Public-Private Partnerships vs. Inspection & Oversight Sample

Please analyze the following questions (independent research will be necessary):

1) What are PPPs?

2) How does and should inspection and oversight differ, if at all, for PPPs versus IO over strictly public sector agencies?

3) What are key differences that would make IO over PPPs a special problem in relation to the provision of public services normally provided through public agencies?

Public-Private Partnerships (PPPs) are defined by EPSU and Eurodad, in its report (2020) as;

“long-term contractual arrangements where the private sector provides infrastructure assets and services that have traditionally been directly funded by government, such as hospitals, schools, prisons, roads, bridges, tunnels, railways, and water and sanitation plants, and where there is also some form of risk sharing between the public and the private sector.”

The CADTM report (2022) adopts the definition as set out by EPSU and Eurodad and states that there are over 25 different types of PPPs. Johnson (2014) defines PPPs as occurring when; the “government partners with private organization for joint control of a function or service”

Inspection and oversight for Public-Private Partnerships (PPPs) differ from those for strictly public sector agencies due to the unique nature of PPP arrangements, where public and private entities collaborate to deliver public services or infrastructure. Given the findings of the ESPN & Eurodad report (2020) and the CATDM report (2022) detailing the ongoing and systematic failure of PPPs, it would appear that the inspection and oversight of PPPs must differ from that of purely public sector organizations. The following are some key differences and considerations.

PPPs, typically involve a detailed contractual framework that outlines the roles, responsibilities, and performance expectations of both the public and private partners. Inspection and oversight mechanisms are often embedded in these contracts. Whereas, oversight in the public sector is typically governed by laws, regulations, and internal policies are procedures. The issue with PPPs is that the level of detail in the contracts may not be as extensive as it ought to be, such as ensuring that the private entity bears responsibility for the completion of the project as set out in the contract. This feeds into the area of risk allocation, in PPPs risk allocation is crucial. The private sector often assumes specific risks such as, for construction, in exchange for certain benefits. Oversight in PPPs ought to focus on monitoring and managing these risks to ensure that private firms fulfill their side of the contract. While the public sector usually retains more control and responsibility for risk management. Oversight focuses on ensuring accountability, transparency, and compliance with laws and regulations.

Furthermore, contracts in PPPs often include performance metrics and incentive mechanisms to encourage the private sector to meet or exceed specified goals. Oversight involves monitoring these metrics and incentives. Hovy (2015) views these performance incentives as a way of ensuring the success of the PPP project through clear key performance indicators, a performance monitoring system, and a clear payment mechanism. Oversight in the public sector relies more on traditional performance evaluation methods such as quotas and key performance indicators/behavioral indicators. Financial models in PPPs are complex and may involve various revenue streams, such as user fees and other payments. Oversight includes monitoring financial performance and ensuring the financial viability of the project. The public sector focuses on budgetary considerations, often funded through taxes or government allocations. Another important factor in oversight is ensuring that private companies are not selected due to incentives provided to public sector employees. The tendering or procurement stages can take a long time and it is important to maintain transparency during the selection process and have clearly defined requirements throughout.

PPP contracts may allow for more flexibility and adaptability to changing circumstances, with mechanisms for renegotiation if necessary. Oversight involves ensuring that changes are in the public interest. Oversight in the public sector may be more constrained by bureaucratic processes, and while this often leads to slower adaptability to changing circumstances, there are delays associated with PPPs too (Matsumoto, Monteiro, Rial & Ozlem, 2021).

Another consideration is stakeholder engagement. In PPPs, oversight may include a broader range of parties, including the public, investors, and lenders. The public sector typically involves engagement with citizens and other relevant stakeholders, but the dynamics may be different. In both cases, effective oversight is essential for ensuring that public services are delivered efficiently, transparently, and in the public interest. However, the specific mechanisms and focus areas will vary based on the nature of the partnership and the entities involved.

In terms of PPPs, the trending issues of transparency, capacity, and trust are discussed at length by Casady, Eriksson, Levitt, and Scott (2020) in terms of the new public governance (NPG) concept. They set out to determine how PPPs are defined within the NPG models under institution maturity. As governments increasingly depend on collaboration between the public and private sectors, the traditional definitions and frameworks for PPPs require further examination. The basis of legitimacy, capacity, and trust is based on Mahalingen et al.’s framework (Casady, Eriksson, Levitt, and Scott, 2020) and is favored as the foundation of NPGs and Institutional Capabilities (Casady, Eriksson, Levitt, and Scott, 2020).

