The Concept of Public-Private Partnerships - Literature review Example

The Concept of Public-Private Partnerships Background The Second World War ended with a major issue that changed the definition of trade, commerce and business in nations around the world. The deaths, carnage and destruction that came with the war meant that most nations around the world – in Europe, Asia and the Soviet Union, there was the need to reconstruct elements of the society and also redefine new structures for the better management of affairs in these countries. One of the main features that came with this was the establishment of Keynesian-based welfarist economic models that were used in most nations around the world[Mil90]. This proposed that economic power must be centralised within the public sector and the public sector ought to operate in such a way that it would ensure total employment and promote the welfare of members of the state[Key06]. However, by the 1970s, numerous authorities, including Milton Friedman proposed supply-side economics that was to ensure that the public sector could be weakened in order to promote free enterprise and capitalism which would in turn lead to the efficient use of resources by various organisations in a given state[Bro12]. This led to the decentralisation of governance and the promotion of property owning capitalist measures that led to the creation of a vibrant private sector in many nations that acted as the engines of growth in these nations[Mom13]. Towards the end of the Cold War, nations like Britain adopted these Friedman-based ideas and theories in order to cut down on their public sector expenditure and promote the private sector. This is effectively the genesis of modern-day PPPs. The Concept of Public-Private Partnerships (PPP) The concept of PPP is difficult to define. One of the approaches to defining PPP is to define the concept of partnership. Partnership is viewed as “a joint ventures with shared risks and profits”[Ged14]. A PPP is an agreement/partnership made between public and private sector partners which allow more private sector participation in an entity that is traditionally meant to be a public sector organisation[Bau131]. This means the idea of PPP is meant to create a framework through which members and entities in the private sector could be included in providing various products and services to members of the public through a public-sector entity or organisation. This allows the public sector to get expertise and skills that would allow the public sector to gain important gains in their processes and activities. Thus public sector in partnership with private sector work together to improve performance through mutual objectives and devising ways of achieving continuous improvement and enhancement[Ged14]. In the case of PPP, “...there are several parties that combine forces to define and/or accomplish an objective”[Kuh10]. They are different from privatisation which involves the handing over of a public sector entity to private entities in totality[Kuh10]. PPP means delivering services through the combined efforts of the private sector to achieve profitability on one hand for the private sector entities and effectiveness on the part of the public sector[OEC13]. Therefore, PPP projects are implemented through a framework through which public sector projects are refined and improved in order to meet the needs and expectations of stakeholders thus creating a win - win situation for all parties involved, the public, private and the stakeholders. The United Nations on the other hand provides a definition that encompasses international levels of PPP. The definition states that PPP is a “...voluntary and collaborative relationships between various parties, both State and non-State, in which all participants agree to work together to achieve a common purpose or undertake a specific task and to share risks and responsibilities, resources and benefits”[Uni11]. This implies that the United Nations’ definition of PPP is one that brings together private and public entities at the state level in order to achieve a common objective. Thus the common theme that runs through all the different definitions is the facts that PPP is a system through which the two components of the economy work together to share risks and achieve results. Hence, PPP means the consolidation of efforts and the leveraging of the different aspects of the economy to achieve desired ends by sharing strengths and ameliorating weaknesses. PPP in Ireland – Origins and Evolution Ireland has had its history of public sector dominance which came with many issues including the poor utilisation of resources, and major challenges including the waste of resources in many facades[Bro12]. In Ireland, consciously arranged PPP were introduced on a pilot basis in 1999[Hea09]. A stimulus injection into the economy had to come with major requirements and expectations for the achievement of various ends and objectives[Ree12]. The past trend of getting public sector entities to spend all the money they received from public funds and request for subventions gave impetus for the creation and maintenance of a system in which the private sector could be included in the activities of the public sector[Hea09]. A total of 2.5 billion Euros were put together and injected into the Irish economy in the early 2000s and this was injected through the PPP model[Ree12]. This marked the turnaround period for the Irish public sector and its related entities and activities. Therefore, there was a public policy objective that was put in place after 1999 in Ireland that was based on promoting PPP in the areas of procurement and supply in the country[Ree12]. There was the centralisation of the PPP system in order to provide support and assistance to various units and various components of the economy any time there was a partnership of private sector actors and public sector players[Cel13]. Ireland’s Central PPP unit was to provide stakeholder consultations, benchmarking and other tax guidance that was to ensure that these partnerships were