The Truth About Public-Private Partnerships

“The fact is that the majority of all long-term complex business arrangements underperform or fail because they are structured as a deal or a transaction as opposed to a strategic relationship between key stakeholders. Whatever name you give it, a transaction or a deal is still a deal.” – The (Real) Art of the Deal by Andy Akrouche, Relational Contracting Intelligence Blog, December 23rd, 2013

When I considered the response to a recent Toronto Star newspaper article that talked about the myth of Public-Private Partnerships or P3s, the only surprise was that many people were . . . well surprised.

In calling into question Infrastructure Ontario CEO Bert Clark’s position that P3s are an ideal way to pass off some of the risks associated with complex projects to the private sector, the article while accurate in terms of outcomes was technically incorrect.

What do I mean?

The promise or potential for P3s to deliver significant savings and improved outcomes for governments and the citizen’s it serves is in fact very real. Therefore the myth is not in the possibilities in terms of deliverables, but is in the areas of expectation and execution.

It is this latter point that requires closer examination and the development of an implementation process that is based upon open communication and collaboration.

Communication – More Than Just Talking

In an article written by IACCM’s Tim Cummins he has made reference to the paper “A Conspiracy of Optimism,” by the International Center For Complex Project Management.

The paper identified what it called “the conspiracy that leads executives on both sides of the table to lie to their trading partners and to create a combined version of the truth that leads to mutual delusion over what they can achieve, by when and for how much.”

This I believe forms the basis for the conclusions reached in the Star article, including the misguided suggestion that P3s are “against the public interest.”

The idea or premise of the P3s is not the culprit here, but the way in which we do business.

In his paper titled How to make your outsourcing & PPP initiatives successful, Jon Hansen made reference to the “transactional mindset” associated with most P3 initiatives.

While I will let you read that paper at your convenience, the key take away is that a transactional mindset means that the relationship between the primary stakeholders is viewed as one time interaction. This leads to what Hansen called a “win the business first, worry about making it work afterwards” approach, that ultimately undermines the relationship and eventual outcome.

To move beyond the misconception of P3 promise, we have to change the way in which we approach complex projects. In short, we have to adopt a relational as opposed to transactional mindset. This means that the public sector can work with the private sector to better manage certain risks, however said risks cannot be totally transferred or allocated to the private sector as the public sector ultimately remains accountable for outcome realization. There instead must be a sense of shared risk ownership and reward when working towards a mutually desired outcome. In other words, we must view our interaction with key stakeholders from the standpoint of embarking on a new and long-term relationship, in which all concerned parties work towards an outcome that is rewarding both individually and collectively.

It is only within this framework that open and honest communication can take place.

Collaboration Is An Act Of Will

In his book The Procurement Value Proposition, Robert Handfield wrote “integration across the business is not the responsibility of a few but rather a challenge that must be embraced company-wide.”

These are incredibly powerful words as they speak to the fact that collaboration takes a conscientious and concentrated effort on the part of all stakeholders both within and external to the buying organization. Or to put it another way, one cannot simply hope to become collaborative. There has to be a tangible and coordinated effort to create the means by which stakeholders can work together towards a shared outcome.

P3 connectthedots

This is where the creation of a Relationship Charter comes into play.

The Relationship Charter provides the strategic and operational framework for working together. It is within this charter that metrics, timelines and financial obligations, as well as quality are jointly managed.

Consisting of three parts: Shared Mission and Purpose, Joint Governance, and the SRS Open book financial management framework, the Relationship Charter is based on six foundational principles, which are as follows:

  • Act of Relating – and this is where “relational” comes from.  Connecting and linking in a naturally complementary way
  • Mutuality – Having the same or similar view or output each to the other
  • Respect – Recognizing each other’s needs, requirements, contributions, abilities, qualities and achievements
  • Innovations – Use of combined strength and synergies to deliver improved outcomes
  • Continuous Alignment – Making necessary adjustments to improve and achieve relationship objectives
  • Empowerment – Introduction of Joint management structures and processes at the strategic and operational levels to manage the realization of relationship objectives.

As highlighted in the above text, there is a methodology through which a P3 project can be effectively managed towards the desired result.  A vehicle if you will that enables stakeholders to proactively deal with both known and unknown variables that ensures the project remains on track and meets stakeholders expectations.

