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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The (Real) Art of the Deal by Andy Akrouche

With everyone from deal architects to premier transaction firms embracing a “Relationship” mantra when it comes to complex contracting and outsourcing, the true meaning of the word is being lost in a sea of good intentions.  Or to put it another way, just because you say the word relationship, or incorporate it into your negotiation process, does not mean you have a relationship with your trading partners.  This is especially true when you continue to view doing business through a transactional lens.

Relational . . . more than a catch phrase

Relational . . . more than a catch phrase

The fact is that 70% of all long-term outsourcing, futuresourcing and PPP initiatives 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.

So what is The “REAL” Art of the Deal?  Quite simply it is knowing when something isn’t a deal or a transaction.

At this point I would like to emphasize the fact that I am not against deals or transactions.  There is definitely a place for them.  However, the mistake we frequently make is to erroneously apply a deal or transactional mentality to what is supposed to be a dynamic business arrangement.

What is a deal or a transaction?

A deal or a transaction is an instance of buying or selling something, such as closing on your house, getting a new mortgage, withdrawing money from an ATM machine.  In a transaction like the ones previously described, there is no flexibility, no need to interact and absolutely no changes allowed.  This of course works well in these instances.  After all, what interaction is really required after you get your money from the ATM machine?  It is a done deal!

Complex business relationships or dynamic business arrangements are not as cut and dried, as a deal is never done – even after the ink dries on the contract.

Change both within and outside of the complex or dynamic relationship is inevitable.  Whether it be the result of Political, Economic, Social, Technological or Legal otherwise known as “PESTL” variables, the fact remains that change will happen.  In this light, attempting to respond to said changes within the framework of a transaction arrangement is as the Department of Defence’s Ian Mack put it, tantamount to trying to “achieve certainty based on the initial deal.”  It just doesn’t work.  Hence the reason why 70% of all outsourcing, futuresourcing and PPP initiatives miss the mark!

Despite this dubious track record, legal firms and financial advisers are still trying to manage both the anticipated and unanticipated risks associated with complex business relationships within the confining framework of a deal or transactional structure.  By doing so, they are attempting to “legislate” change and its associated risk rather than recognize and adapt to it.

This is not a true relational approach.

So what do I mean by a relational approach?

When I first developed the relational model more than 20 years ago, I in essence redefined what complex business relationships actually entail.

If you have had the opportunity to attend one of my many seminars or workshops or, have had the chance to read my book, you will already know that I define a relationship in a business context as being a continuous, process-centric interaction involving an infinite number of deals or transactions.

From this standpoint, the focus is not solely on contractual metrics such as timelines, financial obligations and service level quality, but on the establishment of a Relationship Charter within which each of these critical areas is 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.

My book Relationships First: The New Relationship Paradigm in Contracting provides an introduction to what is needed to source and manage relationships vs deals or transactions.  Coupled with the SRS Complex Outsourcing Body of Knowledge COBOK™, you will have everything you need to establish high performing complex business relationships.

In the meantime, I would exercise due caution when you hear phrases like “negotiating to Yes” and “negotiating to We” as they reflect the “old” as opposed to “Real” Art of the Deal.

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