In viewing legitimacy, capacity, and trust as pillars in their framework of PPP Institutional Maturity it is suggested that without one of these pillars, the structure or integrity is weakened overall. The citizens, through these pillars, ought to be empowered to trust that the PPP is legitimate and that the contract or project has been secured fairly, based on merit and the ability of the contractor. Furthermore, citizens must be able to trust that the work carried out will be efficient, transparent, and predictable. The partnership must have the capacity to succeed in achieving the goal under the agreed terms of the contract. The government must be able to ensure that this happens, through inspection and oversight. Given the fluid nature of these interdependent relationships, and the organizational differences, such as communication structures and styles, it is important to re-evaluate the understanding of PPPs when carrying out inspection and oversight of PPPs.

Inspection and oversight over PPPs can pose unique challenges compared to traditional public agencies. PPPs often include complex contractual arrangements that focus on the detailed allocation of risks, responsibilities, and rewards. Oversight needs to navigate through intricate contractual arrangements to ensure compliance and value for money. Another key difference is the allocation of risk. The private sector often assumes various risks in PPPs, such as construction, operational, and revenue risks. Oversight must evaluate whether the risk transfer is equitable and whether the private partner is managing these risks effectively. PPP contracts often include performance metrics and financial incentives to drive efficiency and quality of service. Oversight requires monitoring these metrics and ensuring that the incentives align with public interests. Ultimately the private sector partners in PPPs are motivated by profit, which can sometimes create tensions between profit motives and public service objectives. Oversight needs to balance the profit motive with the public interest in a way that ensures that the private sector partner does not benefit above what is an acceptable industry standard to the detriment of the public purse. Another challenge is that PPP contracts often span several decades (Matsumoto, Monteiro, Rial & Ozlem, 2021), and oversight needs to consider the long-term implications of the partnership, including the continuity of oversight. Changes in circumstances, economic conditions, or technology may require adjustments during the contract term. Public services often evolve with changing societal needs. Oversight of PPPs must be adaptable to accommodate changes in service requirements and ensure that the partnership remains responsive to public needs. Also, stakeholder engagement in PPPs can be more complex, involving not only the public but also private investors, lenders, and other stakeholders. Oversight requires managing diverse interests and motives. ESPN & Eurodad state 8 failings of PPS, providing examples for all eight in their report.

1. PPPs do not bring new money – they create hidden debt
2. Private finance costs more than government borrowing
3. Public authorities still bear the ultimate risk of project failure
4. PPPs don’t guarantee better value for money
5. Efficiency gains and design innovation can result in corner-cutting
6. PPPs do not guarantee projects being on time or on budget
7. PPP deals are opaque and can contribute to corruption
8. PPPs distort public policy priorities and force publicly run services to cut costs

Both articles from ESPN & Eurodad and CATDM are damning in their assessments of PPPs and detail the failings, both in the Global North and the Global South.

In Ireland, the use of PPPs has negatively impacted the legitimacy, capacity, and trust of the Irish government. An example of this is the new National Children’s Hospital currently under construction in Dublin, Ireland. Commissioned in 2018, the proposal for a national children’s hospital was first revealed in 1996, facing numerous delays from the outset, including the selection of a suitable location. The National Pediatric Hospital Development Board (NPHDB) was established in 2007 to oversee the project, choosing a location near St. James Hospital in Dublin in 2012. The design project was awarded to a UK building firm in 2014, obtaining planning permission in 2016. By early 2018, the NPHDB raised concerns about the project's affordability, exacerbated during the COVID-19 crisis with temporary construction halts and disputes over associated costs. In July 2023, the Oireachtas Committee informed that the estimated cost would likely exceed 2.2 billion euros, with the new expected completion date in May 2024, a significant deviation from the initial 2020 completion estimates and 650 million euros cost projection. The strained relationship between the NPHDB and the contractors, marked by contractual non-compliance, has led to consistent reporting of project failings, causing erosion of trust in the government and the capacity of this PPP. The breakdown in the relationship raises questions about the government’s ability to manage and maintain contracted PPPs, suggesting a lack of proper contract development. It appears that the government is at the mercy of the contractor and the public purse, funded by the taxpayers, appears to be unending, despite the contractor’s best efforts. This example highlights the need for proper inspection and oversight in PPPs and the complex issues that arise from PPPs when there is inadequate inspection and oversight.

