Some commentators continue to insist that PPPs are simply manifestations of privatisation under a different name. At its most essential, a PPP arrangement is a contractual transaction where one of the contracting parties is the government or a public authority. On this simple basis, costs involved in the dissolution of a PPP would include the usual legal costs associated with a commercial contract dispute and any associated litigation (Noble, 2006). This paper, however, seeks to expand the economic basis for the calculation of the costs of dissolving a PPP to include collateral costs not caught in the risk profile generated at the preliminary stages of a PPPs life cycle. PPPs come in all shapes and sizes and range from the public contracting of services associated with public service provisions (cleaning schools, maintaining roads, etc) to arrangements where the private sector is granted a greater role in constructing, operating and maintaining the public facilities in question. Around the world PPPs have been utilised by governments in many diverse sectors and in varying capacities.
Traditional asset procurement methods for the public sector usually involve a tendering process and the allocation of public capital towards the purchase of a specific public asset. The PPP process is less static and involves an ongoing relationship between the private and public sectors. Indeed, in a PPP context, the personal relationships between the negotiating teams representing the contracting parties, it has been argued, are of significant importance to the success or failure of a PPP (Noble, 2006). When comparing the traditional procurement method with the PPP business model several advantages and disadvantages can be seen. In terms of advantages, PPPs draw upon private sector expertise and efficiencies to provide purportedly cost effective outcomes to public sector requirements. PPPs, it is argued, also reflect a greater certainty in relation to the risk allocation characterising both parties exposure with the possibilities of periodically reassessing the risk profile schedule and adjusting the relationship accord with issues that may arise as a result of changing conditions. One major disadvantage of PPPs is that the design and functional specificity is not as well defined as with a traditional procurement method when tenders are submitted specifying all aspects of a projects life from the outset.
Some of the competing influences bearing upon the PPP context include the balancing of high quality public service provision with value for money (VFM). From a fiscal standpoint, PPP projects have the benefit of being funded by private sector capital reducing the requirement for public debt expansion. The risks of capital market fluctuations are thus shifted from the public accounts onto the books of private consortiums as part of a larger risk allocation matrix (including insurers and underwriters). When examined closely, PPPs are at their core innovative financing tools. Granted they may also result in quality and efficiency benefits but the cost saving benefits to public authorities seem to be the overriding consideration driving the growth in PPP adoption around the world (along with the recent proliferation of Private Equity firms). Public authorities, however, are not commercial enterprises and as such a whole different set of pressures and expectations are evident in relation to government actions and undertakings. Diluting the public accountability of government by mixing it in with commercial pressures in a PPP venture makes it somewhat difficult to measure the entire spectrum of costs incurred in the event of a PPP being wound up.
Political institutions built on government accountability to the public (such as elections) are the greatest safeguard liberal democratic societies have against oppressive, incompetent or fiscally profligate government. The lesson that is currently being learnt by constituents in the Australian state of New South Wales is that accountability in the context of failed PPPs is difficult to measure, and in terms of political costs, such confusion in responsibility is itself proving to be a significant liability to the incumbent government.