streamlined and discharged in the right way[CUt14]. This includes the various elements relevant to appropriate delivery and the meeting of effectiveness targets and ends that were the very essence of PPPs. The use of the private sector in public projects in Ireland led to a trend of promoting innovation and improved/enhanced results in these projects that typically came with major issues and shortfalls[Rag13]. Legal Framework for PPP in Europe & Ireland PPP are part of the European Union’s rules and directives meant to create and maintain a better system and procedure for completing projects in order to achieve desired results. There are three pointers in PPP in the European Union and they include: 1. Delivering high quality infrastructure projects; 2. Providing services to the public and 3. Finance innovation[Eur11] These three pointers have formed the basis of various directives by the European Commission that are aimed at getting public sector entities to use various competitive methods to involve the private sector. The procedure includes amongst other things, various approaches of ensuring transparency and fairness in selection and monitoring of operations and activities. Table 1: Procurement Laws of Europe Procurement Law Year Nature Purpose Single European Act 1986 Treaty Revision Remove all barriers including procurement barriers that protected various public entities in the member states. This thereby created the impetus for procurement laws to be made Services Directive 1992 Directive This liberalized the public sector and allowed private entities to participate in the provision of services across boundaries of member states. Utilities Directive 2004 Directive Coordination of procedures for the award of public sector contracts in the areas of energy, water, transport and postal services Remedies Directive 2007 Directive Improving the procurement laws that existed Table 1: European Union Laws on Procurement The Central PPP unit of Ireland is invoked as a system and means through which PPP is carried out in the country and it is done through the identification of the best combinations and systems. This is presented in a way and manner through which value-for money is integrated and delivery quality is promoted and entrenched. The National Development Finance Agency Act (Amendment) Act 2007 extends the functions of the National Development Finance Agency (NDFA) to allow it to control the procurement of the country in a way and manner that is centralised. The National Development Finance Agency Act, 2002 aids in providing advice to state authorities including government dependencies on how to deal with financial risks and the provision of optimal financing for public investment projects. These are meant to enable authorities to integrate sustainability and other important visions of the society in order to provide a framework of acceptably high levels of sustainable development and growth in the country and the economy. The State Authorities (PPP Arrangements) Act, 2002 provide participation of private sector in relation to the achievement of the goals of the Irish state. Since it has become apparent that sustainability is a central element and aspect of the government’s goals and expectations, there is the general trend towards a framework of working towards sustainable growth and development of the economy. Figure 1: PPP Model & Its Fundamental Structure [5GP14] The European adoption of PPP traditions and processes have been done in such a way that a code of best practices have evolved over the years. And this implies that projects that are executed in the framework of PPP ought to be done under sound economic basis and this should be practical and logical[5GP14]. This has to be complemented by a well defined and an appropriate legal framework that states the obligations and requirements of all partners in the process Political and stakeholder support ought to be solicited and attained, even if it is done in an informal manner. This must be done within a definite and supportive regulatory framework to ensure that things are done systematically. Then, there is the need to pay attention and adjust to social and relevant environmental factors to ensure that a PPP process or system is well structured and executed in the process. Finally, there must be transparent and competitive bidding processes to assist and ensure that things are done properly in a PPP framework. These are the main features of PPP projects as and how they are adopted by the European Union, and this ought to be replicated throughout all European projects. Public-Private Partnership Project Framework In order to complete a successful PPP project, there is the need for some measures to be taken in order to assess the project and execute it as appropriate. This normally follows the pattern of project management. However, due to the specialized nature of PPP, there are some additional features and enhanced elements that are integrated into the standard PPP project. This includes some extra work that ought to be done and this comes up with various inputs and activities that will not normally be found in other projects. Appraisal Stage It must be recounted, that in the normal sense, a PPP project is often a part of a wider policy or programme[Dep14]. A policy is a high level plan of action that incorporates general goals and this is proposed by the ruling government given the political power to take such decisions[Dep14]. An example of a policy is to provide free and compulsory primary education to a group of children below a certain age. A programme is a body of procedures and projects that are meant to come together to achieve the policy goals and objectives. A project is a single activity with a definite end in a programme and it can be achieved and measured in the specific sense. Therefore, in order to complete a project, there is the need to appraise it in terms of the general programme goals as well as the specific conditions and requirements of the project stakeholders. In order to appraise a project, there are some key pointers that ought to be observed in order to assess and evaluate the project appropriately: 1. Establish the policy need: There is the need to identify the specific population that are going to be affected by the project in its totality and there is the need to identify the roles of both the public sector and the private sector partners in relation to specific pointers and needs. 