PPP Contracting options
PPP, an acronym for public-private partnership, describes a venture that is financed and operated via a partnership between the government and a company in the private sector. In the contractual agreement, the private entity offers a public service and assumes a significant technical, financial and operational risk. For a contractual agreement between the government and the private entity, the following options are available.
1. Design-Bid-Build: - Firstly, an engineering design firm is contracted to establish guidelines on the required materials, equipment and the potential costs to complete the project. The private sector is then invited to bid on the provided specifications with the winning contractor undertaking the construction. Financing of the various steps as well as management and maintenance is done by the public sector.
2. Design-Build:- It involves a contractual agreement where the private company that designs the project undertakes its construction with the public sector bearing the responsibility of its financing, operation and maintenance.
3. Private Contract Fee Services: - This contractual agreement where a private firm specialized in specific services like operations and maintenance of infrastructure held by the public is accorded such responsibility by the government.
4. Build-Operate-Transfer: - The public sector is liable for the funding of the infrastructural development as a private entity provides the construction and operation. However, the public sector takes over the infrastructure after a specified period of time. Alternatively, the public sector can extend the operating contract to the same operator or invite other bidders.
5. Design-Build-Finance-Operate:-The private sector is responsible for designing, funding, and operating the infrastructure although the government still owns it. The expectation here is that all the contracted debts used in the construction will be recovered through the revenues generated.
6. Build-Own-Operate: - In this contractual agreement, the private sector is responsible for the designing, construction, operation, management and maintenance for as long as the concession duration stipulates. The public sector is involved in the enforcement of the regulatory framework and ensuring that the terms of the contract are followed by the private entity. (US Department of Transportation, Federal Highway Administration, 2007)
I would recommend that the ministry opts for the Design-Build-Finance-Operate. This is because the government is absorbed of the risks relating to the financing of the project. While the government remains the owner of the newly constructed hospital and the rehabilitated one, it avoids any direct payments from the users of the facility. The government will also benefit in that it circumvents getting into debt and spreads the costs of constructing the hospital over the many years of exploitation (Pakkala, 2002, p.120).
The following are common arguments against public private partnerships:-
1. Public private partnerships result in job losses: - The most vocal critics and believers in this myth arthe public employeeee unions. Their major reservation is that handing over government responsibilities to private entities will lead to significant loss of jobs for public employees. As a matter of fact and by any statistical measure, there have been no massive job losses as a result of public private partnerships. Any reductions in the workforce have happened normally via attrition as opposed layoffs (European Commission, 2003, pp13). In retrospect, the public employees are employed in the light of their institutional knowledge.
2. The creation of public private partnerships erodes local control: - This ideology is held by civic leaders in local governments. There is sufficient evidence to suppose that local authorities possess as much control over these partnerships as they desire to exercise. The local authorities can restructure contracts in order to ensure that there is a preferred level of oversight as well as hands on control if so desired. Local authorities can actually benefit from these partnerships by tapping into their resource and expertise base in order to improve their service delivery.
3. Private companies may not be accountable to the public: - This school of thought is held by government watchdogs. Their fear is that turning over government operations to private entities will amount to a loss of accountability, a proposition that is simply not true. Private entities entering into partnerships with the public agencies are not only accountable to the agency but also other federal regulators and congressional oversight committees. The government and the private entities have vested interests in their partnership and therefore will work with equal motivation to maintain confidence with one another.
4. Private companies might pursue quality at the expense of quality: - This belief is held by industry players in the field of quality assurance and those offering similar services. This is not true because in structuring the contract, the public sector can control the desired quality indicators. The public sector can also employ performance based contracting, a concept that enhances the private entity’s creative ability to provide cost effective products and services and the quality levels desired by the public. These stakeholders can join in the contracting process in order to define quality demands that are expected of the private entity.
5. Public private partnerships might be affected by international trade agreements: - This is a recent reservation on the feasibility of public private partnership due to international trade agreements. Heads of supply and procurement firms argue that entering into a public private partnership with a company that is headquartered elsewhere might have long term financial implications arising from the trade pact. The truth is that even though the private entities might be headquartered elsewhere, they are still incorporated in the country and therefore fall under the contractual laws of that country. This by far eliminates any imminent complications that may result from international trade agreements (National Council for Public-Private Partnerships, 2003, pp10-13).
Public private partnerships take different forms. No two forms of public private partnerships are unerringly alike. Forms of public private partnerships include:-
1. Operations and Maintenance:- Under this form of public private partnership, a public partner, usually a state, federal or local government agency enters into a contractual agreement with a private entity to offer and/or maintain a specified service. In this form of partnership, the public partner still retains tenure and the overall management of the contracted public amenity. This form of public private partnership is very viable in the operation and maintenance of light rail systems in major cities. These transport systems would benefit from this form of public private partnership because of inadequate budgetary allocations in the docket of transport. This would ensure that citizens still benefit from favorable transport systems (Sampson, 2009).
