The Future of PPP -
Public-Private Partnerships
Public Service Magazine, May 2003
Paul Gosling examines some of the issues surrounding the introduction of private
financing as a means of funding and running public services. He concludes by
stating that effective accountability to citizens will determine the durability
of the PPP model of public service.
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Contents:
For many public bodies, Public-Private Partnerships (PPPs) are currently the
only game in town. In local government, in education, and in Northern Ireland
the government has effectively said that if you want new buildings then a very
large chunk of the financing and the organisation of the project has to come
through PPPs. For the present, it seems implausible that an anti-PPP government
will take office to move policy in a different direction.
o one denies that PPPs are expensive, both in transaction costs and for the
cost of borrowing. (This was most obviously the case with the London
Underground, where according to leading transport analyst Christian Wolmar it
cost £400 million to work-up the contracts.) To the government and the
opposition, the apparent benefits - private sector contract management skills,
risk transfer, capped budgets, shorter implementation dates and off-balance
sheet financing - more than compensate.
There has, as yet, been no definitive and unchallenged analysis of whether PPPs
and Public Financing Initiatives (PFIs) are a good thing. Rather, there have
been isolated criticisms, which suggest ways in which their operation might be
improved. Transaction costs will be brought down through the use of pro-forma
contracts. Building standards may be more closely tied into contract
specifications. Public sector clients must form closer relationships with those
actually delivering services. Contracts need to focus less on notional risk
transfer. And the conditions of employment under a PPP will have to match even
more closely those of the public sector.
But one of the real reasons for the current government's enthusiasm for PPP has
largely been overlooked. It provides a practical means of implementing the Prime
Minister's desired objective of creating a mixed economy in the provision of
public services. It brings in private sector providers without going through the
even more controversial and confrontational process of outright privatisation.
Not that PPP has to involve a public body contracting with the private sector
for service delivery. In Northern Ireland there is a distinct chance that future
PPP deals could be tri-partite affairs in which service delivery is taken over
by the voluntary sector. With government prioritising the use of voluntary
groups and social enterprises as service delivery agents - especially for social
services - such a PPP model might be applied across the UK.
When Tony Blair has discussed a mixed economy of public services he has not only
referred to services being provided by the public, voluntary and private
sectors. He has also talked of the need for a mix of channels of delivery. And
when it comes to electronic service delivery there remains much opportunity for
PPP contracts to be used.
But inevitably not all contracts will perform adequately. As well as disputes
over service standards, we can expect conflict in 20 years time if some of the
buildings are in bad repair over whose responsibility it is to put it right.
One thing we can be certain of is that no National Health Service hospital will
be allowed to close its doors and chuck the patients onto the street because the
PPP contract has failed to work. A hospital management company might just
possibly be allowed to go bankrupt, the private sector service provider may be
wiped out, but ultimately the government - as with Railtrack - will have to bail
out the hospital itself and form a successor management body.
There is probably one key factor, which will determine the extent to which PPPs
will be a central element of future public service delivery - accountability. If
the public perceives PPP schemes to suffer from the same aloofness and
independence as quangos, then discontent could force them to be removed from
front line service delivery.
Analysts who trust in consumer choice in the public sector may argue that the
market will provide real accountability. The risk is that the parallel is not
with the highly competitive supermarket sector, but with financial services.
Here consumers have often been too confused to exercise real choice, allowing
themselves to be coerced by financial advisers into selecting the wrong
products.
Until now, the introduction of markets into the public services has often left
the citizen sidelined. It can be the service provider - the school or the doctor
- who chooses the customer, rather than the other way round. And if PPPs remain
the concern only of two sets of contract negotiators, then they may become as
discredited as the often derided quangos.
In the end it is probably the ability of PPPs to embrace a form of effective
accountability to citizens that will determine their durability, not the heavily
debated argument over cost.
Let Public Service Magazine know your views by e-mailing:
psm@fda.org.uk
Paul Gosling is a freelance writer. This article appeared in the May 2003 issue
of Public Service Magazine.
Contact the editor of Public Service Magazine or Paul Gosling at:
E-mail: psm@fda.org.uk
Web site: www.fda.org.uk
"Construction companies engaged in the UK's Private Finance Initiative
expect to make between 3 to 10 times as much money as they do on traditional
contracts, the industry admitted."
Source: Finance in Brief, Guardian Weekly, September 11 to 17, 2003, p11
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