Public-private partnership

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Public-private partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies. These schemes are sometimes referred to as PPP or P3.

In some types of PPP, the government uses tax revenue to provide capital for investment, with operations run jointly with the private sector or under contract (see contracting out). In other types (notably the Private Finance Initiative), capital investment is made by the private sector on the strength of a contract with government to provide agreed services. Government contributions to a PPP may also be in kind (notably the transfer of existing assets).

Typically, a private sector consortium forms a special company called a "special purpose vehicle" (SPV) to build and maintain the asset. The consortium is usually made up of a building contractor, a maintenance company and a bank lender. It is the SPV that signs the contract with the government and with subcontractors to build the facility and then maintain it. A typical PPP example would be a hospital building financed and constructed by a private developer and then leased to the hospital authority. The private developer then acts as landlord, providing housekeeping and other non medical services while the hospital itself provides medical services.

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Pressure to change the standard model of Public Procurement arose initially from concerns about the level of public debt, which grew rapidly during the macroeconomic dislocation of the 1970s and 1980s. Governments sought to encourage private investment in infrastructure, initially on the basis of accounting fallacies arising from the fact that public accounts did not distinguish between recurrent and capital expenditure.

The idea that private provision of infrastructure represented a way of providing infrastructure at no cost to the public has now been generally abandoned, interest in alternatives to the standard model of public procurement persisted. In particular, it has been argued that models involving an enhanced role for the private sector, with a single private sector organisation taking responsibility for most aspects of service provisions for a given project, could yield an improved allocation of risk, while maintaining public accountability for essential aspects of service provision.

Initially, most public-private partnerships were negotiated individually, as one-off deals. In 1992, however, the Conservative government of John Major in the United Kingdom introduced the Private Finance Initiative (PFI), the first systematic program aimed at encouraging public-private partnerships. In the 1992 program, the main focus was on reducing the Public Sector Borrowing Requirement, although, as already noted, the effect on the public accounts was largely illusory. The Labour government of Tony Blair elected in 1997, persisted with the PFI sought to shift the emphasis to the achievement of "value for money" mainly through an appropriate allocation of risk.

A number of Australian state governments have adopted systematic programs based on the PFI. The first, and the model for most others, is Partnerships Victoria.

Because of the focus on avoiding increases in public debt, many private infrastructure projects in the early 1990s involved provision of services at substantially higher cost than could have been achieved under the standard model of public procurement. The central problem was that private investors demanded and received a rate of return that was higher than the government’s bond rate, even though most or all of the income risk associated with the project was borne by the public sector.

A number of Australian studies of early initiatives to promote private investment in infrastructure reached the conclusion that, in most cases, the schemes being proposed were inferior to the standard model of public procurement based on competitively tendered construction of publicly owned assets (Economic Planning Advisory Commission (EPAC) 1995a,b; House of Representatives Standing Committee on Communications Transport and Microeconomic Reform 1997; Harris 1996; Industry Commission 1996; Quiggin 1996).

One response to these negative findings was the development of formal procedures for the assessment of PPPs in which the central focus was on "value for money" rather than reductions in debt. The underlying framework was one in which value for money was achieved by an appropriate allocation of risk. These assessment procedures were incorporated in the Private Finance Initiative and its Australian counterparts from the late 1990s onwards.

Although the general view that governments should seek "value for money" has been widely accepted, there have been continuing disputes over whether the guidelines designed to achieve these goals are appropriate, and whether they have been correctly applied in particular cases. Much of the discussion has been based on debates over the UK Private Finance Initiative.

Some social enterprises have proposed, or are operating, partnerships with the state and commercial partners which they call Public Social Private Partnerships (PSPP) .

While some PPP projects have proceeded smoothly, others have been highly controversial. Australian examples include: Airport Link, the Cross City Tunnel, and the Sydney Harbour Tunnel, all in Sydney; the Southern Cross Station redevelopment in Melbourne; and the Robina hospital in Queensland.

Some international health care programs may be considered public-private partnerships:

  • As a UN agency, the WHO is financed through the UN system by contributions from member states. In recent years, the WHO's work has involved more collaboration with NGOs and the pharmaceutical industry, as well as with foundations such as the Bill and Melinda Gates Foundation and the Rockefeller Foundation. Some of these collaborations may be considered global public-private partnerships (GPPPs); half the WHO budget is financed by private foundations.
  • The TB Alliance is financed by public agencies and private foundations, and partners with research institutes and private pharmaceutical companies to develop faster-acting, novel treatments for Tuberculosis that are affordable and accessible to the developing world.
  • DNDi, the Drugs for Neglected Diseases Initiative was founded in 2003 as a not-for-profit drug development organization focused on developing novel treatments for patients suffering from neglected diseases.

In the realm of international development, public private partnerships are common as the host government is supported by international private sector investment. The Gates Foundation and the Global Fund for Aids, TB and Malaria donate medical commodities and technical support to strengthen health service delivery at government institutions.

Many non-governmental organisations also support public private partnerships in health service delivery. In Kampala, the International Hospital provides the facilities for complex surgery with finance support from the Ugandan government. At the smaller scale, Hope Clinic Lukuli is providing philanthropic primary health care using government and donor funded health commodities.

PPPs are being increasingly used in Ireland to deliver both major and minor infrastructural projects.

(French documentation about PPP in Europe & France - history and Law)

  • Linotte Didier, Un cadre juridique désormais sécurisé pour les contrats de partenariat, AJDA, n° 1/2005 du 10 janvier 2005.
  • Monera Frédéric, Les financements innovants de services et de projets publics, Revue de la Recherche Juridique – Droit prospectif, PUAM, 2005-1, p.337 & s.

(UK and Australian sources)

  • Colman, J. (2002), ‘Mumbo jumbo…and other pitfalls:Evaluating PFI/PPP projects’, National Audit Office PFI / PPP Conference "Bringing about beneficial change, London, May.
  • Economic Planning Advisory Commission (EPAC) (1995), ‘Final Report of the Private Infrastructure Task Force’, Australian Government Publishing Service, Canberra.
  • Economic Planning Advisory Commission (EPAC) (1995), ‘Interim Report of the Private Infrastructure Task Force’, Australian Government Publishing Service, Canberra.
  • Harris, A.C. (1996), ‘Financing infrastructure: private profits from public losses’, Audit Office of NSW, Public Accounts Committee, Parliament of NSW, Conference, Public/Private infrastructure financing: Still feasible?, Sydney, September.
  • House of Representatives Standing Committee on Communications Transport and Microeconomic Reform, (1997), ‘Planning not Patching: An Inquiry Into Federal Road Funding’, The Parliament of the Commonwealth of Australia, Australian Government Publishing Service, Canberra.
  • Industry Commission (1996), ‘Competitive Tendering and Contracting by Public Sector Agencies’, Australian Government Publishing Service, Canberra.
  • Quiggin, J. (1996), ‘Private sector involvement in infrastructure projects’, Australian Economic Review, 1st quarter, 51–64.
  • Spackman, M. (2002), ‘Public-private partnerships: lessons from the British approach’, Economic Systems, 26(3), 283–301.
  • Monbiot, G. (2000), ‘Captive State, The Corporate Takeover of Britain’, Macmillan.

  1. ^ http://www.virginiadot.org/projects/ppta-defaultHOTLANESCapitalBeltway.asp

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