Identifying a Knowledge Management Approach for Public-Private Partnerships

ABSTRACT

This article examines the knowledge gaps in public-private partnerships (PPPs) for infrastructure, and the preferred knowledge management approach for public managers to address them. By examining transcripts from semi-structured interviews with professionals with direct experience working on PPPs in Texas and Virginia, the analysis indicates that knowledge gaps are greatest in the areas of risk assessment and allocation, public involvement, and consultant management. The findings also indicate that situated, experience-based approaches to identifying and sharing knowledge on PPPs are preferred to transfer learning. The summary implications suggest that even state agencies with extensive experience with PPPs face large knowledge deficiencies in this form of public-private collaboration, and that interpersonal, ongoing methods of sharing practical experiences are critical for cultivating expertise for designing and implementing PPPs.

KEYWORDS:

• contracting
• cross-sector collaboration
• knowledge creation
• privatization
• public management

Acknowledgments

For their helpful suggestions, I am grateful to Daniel Scheller and Steve Coulthart, and for earlier conversations on knowledge management, Gordon Kingsley and Juan Rogers. I would also like to thank all of the interviewees who contributed to this study, and the four anonymous reviewers for their excellent suggestions.

Notes

This study considers capabilities for managing contractor relations before and after contract signing in respect to the design and implementation of contracts (Van Slyke, 2003) and the development of contracts (Yang, Hou, & Wang, 2013).

Thirty-three states in the United States have enacted laws allowing state and local authorities to contract transportation projects as PPPs (FHWA, 2015), and 23 states have completed a PPP or related approach to innovative contracting (PWFinancing, 2014).

Seawright & Gerring (2008) point out that selecting “extreme” cases for research is done as an “exploratory method” to provide an “entrée into a subject” and to allow “more specific hypotheses to come to light” for testing in related contexts (p. 302).

This PPP count, and the definition of PPPs interviewees discussed, includes only PPPs where the private sector finances some portion of the infrastructure facility.

Two respondents classified as public sector respondents in each state had transferred to private sector consulting roles within a year of the interviews, but commented on their experience on PPPs in state DOTs. Public sector respondents included a former state secretary of transportation, a former DOT commissioner, a chief engineer for a DOT, a chief financial officer for a DOT, and past directors of state DOT PPP programs.

Private sector respondents included financial, technical, and legal consultants to PPPs, and representatives from infrastructure developers.

PPPs are highly leveraged in order to reduce the rate of return required for equity investors. The high debt-equity ratio of the financial structure makes the projects particularly vulnerable to unexpected costs (construction delays, toll revenue, etc.) that inflate the premiums required for risk transfer.

An amendment to Virginia’s PPPs law in 2015 requires provisions for additional public sector approval of private decisions—effectively retaining responsibility for more project-related risks (LIS, 2015).

While respondents from both sectors indicated significant public sector knowledge gaps related to risk management, more private sector respondents commented on this issue (Table 2). Respondents generally expressed agreement on the problems with risk allocation; public sector respondents were slightly more concerned about the impact of risk allocation on the private sector’s rate of return.

The Trans-Texas Corridor was derailed due to citizen distrust of a foreign company (Ruiz, Elliot, & Ratcliffe, 2009).

While respondents from both sectors indicated the challenges of adapting public involvement to PPPs, private sector participants placed more emphasis on this issue (Table 2). Their concerns largely addressed the consequences of canceling a project long into negotiations, after costs have been incurred in developing and negotiating bids.

The need for skills in consultant management was addressed by both public and private sector respondents (Table 2). Surprisingly, interviewees involved in advising roles expressed concerns about the potential conflicts of interest of external consultant advisers. This could be explained by their skepticism about competitors who provide similar services.

The consequences of risk allocation are not due entirely to trickery by one’s counterpart (partner), but can also result from a lack of knowledge about unexpected events.

Respondents from both sectors addressed this issue. Public sector professionals gave it more attention (Table 2) due to their firsthand understanding of staffing needs.

This view was evident from both public and private sector participants, but more so from the private sector representatives (Table 2). This could be explained by the transition of many professionals experienced in PPPs to positions in the private sector.

The peer-to-peer government networks were also explained as an avenue for technical advice that could get around the potential slanting of industry-provided information.

Cultural resistance to change has been reported in TxDOT (GT, 2010).

Typical transportation planning considers long-term operational costs as separate expenses that are requested after the project has been constructed or renovated.

A similar proportion of public and private sector respondents indicated the unfamiliarity of PPP-related knowledge and cultural barriers (Table 2). Public sector respondents spoke more about the lack of direct experience, and private sector respondents spoke more about the political pressures that drive efforts to control processes and avoid error.

The identification of knowledge gaps related to public involvement and consultant management were particularly interesting because they were neither addressed in the interview questions (see Appendix) nor anticipated in advance by the researcher.

Additional information

Notes on contributors

Eric J. Boyer

Eric J. Boyer is an Assistant Professor in the Public Administration Program at the University of Texas at El Paso. For two years, he advised managers in the Georgia Department of Transportation on techniques for identifying and supporting communities of practice. He teaches public management, nonprofit management and social entrepreneurship, cross-sector governance, and program evaluation.