2. Definition of Policy Objectives: There must be objectives that will be defined after assessing the policy needs. This should include specific and measurable standards that can be achieved. Once this is done, there can be some room and an opportunity to apportion various aspects of the work between public stakeholders and private stakeholders. 3. Describe the Policy Options: There are numerous options that are available for the project to be completed. And appropriately, there should be an appraisal that will identify where public and private players must be brought to play and what they have to do in each of the option frameworks. Here, metrics may be put in place to evaluate potential private partners where necessary. 4. Details of the Cost, Benefits, Risks & Their Relevant Impacts: After options are appraised and evaluated, there is the opportunity to attach costs, benefits and risks and this can be put together and aggregated in order to draw a framework of costs and benefits for public and private entities that must be involved in the entire process. 5. Identification of Funding Implications: The resources available for the execution of the project must be matched against the cost-benefits that are in place. These funding implications should be brought together to provide a realistic information set that can be presented to the entire programme stakeholders and also put in the context of the entire policy. 6. Preferred Project Option: The notification of the limitations of the resources should lead to the presentation of a series of options for public-private stakeholders and their actions. This will culminate in the choice of one or several options for the completion of the project. This will be done after examining the relative merits for each of the projects. Based on these pointers, a project can be put together in order to define the project framework and the cost implications and matters relating to a given project. This will also be the basis for the selection of public and private partners in a PPP project and this can help to do some initial assessments and indication. A new system of value for money measures are to be created in the educational sector of Ireland. And this is to be done through the introduction of measures that value sustainability standards and rules[Raj141]. These sustainability rules and regulations can be interpreted and integrated into measures and appraisal frameworks. This is complicated but it is quite possible if the metrics and measures are quantified and integrated into the systems of evaluating these new educational projects and educational infrastructural developmental processes. Planning Stage After the evaluation and appraisal stage, there is the need to prepare a full and comprehensive business case for a PPP project[Rob12]. This involves numerous detailed analysis and reviews of the project and the drawing up of different metrics and standards in order to conduct the entire research and processes. In a typical construction project, this will include the build up of costs and the definition of metrics and targets including discounting and the definition of some vital and important measures. Elements of innovation and other traditional efficiency matters are often handed over to private entities whilst the management aspects might either remain in private hands or public hands. This is decided in this phase and detailed drawings and evaluations are done at this point in order to get the project to commence and proceed as required or expected. Supply chain matters and project delivery metrics and standards are also assessed and evaluated. At the planning stage, most PPP projects involve the selection and choice of partners. This is done through the initial identification of what needs to be accomplished and how it must be done. The planning stage also has to create a single point of reference where the different project components can be measured and reviewed[Rob12]. Implementation Stage In order to achieve the main ends of PPP, there is the need for most of these projects to be conducted through a contract management model and system[Cru12]. Contract management is mainly about the implementation and observation of specific deadlines and cost limits that have been predetermined and agreed by both the private and public entity. Other project remains in the traditional scope of public sector project management, which focuses on evaluations and standards steeped in public welfare and similar standards. These projects typically have a limited private involvement and the goals are not really steeped in a majority-private participation. Case for Sustainable Development in PPPs There have been several declarations in the national framework of Ireland that has emphasised on the need for sustainable development. This includes amongst other things, the need to develop the country in a context and situation whereby the long-term growth and the long-term expansion of Ireland is the priority of the relevant authorities. The National Strategy on Education for Sustainable Development of Ireland came in as a major tool and important element and aspect for the development and growth of the country in an organised manner and framework[Dep141]. Amongst the main priorities is to use sustainable structures and systems to develop the country. This implies that the construction of all buildings and projects including those in the educational sector must be done according to the principles of sustainable development. Additionally, Ireland is to be a nation where the next generation is to be educated on the importance and centrality of sustainable development. Hence, it is imperative for the educational ministry and its related