Information, Accountability and Support
GOVERNANCE CHALLENGE Members of the public are often insufficiently consulted in the PPP process and their interests and needs are not addressed. This lack of transparency and accountability has led to a governance challenge that must be confronted in order for PPPs to move forward. |
Principle 5 - The PPP process should put people first by increasing accountability and transparency in projects and through these improving people's livelihoods, especially the socially and economically disadvantaged.
People are important in PPPs…
PPPs need to put people first. Initially, PPPs were proposed as a financial mechanism to place government expenditure off the balance sheet. While this proved a useful financial strategy, it failed to convince people that they were at the heart of PPPs, as the main beneficiaries. For example, there were concerns that the government sector was losing control over the delivery of essential services - such as health, water and education - when PPPs were used.31
…And so it is paramount to define the public interest…
To address these concerns the government will want to put in place mechanisms to assure the public that they are the main beneficiaries of projects. In this regard, Governments will wish to define how PPPs can promote the 'public interest' and what this means in terms of PPPs. It can decide for example that there are certain core services which should not be delivered at any price by the private sector. Often the services performed by doctors and nurses within public hospitals, teachers within government educational facilities and judges within courts, are regarded as core services which is the function of government to provide while the supporting infrastructure and ancillary services within those services can be delivered by the private sector.
…Consult the people on policy…
It also makes sense for Governments to consult the key stakeholders on policy. An early and consistent involvement can manage the fear of change and the unknown by providing an open, transparent process. Furthermore, by bringing in end-users and those involved in providing the service, their objectives, needs, and concerns can be identified and addressed in the PPP. In Ireland, prior to the launching of its PPP legislation, both social partners were fully consulted and this achieved a consensus which allowed the programme to be implemented successfully.
In all countries the consultation process needs also to include full information on what PPPs are. Many people are not familiar with PPPs and consider them another form of privatization.
…And ensure that PPPs provide value for money.
Before a project begins, it is important to undertake a full cost/benefit analysis. Often when the government approves the project where it seeks to involve the private sector through a PPP, private sector bids are assessed against public sector benchmarks to determine value for money. The quantitative benchmarking tool is the Public Sector Comparator (PSC).32
Governments must also make sure that the public is well informed…
The Government can enforce delivery of services by strict conformity to the contract with the private entity. Although contracts are complex and not easily understood by the general public they can nevertheless provide a strong instrument for achieving accountability especially if the targets and performance indicators are clearly identified and understood.
Private organizations however may seek to establish that certain aspects of their operations are commercially confidential. This puts limitations on accountability, which could present a challenge to local authorities and national governments. Consequently, the contracts ought to include accountability requirements where structures exist in which the organizations delivering the service are open to such accountability. Increasingly, PPP contracts are stressing such a feature.
…And that these obligations can be overseen by an objective third party… Monitoring performance in meeting targets set out in contracts is a major task to ensure ccountability of services. There needs to be good performance assessment and measurement in the public services and this work is best accomplished by independent bodies, set up to monitor performance in specific sectors, with responsibility to put their findings into the public arena and to | Increasingly, the number and differences amongst the suppliers of public services to governments continues to grow: not just public entities, but also fully private, NGOs, charities and also social enterprises are becoming engaged. The principle of monitoring performance to ensure that members of the public receive value for money should be the same for whatever entity is providing the service - public, private or some other type of entity. |
make that information readily available to the public. This information will also help the public improve the choices they make in the use of public services.
A key challenge is not just to establish the auditors and independent bodies to monitor performance; it is also to define targets in such a way that they can be effectively used in practice. For example, how to audit data on outcomes and productivity in hospitals? Another case is prisons, a sector where PPPs have been quite successful but where setting performance standards and designing outcome-based performance requirements is particularly complicated due to the risk of unintended consequences. One example: tough financial penalties for escapes from prisons might cause unintentionally a climate in which prisoners' maltreatment increases.
Furthermore one of the features of the PPP is that the public sector is contractually linked to a private entity for a considerable period of time, i.e., for 25 years or more. This can be a burden for future generations of taxpayers, for example, when paying for hospital configurations which have been designed for today's era. While the contracts usually allow for changes over time, this will have to come at a price. The challenge here is that those who monitor will not know whether these long-term contracts represent long-term value for some years to come. Accordingly, the monitoring must, in a sense, anticipate these emerging problems and deal with them before they become a drain on the taxpayer.
…Thus giving citizens more choices and more power.
Accountability can go even further. Increasingly the providers - be they public or private - must take into account what the beneficiaries want and need. Yet by increasing choice, governments can create incentives to providers to improve services and performance as funding will follow the choices the beneficiaries make. This policy will in turn ensure that providers begin to increase their use of customer services and consultations, which can score how well services are responding to customer demands.Increasingly, the UK local authorities, for example, publish tables, which present the performances of providers in health and education. Instead of services being scored | In overall state systems of health for example, patients are being offered choice as to the hospital, the time of treatment and even the doctor that is best able to treat them. Until recently it was assumed that the only persons who should have choice in health and education were those who could afford it. |
purely by top down inspections they would be scored by the users themselves. By applying these mechanisms to providers of PPP services and ensuring that they consult with the customers in these ways, the acceptability of PPPs will increase amongst members of the public.
By placing safeguards that ensure ongoing public access to essential services…
Another important concern is that the transfer of management of service to the private sector risks increasing the tariff and thus excluding the socially and economically disadvantaged. One of the challenges is that when some projects are retransferred to the private sector they are already subsidized services, which do not reflect the true costs. But tariff increases are not often necessary and governments can step in to protect those who are at risk from higher charges. Governments, for example, can increase the aid to the project (see above) so as to ensure the continuity of existing and new services to socially and economically disadvantaged groups is not jeopardized.
