State legislators will want to consider how to protect the public interest throughout the PPP process.
•••••••••••••••••••••••••••••••••••••••• Thoughts from the NCSL Partners Project… On "There is No Free Road or Bridge" William D. Toohey Jr. •••••••••••••••••••••••••••••••••••••••• | Although the interests of the public and private sectors can sometimes be aligned for mutual advantage, they are not the same. The public interest is focused on the general welfare, while the private sector's purpose is profit-a repayment of costs incurred for the project, plus a return on investment for shareholders.138 Thus, the public cannot assume that the private sector will act in the public interest in a PPP.139 State legislators play a key role in protecting the public interest throughout the decision-making process and will be held accountable by their constituents for any failures to do so. |
Several recent reports have discussed "protecting the public interest" in PPPs, with recommendations on how to achieve this goal,140 but "public interest" is rarely defined. One workable definition is that public interest, equivalent to social welfare, comprises "the welfare of all agents involved in or affected by a policy or situation."141 State legislators can consider the pros and cons of PPPs for various stakeholders who may be affected, including taxpayers, workers, system providers and operators, and consumers such as tollpayers, commercial vehicle operators and other motorists. Members of the general public-of both current and future generations-also may be affected by external effects such as traffic flow, environmental impacts, job creation or other impacts on a state's economy142 There may be conflicts, however; a recent analysis by researchers at Harvard and the University of Barcelona warns that PPPs can benefit one group of stakeholders while negatively affecting others.143
Because enabling legislation sets the guidelines for PPP programs, procurement, projects and contracts, legislators will want to consider the public interest as it might be affected in each stage. Key statutory provisions to be considered in terms of the public interest could include allowable types of projects, alignment of PPPs with an overall transportation program, transparency and public participation, bidding procedures, reporting and oversight requirements, and comprehensive project analyses (see also Principles 4, 6, 7 and 9).
In the United States, contracts have been the primary means used to protect the public interest in highway PPPs, according to the Government Accountability Office.144 A recent Cambridge Systematics report also cautions, "unless adequately controlled through contractual agreements, there is a strong possibility that private sector interests will supersede the public interest."145 Legislators generally set legislative guidelines for contract provisions, while the executive agency is primarily responsible for crafting specific contracts. Contract provisions that may be especially relevant to protecting the public interest include performance standards, term lengths, toll policies, public sector flexibility to provide transportation services, labor protections, and public oversight and monitoring, as well as revenue sharing, risk allocation, indemnities, default provisions, and termination or "buy back" options.146
All PPPs have trade-offs in terms of risks and benefits for both parties. One analyst has advised that, to protect the public interest, it is important to keep the motivations in the right place.147 The private sector has a profit motive, while the public sector wants a fair price, value for money, and progress on broader policy goals.148 Legislators can help by explicitly identifying these interests and working to keep the public interest central to the debate. They can also help keep PPPs in context. Some analysts have advised legislators, when considering the effect of PPPs on the public interest, to compare them to traditional project delivery rather than asking whether they are "a good thing to do" in the abstract.149