Stanford University’s Carter Casady on the performance of Public Private Partnerships
Linked below is a 20-minute interview with Stanford University’s Carter B. Casady on the findings of academic research into the performance of privately financed Public Private Partnerships (PPPs).
Here’s a summary of key points from the interview, and some Infralegal observations:
How do PPPs perform relative to publicly funded contracting models?
Cost: The cost performance of PPPs relative to publicly funded contracting models is mixed, for lots of reasons. But overall, the evidence suggests there is either no cost difference, or PPPs tend to be more expensive. But this has implications for service quality.
Time: PPPs seem to perform better at on-schedule delivery. Carter attributes this primarily to the financial discipline that private finance brings to PPPs.
Service Quality: Service quality on PPPs tends to be superior to that achieved with publicly funded contracting models. The link between service quality and the PPP’s revenue stream drives greater capital and maintenance expenditure, which also explains why PPPs tend to be more expensive.
Value for Money: PPPs may be more expensive, but service quality tends to be higher. If the higher service quality is value for money, then the extra cost is money well spent. Government agencies should avoid specifying excessive ‘gold-plated’ service requirements.
Lack of data: Despite modern PPPs being used for over 30 years, there is not a lot of evidence on their efficacy and performance. Accordingly, these findings are based on limited evidence. Finding appropriate counterfactuals, so that PPPs can be compared against publicly funded contracting models on an “apples-v-apples” basis continues to be a major challenge.
What’s the most critical success factor?
Public sector capacity: There’s broad consensus that PPPs are more complex than publicly funded models. A minimum level of public sector sophistication needs to go into project planning, preparation, procurement, and contract management. This is often underappreciated, even in developed markets.
Infralegal observation: Governments should invest more in training their people, and in the astute use of experienced consultants at all stages of the project, not just the procurement phase.
Are Progressive/Collaborative PPPs a good idea?
Jury still out: Progressive PPPs involve the public sector selecting its private sector partner much earlier in the project development process based on non-price criteria, co-developing the project with the partner, and sharing the project development risks. Carter says the jury is still out on whether they are a good idea.
Supported by industry: Industry likes the concept because risks are genuinely shared. Industry considers that traditional fixed price fully bundled PPP contracts transfer too much risk to the private sector contractors.
Public sector concerns: Primarily around the lack of competitive tension making it hard to gauge whether the public sector is getting best value. The public sector likes the simplicity of tendered fixed prices for a fully bundled PPP contract.
If you’d like to learn more about Progressive/Collaborative PPPs, we recommend you read this Infralegal Report on Collaborative PPPs
The interview concludes with some interesting observations on:
the suitability of the PPP model when integrating new technologies into operating infrastructure assets to achieve emissions reductions; and
the opportunities that operational PPPs present to governments when PPP contracts expire.
If you’d like to learn more about Carter’s research, he has recently published a book on the topic that can be purchased via this link.
With thanks Paul Jarvis and Jonathan Davis at the P3 Bulletin, who conducted and published the interview.
