Private Public Partnerships are popular as a means of building infrastructure around the world. Governments globally have been afraid of sending budgets into deficit or borrowing to pay for capital works and are seeking partnerships with private equity to fund a growing infrastructure gap.
Private Public Partnerships, or PPPs to those in the know or P3s to those even further in the know, are a topic of great interest to lovers of acronyms. Several different types exist which transfer different levels of risk to the private sector.
Traditional design and construction (TDC) is where private companies bid for a contract to design and construct an asset. A government controls the design and building process through the contract and owns the final asset.
Operation and maintenance contract (O&M) is where the operation of a government asset is carried out by a private company under contract. A government controls the operation of the asset by contract and continues to own the asset.
Lease, develop and operate (LDO) is where a private company leases a government asset and agrees under contract to invest in the asset, recovering the investment and a return on the investment in charges for use of the asset. A government controls the asset by way of contract and continues to own the asset.
Build, own and maintain (BOM) is where a private company builds and maintains an asset and a government leases the asset and operates it with public sector staff. A government does not own the asset and controls its operation by use of its staff, processes and policies.
Build, own, operate and transfer (BOOT) is where a private company finances, builds, operates and owns an asset for a set period after which the asset is transferred to government. A government eventually owns the asset and controls the asset through a contract.
Build, own and operate (BOO) is where a private company finances, builds, operates and owns an asset in perpetuity. A government controls the asset through regulation.
PPPs at the beginning of the above list have been in operation for over one hundred years and have been a success or failure dependent on the individuals involved in negotiating the contracts.
For the latter half of the list where the risk is transferred, in theory, mainly to the private sector, it is too early to tell whether they have been successful. Many of these contracts run for thirty years and more.
Whilst criteria such as financial returns are easily measured the impact of the current models of PPPs on the ability of governments to provide adequate infrastructure in twenty, thirty or forty years is less clear.
What is clear, however, is that for a government to enter into a programme of PPPs a high degree of partnering competency is required.
Partnering competencies include negotiation skills, risk management, procurement, contract management, project management, specification writing, business case writing and options appraisal.
Many of these competencies are not developed to the extent required by simply completing a three or five year degree, but from years of experience in commercial business.
At the leadership levels in the public sector, competence in collaboration, legal and regulatory processes, change management, risk strategy development and project programme management are some of the skills required to enter into PPPs.
Any public sector thinking of developing PPPs must acquire or develop the skills to partner and ensure that the risks of infrastructure investments are shared appropriately with private companies chosen as partners.
Acquiring and developing the skills required is not a simple task. For instance, conducting a thorough skills audit of existing personnel to determine the competence gap requires a high level of skill in its own right.
Solving the problem of skills shortfall by using consultants is not a silver bullet either. Consultants often use their “standard” approach which is good for their efficiency and some transfer of better practices, but risks the provision of inappropriate analysis and solutions due to a lack of understanding of local norms and customs.
Developing internal skills by attachments with other public sector entities with experience in PPPs or even private companies involved in PPPs is one way of acquiring enough skills to enable consultants to be used for advice and to have their advice challenged against the background of local norms.
A further opportunity for improving partnership skills lies in the public sector itself. Most public sectors are organised in and operate in silos resulting in duplication of resources and a consequent reduction in effectiveness and efficiency.
Small projects developed to reduce overlap in the public sector and provide a better return on existing assets and reducing recurring expenses will challenge the existing set of partnering skills.
The time to develop partnering skills in the public service is now and the place to start is at home.