August 9, 2017 | By Vaman Desai
Public-private partnerships have traditionally been used as tools to provide public asset or service via private sector. Stemming out of governments’ inability to fund public infrastructure, public-private partnerships were conceived as a novel way of bridging the infrastructure investment gap by bringing in private capital. Soon, they became more attractive through efficient management capabilities and the advanced technical expertise of private sector.
A good four to five decades since their arrival, most experts agree on some definite successes that public-private partnerships have met
- Increased private sector investment in infrastructure
- Accelerated infrastructure delivery
- Increased accountability in service delivery
However, our experience also points out to certain deficiencies in the existing models:
- Focus on just outputs and not outcomes
- No culture of shared social and environmental costs
- Lack of innovation in contract structures and financing
I will take up each of the above deficiencies and look for solutions.
Moving towards outcomes-focussed public-private partnerships:
Every year, governments across the world use public-private partnerships in various sectors including transport, education, water and sanitation, etc. But the contracts focus solely on the project output. In the transport sector they focus on building roads and railway lines. In education, they focus on building schools and colleges.
Moving toward outcomes entails restructuring the contract to incorporate the wider societal and environmental factors associated with projects. How can these contracts in the transport sector incorporate factors such as lesser travel time or reduced accidents? How can contracts in education incorporate factors such as learning levels and employability skills?
This new way of contracting will be a step in the direction of seeing public-private partnerships as tools for holistic development rather than just delivering public infrastructure and services.
Sharing social and environmental costs:
Outcomes focussed contracting requires a culture of cost sharing between the parties involved. This is because moving from output to outcome, e.g. moving from building schools to measuring learning levels or moving from building hospitals to measuring public health outcomes, requires an entirely additional level of effort and hence added costs. Though some sort of cost sharing arrangement between public and private sectors can be reached at, developing a culture of measuring outcomes remains critical.
Public-private partnerships in the current form don’t focus on whole-life measurement and evaluation of infrastructure projects. Currently, project evaluation is done to assess the project feasibility only prior to its implementation. This method ignores the post-completion project cost-benefit analysis. Thus a culture of continuous monitoring and evaluation of projects, which includes robust data collection and analysis at each stage, should be the focus of future public-private partnerships.
Learning from new models in contract structures and financing:
Mainstream public-private partnerships have not kept pace with the growing innovation in the areas of contract structures and financing. However, new approaches to improve social outcomes, such as performance-based contracting and social impact bonds, are gaining traction with the public sector. These methods are focussing on measuring and improving operational performance of the contracted party by tying a portion of contractor’s payment or contract renewals to the achievement of specific outcome parameters.
Introducing such conditionality in contract structures and tying financial rewards to predefined metrics introduces incentives to achieve the desired social and environmental outcomes.
With these above characteristics imbibed, public-private partnerships can become a powerful tool not just for delivering public infrastructure and services but also for achieving important development priorities of governments across the world. Furthermore, a number of Sustainable Development Goals (SDGs) are directly related to development in sectors such as infrastructure, education, health, renewable energy and water and sanitation. With the above characteristics imbibed, the next generation of public-private partnerships can be envisioned as true partnership between public and private sector in achieving major SDGs.