The Nature of Contracting Hazards in Public–Private Partnerships—Evidence from Ireland

ABSTRACT

The use of public–private partnerships (PPP) for the procurement of infrastructure and related services can be a complex and challenging process. This article adopts a transaction cost regulation perspective to examine two PPP cases from Ireland that encountered significant obstacles to successful procurement. It finds that both procurements met hazards including uncertainty about the viability of the bids and opportunistic behavior by preferred bidders that held quasi-monopoly positions. The public nature of both cases provided a fertile ground for opportunistic behavior by political opponents and other “interested” parties. The analysis shows how the governance of PPPs is shaped by the attributes of the transactions and the interaction of economic and political hazards that create transaction costs.

KEYWORDS:

• Public–private partnerships
• transaction cost economics
• transaction cost regulation
• opportunism
• governance

Notes

^1. The Department of Health was also known as the Department of Health and Children for a period. Both titles are used interchangeably.

^2. Interviews with Preferred Bidders.

^3. Minutes of Board Meeting of HSE, July 5, 2007.

^4. It was also reported that DCC refused to disclose the terms of the contract to the Minister for the Environment on the grounds that it was contrary to its commercial interests (Leahy, P. and Burke, J. Sunday Business Post, December 27, 2009).

^5. Directive 2004/18/EC of the European Parliament and the Council, March 31, 2004