The truth about Public-Private Partnerships by Andy Akrouche (Part 2 of 3)

In yesterday’s Part 1 post (The truth about Private Public Partnerships) Colin Cram provided some much needed insight in terms of both the promise and the failings associated with Private-Public Partnerships or PPP-driven initiatives.

Cram, who has served in the public sector at the senior executive level for more than 30 years, is obviously familiar with PPPs.  As a result, he adeptly points out the unquestionable benefits in terms of the public sector getting facilities, hospitals, roads or prisons built without upfront investment.  The challenge however is not in the promise of an end result but in the management of expectations, returns and ultimately relationships.

This last point has proven to be the major stumbling block that has derailed many PPP-driven programs.

The problems according to Cram originate with the process for negotiating what he refers to as being complex and inflexible “consortium” contracts.  Then through what he considers to be the ineffective decentralized management of disjointed objectives, PPP relationships usually denigrate into a self-serving abyss of unrealized outcomes.

In other words, in the rush to capitalize on complementary strengths and individual gains, PPP stakeholders overlook the most important elements of a successful partnership, which is the Relationship governance model.

This is why recent announcements of relationship-based PPP legislation in states such as Florida are very interesting.

While I applaud Florida’s Governor for seemingly walking away from the traditional transaction oriented mindset that governed past initiatives, I cannot help but wonder how the new legislation in and of itself will foster a more collaborative or relationship oriented approach.

Certainly the intent for a practical and manageable governance model exists as demonstrated by the following legislative requirements associated with Florida’s HB 85 PPP Bill:

·         The legislation requires that the responsible public entity ensures that provisions are made for the private entity’s performance and safeguards the most efficient pricing.

·         The legislation provides for protections that will ensure that provisions are made for the transfer of the private entity’s obligations if the comprehensive agreement is terminated or a material default occurs.

·         Additionally, there is an assurance that the public entity must perform an independent analysis of the proposed public-private partnership that demonstrates the cost-effectiveness and overall public benefit.

Once again, the above requirements or elements of the new Bill   ̶   if read correctly   ̶   are laudable, as they actually reflect the insight versus oversight process associated with the SRS relationship-based model.

For those who may not be familiar with the SRS relational model, it is a model that advocates an evolutionary approach to relationships by ensuring that stakeholder expectations, priorities and needs are properly aligned with present day realities on an ongoing basis.

In the previous post Colin Cram pointed to the importance of this ongoing adaptability when he made reference to the inflexibility of traditional contracts and the difficulty in seeing many years into the future.  The fact is that attempting to structure a deal based on an initial set of assumptions and plans limited to what we know in the here and now is a recipe for disaster.

What is required is a dynamic model that is responsive to change, as opposed to a rigid and inherently adversarial static transactional model.  This of course is the key to creating a truly collaborative and adaptable governance framework in which all stakeholders benefit according to their different yet inextricably linked objectives.

As the Florida Bill is likely to be used as a reference point for other states, let’s examine the key elements or requirements in greater detail.

With regard to the first point, when we talk about the need for ensuring that provisions are made for the private entity’s performance and safeguarding the most efficient pricing, what we are really discussing is the need to pursue dynamic relationships as opposed to transactional engagements based solely on present day assumptions.  More specifically, this means that the legislation requires a continuous alignment throughout the entire relationship, and not just at the beginning by way of the traditional “carved in stone and signed in blood bankable” P3 agreements with which we are most familiar.

In terms of providing the protection referenced in the second point by way of provisions which ensure the transfer of the private entity’s obligations should the agreement be terminated or a material default occur, this quite simply refers to an executable “off ramp.”   An executable off-ramp provides the means by which the relationship would be terminated in the event that the strategic fit between stakeholders ceases to exist.  Interestingly enough, the likelihood that a strategic fit will endure over the life of the contract should be established as part of the original sourcing process utilizing the certainty score evaluation methodology associated with the SRS relational model.

Finally, Florida’s Governor wants to make certain that there is a high degree of accountability in terms of whether or not the public-private partnership is actually delivering value.  This is why the third point is so important.  Traditionally, and for those familiar with the P3 planning process, a public sector comparator case or PSC is initially used to financially justify an acquisition or initiative that excludes the private sector “partner” element.   Once the PSC case has been built, a Value for Money or VfM assessment is undertaken to determine the impact that the introduction of a private sector partner would have on the same acquisition or initiative.  The hope is that the outcome of the VfM assessment will justify a Public-Private Partnership.  The inherent flaw with the above assessment process is that it attempts to get an accurate read on the nature of the relationship 20 to 30 years down the road based solely on assumptions in the here and now.  As Colin Cram pointed out in Part 1 of this series, many fail to recognise beforehand or erroneously believe they have the expertise to effectively see into the future.  Unfortunately they do not, which ultimately results in a sub-optimal project or even worse, a near disastrous one.

The only way the Governor and the State of Florida can realize the true and full value of a Public-Private Partnership, is to ensure that the VfM assessment is linked to an ongoing or continuous management and realignment process.  As allude to earlier, an insight as opposed to oversight process that is focused directly on improving the outcome and performance of the relationship.

In the third and final part in this series, I will share with you a set of practical steps to form and manage a dynamic public-private relationship.

Remember to also check out the advanced publisher’s eBook and hard copy versions of my new book Relationships First! The New Paradigm in Contract Management (see below).

Click to purchase Relationships First!

Click to purchase Relationships First!

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