2. Operations, maintenance and management: - A private firm is contracted by a public entity to run, maintain and manage a public system. The differentiating characteristic here is that the private entity manages the facility and can therefore invest its money in the facility and receive increased returns over the concession period. However, it is to be noted that the public entity still owns the facility although it has relinquished the management roles to the private entity. This form of public private partnership can be successfully applied in the wastewater management systems. These systems would benefit from this form of partnership because the existing government structures might not be able to maintain adequate levels of wastewater treatment and any expansions that are required due to inadequacy of funds.
3. Lease/Purchase:- This is an installment-purchase contract where a private entity finances and constructs a facility and then leases it out to a public agency. While the public agency makes scheduled payments in terms of the lease, the private entity accrues equity in the facility with every payment made. At the tail end of the lease agreement, the public entity owns the facility or alternatively, purchases it a price commensurate to any unpaid arrears in the lease agreement. This form of partnership can be applied successfully by the General Services Administration sector of federal governments when constructing federal office buildings. Prisons and correctional facilities can also benefit from this form of public private partnership due to congestion facing the state run correctional facilities and prisons (The National Council for Public-Private Partnerships, 2000).
Although the exists a level of generality where management is management whether private or public notwithstanding, functions that carry similar identities assume a rather different meaning in the private domain. The following are contrasts between public and private management.
1. Time perspective: - Public managers have a short term time perspective that is dictated by political calendars and events whereas private managers have a long term time perspective that is oriented towards organizational building, market development and investment.
2. Duration: - Politically appointed managers have a short term in office when compared to private managers who have long terms in office. Private Managers also take time to train their replacements and other potential candidates, a concept that is alien in public management as the notion is considered to be dangerous.
3. Measurement of performance: - Unlike in private management, there is very little if any measures put in place to appraise the performance of managers in public management.
4. Equity and Equality: - Public management places more emphasis in ensuring equity and equality in its various administrative units whereas private management emphasizes on efficiency, competitive performance and output.
5. Persuasion and direction: the Public management has to mediate between various pressures and more often than not put in a collaboration of inside and outside groups to implement directives. Conversely, private management operates through the issuance of directives and orders to the subordinates with very little chance of contradiction.
6. Legislative and judicial impact: - Public management is subject to the close eyes of watchdogs like legislature and judicial bodies in ways that are alien in private management.
7. Bottom line: - Unlike in private management where the bottom line is market performance, competitive advantage and profits the public management that may not have a clear bottom line (Allison, 1980, pp28-29).
Considering the contrasts between public and private management, a public private partnership might PPP might be the only effective way of addressing the current crisis and getting the XWC back on its feet. This is because public private partnership offers very innovative solutions to issues surrounding the design of water systems. Through such partnership, there would be faster completion of initiated projects and better value for money especially over the span of the works. The company would also benefit from the better risk allocation, greater certainty in operation and construction cost estimation. Finally, the company would benefit from improved and enhanced operational performance (Water Services National Training Group, 2004, pp3).
Studying the strengths and weaknesses of various projects implemented in different countries is an imperative undertaking before implementing a project. Public private partnership toll roads have been implemented in many countries all around the globe. For over two decades, the Malaysian government has exploited public private partnership toll roads to improve its infrastructure. The Malaysian toll road public private partnership program has displayed several strengths.
The most palpable strength is that despite the many weaknesses that have rocked the program, the government has been able to provide good infrastructure for its citizens. The government has also provided institutional support from the inception of the projects to completion. Through the program, the private sector has been able to propose toll roads instead of waiting for proposals from the government, a move that has increased the expansion of the road network (Ward, 2005, pp56-70)
The Malaysian toll road public private partnership program has been successful in expanding the road network in the country. However, the program has a number of weaknesses. The most apparent notion is that the management of the political risk involved. There is very low transparency and public involvement in the program, something that has bred the belief that contracts are allocated on the basis of political cronyism, as opposed to social benefit. This has resulted in protests that have forced the government hand into limiting the proposed toll fees, increasing and renegotiating contracts with concessionaires. Since the government is required to compensate the concessionaire for forgone revenue, the government finally shifts the financial burden to the taxpayer in the long term.
Another weakness of the program is that financial viability may take greater precedence during decision making as opposed to the need for a certain road or its place in the regional transportation network. The problem is that this may result in increased highway infrastructure at the expense of other transportation infrastructure (Ward & Sussman, 2005, pp121-123)
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