Part 2. What Public–Private Partnerships Are and What They Are Not

What Public–Private Partnerships Are and What They Are Not

After years of underfinancing much-needed repairs and maintenance to America’s infrastructure—by as much as $2.2 trillion, according to some estimates—digging out of the current deficit will be costly. And with state and local governments facing tight budgets, it may be decades before the work will be affordable. The lack of resources for infrastructure improvement and maintenance extends beyond highways and affects a range of public capital investments, from levees to wastewater treatment and from transportation to schools. The dismal state of the nation’s current infrastructure could hamper future growth.

The ways that governments allocate new funding for infrastructure projects and the ways they build, operate, and maintain those projects has contributed to the problem. New spending often flows to less valuable new construction at the expense of funding maintenance on existing infrastructure.  Further hindering efficiency, the traditional process for building infrastructure decouples the initial investment—the actual building of a highway, for example—from the ongoing costs of maintaining that highway. As a result, the contractor building the highway often has little incentive to take steps to lower future operations and maintenance costs. Such inefficiencies likely contribute to falling rates of return on public capital investments. PPPs can be used for solid waste, transport (airports, bridges, ports, rail, roads, tunnels, and urban railways), tourism, and water.

The United States is a relative newcomer to PPPs. Public–private partnerships have existed worldwide at least since the time of the Roman Empire (e.g., the use of private tax and toll road collectors) and in the United States since its founding. During the Revolutionary War, the Continental Congress authorized the use of privateers to harass the British navy. Later, much of the West was developed through a variety of PPPs, including the cross-continental railway. The production of transportation infrastructure often has been undertaken with PPPs, from the development of private toll roads and canals during the nation’s early history up to the recent Dulles Greenway—a privately financed, built, and operated toll road in northern Virginia.

Even though there is an old nineteenth-century tradition of privately provided public infrastructure and even of private tolled roads and bridges,  the United States still depends almost exclusively on the government for its public transport infrastructure (with the important exception of railroads).The two-decade trend toward PPPs that has revitalized the ways that many countries provide infrastructure has gained only little traction  in the United States. Whereas the United Kingdom financed $50 billion in transportation infrastructure via PPPs between 1990 and 2006, the United States, an economy more than six times as large as that of the United Kingdom, financed only approximately $10 billion during the same period.

Even with their ubiquity, there remains some ambiguity as to what exactly constitutes a PPP. . . For future articles . . . we shall focus on a . . . form of PPP that involves a greater role by the private sector in decision making and assumption of risk in the joint venture.

Public–Private Partnerships: Public Accountability

Public–private partnerships (PPPs or P3) are growing in popularity as a governing model for delivery of public goods and services. In recent years, the state of California for instance has partnered with the private sector to finance, design, construct, operate, and maintain two state infrastructure projects—the Presidio Parkway transportation project in San Francisco and the new courthouse in Long Beach. Both the California Department of Transportation (Caltrans) and the Administrative Office of the Courts (AOC) entered into P3s for these projects in order to achieve benefits that they might not have obtained under a more traditional procurement approach (such as design-bid-build).  PPPS potential benefits include greater price and schedule certainty and the transfer of various project risks to a private partner.

PPPs have existed since the Roman Empire, but their expansion into traditional public projects today raises serious questions about public accountability. In a series of articles we plan on examining public accountability and its application to government and private firms involved in PPPs.

Part One-The Model:

Public–private partnerships (PPPs) increasingly have become the default solution to government problems and needs, most recently for infrastructure, and they are embraced by a wide range of constituencies, across political parties, and throughout the world. This trend may accelerate as governments experience fiscal deficits and look for alternative ways to finance and deliver government services. The rationale for creating such arrangements includes both ideological and pragmatic perspectives.

Ideologically, proponents argue that the private sector is superior to the public sector in producing and delivering many goods and services.

Pragmatically, government leaders see PPPs as a way of bringing in the special technical expertise, funding, innovation, or management know-how from the private sector to address complex public policy problems. The expanding domain of goods and services provided by PPPs includes private toll roads; schools, hospitals, security services, wastewater treatment, and emergency response.

There are many challenging technical and structural aspects to creating successful PPPs that have been addressed by other authors (see, e.g., Grimsey and Lewis 2004; Hodge and Greve 2005; Yescombe 2007). However, with the increased use of PPPs, the issue of public accountability has become one of the more important of policy questions raised (see, e.g., Guttman 2000; Sclar 2000). The purpose of upcoming articles is to provide a framework to assist public managers in effectively exercising accountability with PPPs. We will begin with a discussion of the nature of PPPs and the traditional concept of public accountability. Second, we focus on the unique characteristics of inter-organizational relationships that are pertinent to the exercise of accountability in PPPs. Finally, we shall offer a framework to analyze PPP accountability issues along several important dimensions that shape the relationships forged in public–private partnerships.

Next Time: What Public–Private Partnerships Are and What They Are Not