infrastructure to follow the fundamental premise it is designed to teach. Therefore, there is a strong justification for sustainable development and growth of the economy. In a thorough examination of the macrocosmic framework, it is apparent that the international community, including the United Nations and the European Union endorses sustainable development[Eva10]. This means that sustainable development is important and a vital part of social affairs. And in most cases, it is apparent that the public sector is not up to the task of developing construction projects that meet these sustainability targets. This is because there are often technical standards and targets relating to construction and other specialist activities that most nations cannot produce through their public sector[Eva10]. In other cases, these competencies could be hired by the government to ensure sustainable development and construction. However, it might not make economic sense to hire such professionals because projects of this nature are occasional and do not occur all the time. Hence, there is the need to include the private sector in sustainability based construction projects for the education sector of countries like Ireland. Principles of Sustainable Development and PPP Sustainable development is also steeped in long-term sensitivity to projects and this is based on the need to reduce emphasis on short-term benefits and also get the best of results for the society and the community over an extended period of time[Bau131]. Sustainable PPP therefore looks at how a project can be extended in scope and can be carried out over a long period of time and over a longer time horizon. Hence, the private sector is brought on board as a partner to ensure that a project goes beyond just the immediate benefit and also goes through the traditional goals and expectations which include profitability for the private partners and the welfare-orientation of the public sector. Sustainable PPP is a major approach and a system through which a holistic approach is instituted to implement sustainable projects that will bring better results to the society and all stakeholder. Sustainable PPP involves using a stakeholder orientation to identify the best interest for all people and involving private partners to contribute to the achievement of the best and most significant results[Moa10]. The concept of sustainable PPP goes beyond just seeking economic ends and cutting waste. It goes to great lengths to integrate important elements and aspects of development and construction affairs in relation to production and other activities. Sustainable PPP involves public-private partnerships that are made with targets and standards that include economic, social and environmental matters relating to projects that are completed under them[Man134]. In case of other classifications, sustainable PPP is said to be a system through which public-private partnership is evaluated and measured on the basis of human-indicators and humane standards or targets[Man134]. Therefore, the contract for the PPP is constructed in a way and manner that integrates the humanitarian and human standards that are expected of the projects. Sustainable development in PPP is also viewed and evaluated from the context of sustainable development objectives that are evaluated in a Whole Life Cycle (WLC) process that examines these objectives throughout the project[Rob12]. This involves putting together a feedback and monitoring system and through this, the project gets some kind of metrics that cuts across economic standards to social, environmental and other human indicators that are observed closely throughout the project. The provision of sustainability targets are based on the constraints and limitations that are set by authorities and relevant stakeholders[Moa10]. These different standards are controlled by the executive, legislature and other interest groups. These important pointers remain essential and must be put into the framework of an organization’s systems and processes and this must guide the way and manner in which things are done. The need for regulations and rules of environmental and social sensitivity are enacted by the law and in PPP projects meant to be sustainable, there is the need to adhere to necessary regulations and rules as a de minimis[DeV12]. This integrates social infrastructural values into the activities relating to public infrastructure. This is because there is the need to find a practical and a technical system through which there could be evaluation and analysis of the value of money that the government spends on PPPs from the consolidated fund of taxpayer monies. Review of PPP Educational Buildings in Ireland There are a number of projects that have been carried out in Ireland’s education sector and this includes major activities and projects that are carried out. This section of the paper will evaluate and analyse some of the most important and most significant educational building projects in Ireland over the past decade. These will be evaluated over a sustainability model whereby the economic, social, environmental and human indicators are going to be assessed to provide an insight into the projects. Department Project Classification Operational from Payments to end 2012 (€m) Projected future payments in NOMINAL terms (€m) Projected total expenditure (€m) Year of final payment PPP Company Education National Maritime College DBFOM 2004 80.1 116.2 196.3 2029 Focus Education (NMC) Ltd. Cork School of Music DBFOM 2007 52.3 176.9 229.2 2032 CSM PPP Services Ltd 5 Pilot Schools DBFOM 2002 118.1 188.4 306.5 2027 Schools Public/Private Partnership (Ireland) Ltd Schools Bundle 1 DBFOM 2010 27.3 237.5 264.8 2035 Macquarie MPFI Schools Bundle 2 DBFOM 2011 26.2 325.8 352.0 2036 Macquarie, Sisks (Pymble Schools Ltd) Schools Bundle 3 DBFOM 2013 Nil 401.1 401.1 2039 BAM PPP Ltd Total Education 304 1445.9 1749.9 Table 2: PPP Projects & Investments in Irish Education (Central PPP Unit, 2014) The National Maritime College of Ireland (NMC) was meant to be an innovative project