Hybrid Arrangements

Contract arrangements that incorporate different characteristics of a range of contract types can also be developed. Called "hybrid" arrangements, these bring together the attributes most suitable to a particular project's requirements and the operating conditions. Hybrid arrangements provide a tailored solution-in terms of scope and risk-sharing-that is most directly suitable to the project at hand. Obviously, the variations are endless; here are a few examples:

(i)  a management contract plus arrangement, in which the performance-related element of the management contract is substantial enough to transfer real risk. For instance, the payment of bonuses to the management contractor might be linked to achieving increases in the operating cash flow of the utility by a predetermined amount. To achieve the bonus (if sufficiently large), the contractor may put additional inputs at risk to achieve the cash flow outputs.

(ii) a lease plus arrangement, which allows shared responsibility for investments. Under a standard lease, the contracting authority retains full responsibility for undertaking and financing new investment, even though the operator may be in a better position to manage new construction and some other investment obligations.

In some cases, the operator is given limited investment responsibility, such as an extension of network service coverage in certain areas. Alternatively, the operator and contracting authority may reach an agreement to cofinance investments.

Table A2.2 provides a quick look at the extent of investment (stake) that is needed in the selected types of modalities for PPP in health.

As with all PPP modalities, political will, capital requirements, and PPP system issues must be dealt with.

Political will is an inverse function of the level of change to be brought about by the PPP. As such, service contracts, which do not change the status quo much, require only low-level political will. Meanwhile, concessions and BOTs, which give the private partner a significantly more visible role, will require higher levels of political will.

From the government partner's point of view, the capital requirements are inversely proportional to the level of change. If the government entity sticks with the status quo, then the organization or local government is essentially responsible for capital and operational expenditures. As such, service contracts require more capital from the organization than the more sophisticated types of PPPs, such as concessions and BOTs. However, as private partners take on more of the public sector's responsibilities, the government partner will need to invest more in the M&E system to ensure that quality outcomes are achieved, the poor are not taken advantage of, and targets are honestly achieved.