Editorial: The Unresolved Nature of Public-Private Partnerships

Over the past three decades, public-private partnerships (PPPs) have swept the world as the preferred approach to deliver large, complex infrastructure projects. Globally, trillions of dollars of infrastructure have been provided through PPPs that bundle some combination of infrastructure design, construction, financing, operations and maintenance into a single concession contract. The rationale for using PPPs has varied by jurisdiction and evolved over time, but in general can be grouped into two global waves.

In the first wave between the early 1990s and the mid 2000s, PPPs were motivated by cash strapped governments looking to fund much needed infrastructure through private money, in a way that would be off balance sheet and therefore not count as part of the public debt. The discourse around PPPs during this period was also highly ideological, framed by proponents as a way to empower the market-driven private sector that was inherently more efficient than government and their frequent reliance on unionized labour.

After years of pitched ideological battles, a second wave of PPPs emerged in the mid 2000s that were more specifically motivated by technical objectives. PPPs were widely rebranded as an approach to deliver value for money. Particularly important was a desire to transfer major project risks from government - where cost overruns, delays and poor maintenance were all too common - to the private sector. PPPs were proposed as pay for performance contracts that would lock-in funding to pay for long-term facility maintenance, an area that governments often shirk after shiny mega-projects open. Additionally, spurring private sector led innovation became an important goal for PPPs that would lower costs and improve the benefits for users.

Alongside trillions of dollars of infrastructure delivered through PPP models, PPPs have become an object of intense study. Over the years, hundreds, and more likely thousands of academic papers and more than a dozen books have been written examining all aspects of PPPs: engineering, legal, accounting, finance, urban planning, public administration, political science, and economics. Through this interdisciplinary body of literature, it is now widely recognized that PPPs are both a technical approach to project delivery and a political tool for statecraft.

Nevertheless, despite all the infrastructure money invested through PPPs over decades and the intense research attention, some basic, fundamental questions remain largely unanswered. Do PPPs deliver value for money (if the concept can even be defined)? Do PPPs effectively spur innovation and transfer risk? Do they provide better outcomes than alternative procurement approaches? Who wins and who loses from PPP? To what extent are PPPs a language game designed to rebrand efforts to expand the role of the private sector into everyday life?

The hurdles to answering these questions are manifold. It is very difficult to generalize about the outcomes of a PPP from one project to another. If you’ve seen one PPP, you’ve only seen one PPP. The context and actors involved are so locally particular. Massive data gaps exist as well. Data on the internal functioning of PPPs, especially with comparable data for projects delivered through other procurement models, has been almost impossible for researchers to obtain. In an interdisciplinary field, even establishing a universal definition of a successful PPP has been tough.

The papers contained in this special issue illuminate several of the largely unanswered questions and the often-contested nature of the PPP phenomenon. The papers included here provide new perspectives on long-standing debates and provide new empirical evidence on the practice of PPP. They examine the evolution of PPP policy and usage in different jurisdictions and provide further evidence of how PPPs are less likely to serve the public interest in the absence of institutions that permit public scrutiny of PPP deals and make decision makers accountable to citizens.

In the first paper, Geddes and Goldman revisit the fundamental debate surrounding differences in the public versus private cost of capital in the context of the growing use of PPPs worldwide. While earlier work in the area concluded that the social cost of public capital was below that of private capital due to the ability to spread risk across a large number of taxpayers, the authors argue that this finding needs to be revisited. Central to their argument is the role of agency costs and which set of governance arrangements and legal institutions are more effective in addressing agency costs – those associated with taxpayer risk-bearing or those available to investors in private firms. Geddes and Goldman stress the importance of recognising that taxpayer risk bearing is not free, and that the difference between the public versus private cost of financing of infrastructure projects may be lower than many PPP critics often suggest.