that was meant to provide important measures and systems to build an independent institution that was not under the control of the Cork Institute of Technology which gains public funding[Doy07]. Doyle goes on to identify that provide safety and other specialised methods and approaches of dealing with issues and matters in education and training. The building and management of the project was proudly done through the PPP model. From the onset of the project, there was a lack of resources and this encouraged the project stakeholders to invest and integrate important processes and activities. The project came with national and local stakeholder needs that were put into the project. There was also a green field site that was created and protected in the project as a means of meeting the sustainability projects amongst others. The Cork Music School was an idea that would not have earned any kind of attention, had it not been for the contribution of the private sector and some degree of the integration of the profit motive to keep it going. Thereof HOCHTIEF Solutions and Barclays Private Equity entered a contract to finance and operate the Cork Music School for profits, but the public interests and controls were to remain intact[HOC14]. Although the profit motive is intact and there is an expectation of repayment, there are some caveats that prevent the profit motive from enforced on the school. Therefore, repayment is part of the project, but other stakeholder-oriented human indicators are attached to and this creates the foundation for sustainable development and enhancements. The main basis for completing the project and related activities had sensitivities including environmental and social standards and principles. The Schools to be set up by different PPP entities are all being set up as a means through which there could be some kind of profit-motive and stakeholder sensitivities could be integrated into these school projects to promote the best of results. The main basis is to ensure that the profit motive is put in place in order to attract long-term investors who do not demand a return immediately to spread the profit requirements for the schools over a long period of time. This is because tilting towards a purely private model will mean other short-term investors may be brought on board and they will deal with situations in a way and manner that allows them to get too much money over a short timeframe that will definitely come at high costs for the users of these facilities. Therefore, a characteristic of PPP in education is to get a more considerate method of providing essential services at a profit that is somewhat little as compared to other purely private entities and activities. On the other hand, the flexibility of involving private investors selectively and cautiously allows stakeholder needs and expectations to be identified and integrated into the framework of activities. This allows the community and wider society’s demands to be integrated and respected. This is because in other parts of the world where the profit motive is central because investors are short-term oriented, investor sovereignty takes the centre-stage. And this is often negative and detrimental for stakeholder relations. Hence, there is a stronger stakeholder engagement and social interests and desires of the people connected to the projects are considered and respected in all periods and throughout the different timeframes. Finally, the flexibility of taking decisions with stakeholder demands and expectations in sight implies that environmental matters and facts can be brought to board. This is because environmental concerns and matters are taken more seriously than other projects of a profit orientation. Secondly, since the payment for the project is spread over several generations due to the low return on capital, environmental matters are taken seriously because members of the future generations, who are likely to contribute to these PPP educational facilities are taken more seriously. This is steeped in the fact that there is a credible grounds to preserve the facility and keep it of a high standard and in an environmental-friendly state in order to get the future generation to pay and continue to pay for its operation into the foreseeable future. Conclusion Public-Private Partnerships have been instituted in countries around the world due to the need to reduce waste and the need for subventions which is traditionally connected to the poor performance of public sector entities. The involvement of public-private partnership improves the activities of these entities and there is more efficiency and effectiveness in getting the two classes of entities to cooperate to work on public sector projects. The evolution and growth of PPP in Ireland is steeped in European Union standards and expectations that are strongly connected to Ireland. This has also culminated in numerous activities like cutting waste in the public sector which has generally been seen to be one that does not really deliver impressive results. Finally, it is noticed that PPP in the educational sector of Ireland promotes stakeholder interests ahead of shareholder interests. This is because the projects are fundamentally steeped in providing services through funding from third party corporate entities that have a more flexible interest rate at very low percentages, but over long time horizons. This creates a relaxed atmosphere through which the managers of these educational facilities can integrate stakeholder needs and community-wide expectations and other factors like environmental matters. This is because these matters and factors are central and important and they must be considered and they are actually put in place to ensure the best of results. The environmental factors and sustainability matters are justified because the future generation of users of these PPP infrastructures are very pronounced as they are also going to contribute to such facilities by paying off the interests on the loan facilities. 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