The creation and introduction of a Relationship Charter, will eliminate the purported secrecy and lack of public accountability, higher financing and consulting costs, and implied profit making on massive scale that was bemoaned in the Star article.

The introduction of a Relationship Charter also makes far more sense than the suggested throwing out the baby with the bathwater abolishment of P3 projects.

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Move of IT buying to SSC lays the foundation for getting the job done right! By Andy Akrouche

“By moving away from each department independently managing these activities, there are opportunities to drive economies of scale, achieve savings for taxpayers and improve services,” the budget reads. “Moving forward, the government will explore further whole-of-government approaches to reduce costs in the area of procurement of end-user devices and associated support services.”

The above is an excerpt from a April 5th article by Jordan Press (Federal IT agency tasked with hardware procurement duties) in which the writer reported on the government’s decision to mandate Shared Services Canada with the task of procuring end-use hardware and software for “workers in the 43 federal agencies is serves, along with a handful of parliamentary watchdogs and other federal agencies.”  In total, 106 federal organizations’ IT spend will be managed by SSC.

In and of itself this isn’t really news.  In fact anyone who has been actively involved in and with the public sector will likely tell you that the government’s decision to transfer IT acquisition responsibility to the SSC as opposed to creating a new agency to buy hardware was a when as opposed to an if scenario.  Besides being the defacto ICT Agency for the Federal Government, putting IT purchasing under the SSC immediately presents the opportunity to move away from centralized procurement vehicles such as Standing Offers which, over the years, has proven to be ineffective on many levels.

For example under the old standing offer model, departments were usually forced to do their own sourcing of hardware and support services.  For the vendors who went through an at times lengthy and costly process just to make the list, revenue opportunities were limited to localized relationships that rarely justified the effort in terms of financial return and business growth.  In other words standing offers were little more than bulletin boards for unrealized opportunities for vendors, while splintering the supply stream for the government into an at times unmanageable spend morass.

In this regard I have to tip my hat to Mr. Flaherty, in that this decision has finally laid the foundation for getting the job done right!

All this being said I think it is important to recognize right off the bat that when it comes to hardware, you are for all intents and purposes acquiring a fully managed service.  After all no one really buys hardware anymore do they?  This lesson was learned by the BC government who, in outsourcing all of their end user computing services to IBM, concluded that it is better to approach IT acquisition from the standpoint of it being a service rather than a purchase of hard assets.

Within this context, the real question becomes one of support.  How do you support departmental needs through the provision of a fully managed service to enable the introduction of new applications and support more sophisticated end user expectations?

In an attempt to both understand and address this question, the majority of federal government departments as well as agencies like CIOB, PWGSC and the DND have expended considerable cycles doing everything from analyzing countless studies from firms such as Gartner, to engaging consulting firms – including ours – in an effort to get a handle on driving innovation and savings with the intended outcome being improved productivity.  Once again, with the decision to move the IT acquisition function to the SSC, it appears that a major obstacle to achieving these objectives has been removed.

However, and as promising as the news is, for the government to harvest the benefits of this move there must also be a change in how technology is viewed.  Specifically, there must be a concentrated and deliberate transition towards a more agile and dynamic user environment.  In other words, and looking beyond what will likely be a significant human resource transformation, the government must see their IT agenda as an exercise in building and managing relationships.

In 2002, I personally lead a team of IT and procurement specialists from both the public and the private sector in which we worked together to establish a relational governance structure for the Province of Ontario.  The success of the program speaks for itself, as do the results of a benchmark study conducted by the CRA a year after they adopted the same model.

There is of course no reason why the present day government cannot realize similar results as it relates to savings (the CRA program for example showed at 25% reduction in acquisition costs), as well as dramatically improved productivity levels across the board.

It is with this firm understanding of the potential benefits associated with the recent decision that the following questions have to be asked (and answered);

  • Is SSC going to outsource the service, and if so what model of outsourcing should they use? We know that the traditional models have proven to be ineffective.
  • How will the SSC address the challenges associated with the aggregation of demand that has traditionally led to a shrinking supply base?  Historically, aggregation has almost always led to diminished competition and escalating costs. What is the strategy here?
  • As opposed to protecting SMEs, how do we facilitate or stimulate SME participation and growth as an important partner in the transition to a more agile and dynamic user environment.  After all, Initiatives like this should not be done at the expense of SME sustainability and development – if we do we all lose in the end.

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