Zwalf provides an historical overview of the development of PPP policy since the model was first adopted in the 1980s. Zwalf identifies four key phases in the evolution of Australian PPP policy spanning four decades. In the earliest phase from 1980-2000, state governments were largely attracted by new sources of finance and a belief that the private sector could deliver projects cheaper and faster. In the second phase from 2000-2008, policymakers placed increased emphasis on testing for value-for-money, increased transfer of risk to the private sector and improving competitive tension for contracts. In the third and fourth phases from 2008 onwards, national PPP policy and guidelines were established with some evidence of further policy experimentation by state governments. Overall, Zwalf notes how PPP projects evolved over time from being a procurement and/or financial tool to being a codified policy option and in some cases recently a policy preference of state governments.

Greve et al. assess the historical development of PPP projects in Denmark and how projects were implemented despite the lack of a formal PPP policy. Denmark is an outlier compared to most other PPP countries in that it has no comprehensive formal PPP policy or a dedicated national PPP agency. Despite the absence of a clear policy, the authors highlight how PPP projects were developed in some regions, particularly in the health sector where there was an urgent need to finance the construction of more hospitals. The authors conclude that countries considering the PPP option on a more systematic basis should ensure that a comprehensive PPP policy is developed along with an appropriate institutional framework that ensures efficient and effective PPP procurement and delivery.

The procurement of large infrastructure PPPs is challenging and the procurement experience in different countries has been diverse. Palcic, Reeves, Flannery and Geddes provide the first empirical cross-country analysis of PPP tendering periods utilising data on almost 900 PPP projects across 7 developed countries. This element of PPP procurement has not received much attention in the international literature to date despite the fact that the ex ante tendering period is an important dimension of the overall time taken to deliver infrastructure projects. The authors find substantial cross-country variation in average tendering periods, as well as considerable variation across countries but within the same sector. The findings suggest that there is significant scope for countries using PPP to learn from experiences in other countries and to establish best practice for a vital aspect of the delivery of PPP projects.

Cuadrado-Ballasteros & Peña-Miguel empirically examine the relationship between PPPs and corruption in over 90 developing countries over the 1995-2018 time period, with the authors finding a positive link between corruption and the use of PPPs. Since evidence of a link between corruption and PPPs in previous studies was both scarce and inconclusive, the findings of Cuadrado-Ballasteros and Peña-Miguel make an original contribution to the literature. In order to tackle corruption, the authors suggest the greater use of standardized contracts and increased transparency, as well as limiting the use of revenue guarantees or monetary compensation.

Finally, badly implemented PPP policies can lead to significant social costs and problems that play out in the political sphere. These issues are examined by Cusumano, Author and Vecchi who analyse the fallout from the catastrophic 2018 collapse of the Morandi bridge in Italy (part of a concession contract) in which 43 people died. The political backlash which shifted blame and responsibility for the collapse to the private concessionaire of the bridge illustrated the political risks embedded in PPP transactions. When catastrophic events occur, political risk becomes an issue requiring much greater reflection, both by academics and by public and private stakeholders. The Morandi bridge case shows that such risks are likely to be accentuated in jurisdictions where populist politics has gained a foothold.

The research in this special issue is especially urgent as we are now on the cusp of a third wave of PPPs characterized by decline and renewal. Indeed, PPPs have reached a crossroads. In many countries, including the United Kingdom, Israel and Canada, PPPs are losing their shine. Governments are increasingly backing away from this model as the only game in town. Rising costs and high-profile failures have led governments to question the merits of PPPs, and whether a brand increasingly sullied in the public’s eye is more trouble than it’s worth. At the same time, firms bearing the massive costs of overruns, delays and deficiencies when PPP projects go wrong are beginning to recognize the existential corporate threat of bearing more risk than a company can manage. Some of the biggest infrastructure firms in the world are backing away from participating in the largest and most complex bundled PPP projects.

In the meantime, the scale of global infrastructure challenge continues to grow especially due to the potentially catastrophic effects of climate change. What models come next to procure large complex infrastructure projects remains very much up for grabs and under development. It is likely, however, that models which do emerge will involve forms of public-private collaboration with PPP characteristics. The role of interdisciplinary research which characterises the papers in this special issue can be especially important at such a moment to learn from past experience and inform future practice.