A good example of subsidy with the intention of both making accessible the service to the poor and making the overall price affordable to poor and vulnerable groups was the Pamir power project in Tajikistan. The project established a special social protection tariff scheme. The tariff will increase gradually over ten years with additional flexibility but the key objective is that the tariff and the especially mobilized funds will ensure that those who cannot afford the current prices will nevertheless receive electricity. This power project in Tajikistan shows that it is possible to attract the private sector into a scheme that improves social welfare in one of the poorest countries and one of the poorest regions in Central Asia.33
…Governments can provide assurances that community health and safety will be secured…
The issue in PPPs is not that the private entity saves profits by failing to pay the extra costs that ensure safety. The issue is rather whether the private entity complies with the safety standards set out in the contract. Failure by the private entity to comply with health and safety requirements will lead to a variety of penalties including abatement of its fee, penalty charges and potentially ruinous litigation of termination of the PPP contract. But often there is the concern that turning a public asset over to the private sector corrodes at the same time the ethos of public service.
The answer lies in selecting precisely where the private sector can contribute to safety and security. These areas may be in using new technologies which directly and indirectly enhance safety.
In Ontario, for example, the local government in an effort to meet the demand faced by a dual driving test system contracted with Serco, a firm from the United Kingdom, driver examination services, while a new road in the same country reduced fatalities by 70%.34
…All while adopting an even-handed regulation to ensure fair public accountability.
While public accountability in PPPs needs to be enhanced to ensure that people are put first, it should not go too far in over-bureaucratic control, providing 'poor' as opposed to 'good' regulation. Generally, an even handed approach to providers of services needs to be adopted, with the same rules for entry to the market for providers, whoever they are and wherever they come from. Governments must achieve the right balance in opening up the PPP process to outside scrutiny and the need to deliver an effective and efficient stream of projects.
ACTION POINT Putting people first must be not only the organizing principle behind PPP development, but also be the guiding principle at every step in a PPP programme's development. Accordingly, governments must take steps to enhance public accountability without micromanaging the system - which would thus stymie the benefits afforded by the private sector's involvement. |
Sources and Further Information
(i) Canadian Council for Public-Private Partnerships, Project Finance: An Introductory Manual for Canadian PPP Project Managers and Advisors, November 2006
(ii) Deloitte and Touche, Closing the Infrastructure Gap, Global Addition, 2006.
(iii) PriceWaterhouseCoopers LLP, "Delivering the PPP Promise", November 2005.
(iv) UK National Audit Office, PPP in Practice, 2003.
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31 Best practice policy to address the concerns and ensure that the public interest is protected in undertaking PPPs is presented below. It is based on the practice of Partnerships Victoria in Australia. Under their practice the decision as to whether or not a service should be delivered as a PPP project depends on three questions:
• Which if any part or parts of the proposed service is a service that the government itself should deliver to its citizens? (The core services question.)
• For all other aspects of the service and supporting physical infrastructure, what is the project model that delivers the best value for money? (The value for money question.)
• Do the outcomes of the value for money question satisfy the public interest criteria articulated in the policy? If not, can the public interest criteria be satisfied by either building safeguards into the contract or through regulatory measures (and at what costs), or should the project be reconceived to 'reserve' further areas of service for provision directly by government? (The public interest question.)
32 Value for money is maximized by allocating risk optimally. The PSC is used to estimate the hypothetical risk-adjusted cost to government of delivering the proposed project using the most efficient form of government delivery. The PSC is then compared against private bids. Care should be taken however to ensure that the comparison is between genuinely comparable items. There is a strong possibility that bids will not be identical to the proposed service specifications, and risk allocation outlines in the bid documentation on which the PSC is based. To compare such a bid with the PSC without appropriate adjustment would be therefore misleading. If the bids are higher than the PSC, and the level of service delivery and the risk allocation in the bids is similar, in the absence of other offsetting qualitative benefits, the project would be best delivered as a public project. This decision should be based on the total cost of each alternative, i.e., considering not only the estimated contract cost, but also the cost to the government of contract monitoring and administration.
33 Although the prospects outlined for this project appear promising, it should be noted that they must be linked to an overall programme of income generation and increased livelihoods so that the project will itself become sustainable when the subsidy runs out. In general, certain risks come with very large PPP projects in countries where knowledge gaps exist. For example, to fill this gap countries will often require the import of experts, labour force, materials, and the like for the PPP project to progress at an optimal rate that satisfies both the public and private partners.
34 In the 195 km highway project in Canada between Moncton and Fredericton. Construction was completed in less than four years compared to the 15 years it would typically take under traditional methods. Since the new highway replaced a dangerous section of road, the rapid construction of the highway, meant that lives were saved more than ten years sooner than would otherwise have been the case. Moreover, the attention given to designing a highway that would improve driver safety has had impressive results. The highway has seen a 70% reduction in fatalities on the road between Fredericton and Moncton. This is a greater safety improvement than expected from the conventional wisdom that upgrading major arteries from two to four lanes will reduce fatal accidents by a third. It is believed to be the first time that driver examination services across an entire jurisdiction have been delegated to a single private company. Serco paid the Ministry of Transportation a concession fee of Canadian Dollars 114 million, and retains the driver examination fees charged. The Ministry retains control over examination standards and the amount of fees charged through a prescriptive concession agreement. Since the partnership began, wait times to take a driver's test have been significantly reduced from up to 15 months to an average of six weeks and overall customer service has improved. The project demonstrates that it is possible to improve customer service and value to the taxpayer without compromising public safety.