially at the individual level). Mechanisms to review the practical governance and managerial aspects of PPPs need to be fully embedded in government procedures to design, validate and control PPP contracts.
Countries’ current contracting practices may be the most neglected point of PPP papers. However, as K. West shows in the case of France’s local government contracts, country-specific cultural determinants can have a decisive impact on how legislations are used in practice. Following the framework initiated by Vincent-Jones in 1994, K. West detects a shift in France’s local government contracting practices, from a long-term, incomplete, bilateral thematization of transactions to more formal contractual and trilateral relationships. This transition is fuelled by the new regulatory context of the European Union, two decentralization waves and the development of citizen’s control over public contracts—partially following a mimetic process of transition to active consumerism and “community-owned government” (Osborne, 1992) but also determined, in France’s case, by the public demand for transparency following episodic corruption scandals, and by the French State’s emphasis on consumer protection. It is important to note that existing contractual regulations that may appear arbitrary—e.g. variable time limits on utility concessions—can in fact provide an adequate response to a country’s historical contracting issues.
This further underlines the fact that PPP frameworks need to be designed following country-specific approaches and that close attention need to be paid to the practical implementation of such laws. Similar attention needs to be paid to existing contract design and validation processes before developing PPP-specific processes.
Transparency and control over risk transfers. No national PPP framework puts more emphasis
on risk transfers than the UK’s Public Finance Initiative (PFI). This relatively technical approach results, in part, from extensive work performed in the UK in the second half of the 90’s on risk premiums and value-for-money (VFM) calculations. This approach has its shortcomings, as the rationality from government decisions (through the calculation of VFM, with its double risk and time discounts of the two alternative payment streams) is relatively technical and cannot be clearly reflected in the accounts. Hence, one might expect that even if governments increase their expertise, the political and external control over the VFM is likely to be weak, and the calculations subject to manipulations. However, until recently, evidence on the limits of the external control on PPP remained limited. This is luckily corrected by A. Pollock and D. Price’s particularly instructive survey of 622 central government operational PFIs signed before October 2007. The authors report that the National Audit Office had undertaken only 10 financial inquiries into these PFIs by 2006. Worse, the relationship between the risk transfer and risk premium paid by the government (one of the technical issues mentioned above) had been examined in only three cases.
This undoubtedly raises questions of the effectiveness of external control on PPPs (and public expenditure in general). It also illustrates the need to equip national audit offices with the adequate firepower to scrutinize PPP contracts on a regular basis (as contracts are living documents and renegotiations inevitably occur). Governments should remember that PPP contracts need to be carefully reviewed by independent authorities since they can expose them to hidden rent backloading (Maskin and Tirole , 2006), and that national audit offices constitute an important tool for detecting and deterring mismanagement. In addition, the cost of these reviews needs to be factored ex ante in the comparison of PPPs with traditional procurement schemes.
References (see also our recent post "A Primer on PPPs")
G. Hodge, C. Greve, “Public-Private Partnerships: An International Performance Review”, Public Administration Review, May-June 2007, pp 545-558
R. Jones and G. Noble, “Managing the Implementation of Public-Private Partnerships”, Public Money and Management, April 2008, pp 109-114
Karen West, “From Bilateral to Trilateral Governance in Local Government Contracting in France”, Public Administration, June 2005 , pp. 473-492
Allyson M. Pollock and David Price, “Has the NAO Audited Risk Tranfer in Operational Private Finance Initiative Schemes?”, Public Money and Management, June 2008, pp 173-178
