In the last twenty years a number of developed and developing countries around the world have used public-private partnerships in a variety of sectors, ranging from transport and utility infrastructures (e.g. bridges, roads), to social infrastructures (e.g. schools, hospitals and prisons).
A public-private partnership (PPP) involves a long-term contract between a public body and a private party for the provision of a public service, or for the development of an infrastructure, where the private party assumes substantial financial, technical and operational risk in the project. Hence public-private partnerships are very different from traditional public-private procurement because they involve not just the provision of an infrastructure, but also its operation, and they lead to some form of sharing of the demand risk between the public procurer and the private provider.
Usually public-private partnerships are undertaken to exploit synergies between the various stages of the provision process, to provide incentives to the private partners to internalise operational and maintenance costs in their investment decisions, and to benefit from private partners’ managerial capabilities and technical and sectoral know-how.
Competition delegates took part in a Hearing on Public-Private Partnerships on 16 June 2014 to examine the major benefits and drawbacks of these type of contracts, the conditions under which they are most effective in delivering value for money, how the award process can be organised to ensure an adequate level of participation by private parties and an effective selection process.
Key conclusions from the discussions included:
- Reaping the benefits of PPPs: PPPs can offer a number of advantages. For example, the private sector has financial and managerial expertise that can help to better evaluate the risks entailed by complex projects, as well as to manage them more effectively. Also, the bundling of building and running infrastructure ensures a good balance between upfront investment in quality and investment for maintenance. However, in order to reap these benefits it is necessary to apply a robust methodology to determine whether a PPP is the appropriate investment structure in the case at hand. PPPs may, for example, be inappropriate for low value projects and for sectors where technology or demand change fast.
- Impact on competition: The complexity of PPP contracts, caused by the bundling of various project phases, may lead to limited participation in the tender, especially by SMEs, and thus favour anticompetitive agreements among the few potential players. Also, bundling and long term contracting, typical for PPPs, could cause market foreclosure. Therefore, ancillary services i.e. those services that are non-core, should be contracted out separately and for shorter durations. This prevents the exclusion of firms that can only deliver ancillary services and ensures that long term contracts are used only for those project that require it.
- The use of standardised contracts at the bidding stage: With standardised contracts designed centrally for each sector the bidding process could become more transparent and would allow a more level playing field.
- Design contracts with care to avoid unnecessary renegotiation: Long-term contracts inevitably cannot foresee all possible market changes and some renegotiation of PPP contract terms is unavoidable. However, the possibility of renegotiation should not be such as to give incentives to bidders to act strategically and disrupt the performance of the contract.
- Encouraging cross-border participation: Harmonisation of PPP legislation should be encouraged to boost cross-border participation of firms and thus increase the number of bidders.
See the all text of the Summary of Discussion of the Hearing.