The special problems in inspecting and overseeing PPPs arise from the complex contractual arrangements, risk transfer, profit motives, the long-term nature of contracts, and the need to balance private sector efficiency with public service objectives. Effective oversight in PPPs requires a deep understanding of these complexities to ensure that public interests are protected throughout the life of the partnership and continuous assessments, reviews and communication are key in tackling these issues, while also considering the needs of the private organization. PPPs are not encouraged by the E.U Trade Union (ESPN & Eurodad, 2020), but rather they advocate for public funding. “If you’re a good public sector, you shouldn’t need PPPs. If you’re bad, you shouldn’t go near them.” (ESPN & Eurodad, 2020) However, the EPEC (2015) issues guidelines to PPPs, acknowledging that PPPs are a vehicle for goal delivery and should not be considered the final product. PPPs bridge a necessary gap when public funding is unable to cater to all the public’s infrastructural needs. With good inspection and oversight and proper procurement processes, PPPs can contribute positively, as such developing these is essential.

References

Carter B. Casady, Kent Eriksson, Raymond E. Levitt, and W. Richard Scott (2020): (Re)defining public-private partnerships (PPPs) in the new public governance (NPG) paradigm: an institutional maturity perspective.

https://www.tandfonline.com/doi/abs/10.1080/14719037.2019.1577909 accessed 12/14/2023

Chishiro M, Rui M, Isabel R, and Ozlem S (2021) Mastering the Risky Business of Public- Private Partnerships in Infrastructure.

https://www.elibrary.imf.org/view/journals/087/2021/010/article-A001-en.xml accessed 12/14/2023

Collective, Eurodad, Latindad, and ODG (2022) History RePPPeated II : Why Public-Private Partnerships are not the solution.

https://www.cadtm.org/History-RePPPeated-II-Why-Public-Private-Partnerships-are-not-the- solution accessed 12/14/2023

EPEC (2015) PPP Motivations and Challenges for Public Sector. Why (not) and how.

https://www.eib.org/attachments/epec/epec_ppp_motivations_and_challenges_en.pdf

accessed 12/14/2023

EPSU & Eurodad (2020) Why public-private partnerships (PPPs) are still not delivering.

https://www.eurodad.org/why_public_private_partnerships_are_still_not_delivering#:~:text= There%20are%20eight%20main%20reasons,ultimate%20risk%20of%20project%20failure. Accessed 12/14/2023

Hovy, P (2015) Aligning Public and Private Interests in a Public-Private Partnership: Safeguarding the public interest while allowing private returns.

https://www.iisd.org/system/files/publications/aligning-public-private-interests-in-ppp- discussion-paper.pdf accessed 12/04/2023

Johnson, W.C. (2014). Public Administration: Partnerships in Public Service (5th Edition).

Houses of the Oireachtas (2023) National Children’s Hospital Dail Eireann Debate. https://www.oireachtas.ie/eHn/debates/question/2023-06-22/319/ accessed on 12/14/2023

RTE News (2023) Cost of new children’s hospital could top €2bn, Oireachtas committee told.

https://www.rte.ie/news/ireland/2023/0712/1394139-national-childrens-hospital/ accessed on 12/14/2023

Hilliard, M (2023) The Irish Times: Just 27 rooms at National Children’s Hospital finished out of 3,000, committee hears.

https://www.irishtimes.com/health/2023/07/12/national-childrens-hospital-completion-date- to-be-revealed-next-week-oireachtas-committee-told/ accessed on 12/14/2023

Cullen, P & Wall, M (2023) The Irish Times: Rising cost of national children’s hospital a scandal in the making

https://www.irishtimes.com/news/health/rising-cost-of-national-children-s-hospital-a-scandal- in-the-making-1.3739648 accessed 12/14/2023