As with conventional forms of service delivery, there are risks as well as potential benefits associated with public private partnerships. Local governments can reduce or eliminate the risks by understanding what they are and addressing them through well-conceived negotiations and contractual arrangements, and the involvement of stakeholder groups.
Potential risks include:
• Loss of control by local government
Public private partnerships, by their nature, involve a sharing of risks, benefits and decision making between the partners. Public private partnerships that involve significant investments and risks by the private partner often provide for greater involvement of the private partner in decisions concerning how services are delivered and priced. This often leads to concerns about who controls the delivery of services. The issue of control needs to be addressed at the time the project is defined and kept in mind when the contract is negotiated. In the final analysis, local government has the authority and responsibility to establish servicing standards and to ensure that the public interest is protected.
• Increased costs
Not all local governments consider the true costs of providing services when establishing their pricing policies for fees for services. For example, the costs of overhead or administration and depreciation of assets are often not included in the pricing of individual services. In some cases, there are explicit subsidies for specific services. The delivery of services through public private partnerships requires pricing policies and fees to reflect all relevant costs. This can have the effect of increasing user fees for specific services.
The cost of managing public controversy over increased fees or developing complex policies for staging fee increases can often negate the value of public private partnerships for specific services.
• Political risks
Few local governments in British Columbia have extensive experience with public private partnerships. The combination of inexperience by local government and stakeholder unfamiliarity with public private partnerships may result in higher political risks. Local governments may wish to reduce potential risks by initially entering into less complex and better understood public private partnership contracts.
• Unacceptable levels of accountability
Certain local government services are more sensitive than others in terms of public demand for accountability and responsiveness. With public private partnerships, the lines of accountability for the provision of services are less clear to the public than under conventional service delivery. This may result in public criticism of the partnership arrangement and the private partner, or require increased involvement of the local government in ensuring compliance and responding to public demands.
• Unreliable service
Private partners may be prone to labour disputes, financial problems or other circumstances that may prevent them from honouring their commitments. Public private partnership contracts should anticipate such difficulties and put in place measures to deal with them.
• Inability to benefit from competition
Competition among private partners to secure the right to enter into a public private partnership is an important benefit for local government. Competition leads to innovation, efficiency and lower costs. Local governments may not be able to benefit from public private partnerships if there are only a limited number of potential private partners with the expertise or ability to respond to a request for proposals.
• Reduced quality or efficiency of service
If not properly structured, public private partnership contracts can result in a reduction in service quality, inefficient service delivery or a lack of proper facility maintenance. For example, cost-plus contracts provide little incentive for the private partner to maintain quality or increase efficiency. Local governments should also consider the life-cycle cost approach in establishing evaluation criteria for projects or services.
• Bias in the selection process
As with conventional forms of service delivery, there is always the potential for local government to be accused of bias in selecting proponents. This may be more prevalent with public private partnerships given that "low bid" may not always win the contract if the local government has established other criteria (e.g., value for money). The potential for accusation of bias can be reduced through well-developed policy and procedures, and by ensuring transparency in dealing with potential private partners.
• Labour issues
Even though collective agreements and labour laws apply to public private partnership arrangements, there could be adverse reaction from labour unions or local government staff.