EXAMPLE

How Do Corporations Look for Value?

While defining value is a process that is unique to each PPP, many private sector corporations will address value through a series of criteria, such as those below. Though this list is meant to be instructive, it is not exhaustive. This list simply exemplifies certain kinds of criteria a private sector partner might be inclined to pursue in determining what value looks like:

Does this partnership reflect a mutually beneficial interest in areas of alignment?

Partnerships should ideally be symmetrical-partners should share equally in risks and opportunities. In order to ensure this symmetry, it is crucial that a partnership exists for the mutual benefit of both parties. By capitalizing on an area of mutual benefit, partnerships begin from a place of strength and mutual agreement.57

Balance: Is the partnership fundamentally equal?

While we have discussed the importance of appropriately allocating risks and opportunities already, it is important to remember that many private-sector companies will be looking for some fundamental parity in the contributions from each partner. Imagine a partnership in which one partner assumes 90% of the risk in exchange for 90% of the opportunity. Though this would theoretically be an appropriate allocation of risk and opportunity, it would not meet the criteria of being an equal partnership. Such a small investment of risk on the part of one partner could easily lead to mistrust, and ultimately instability in the partnership.

Generally speaking, partnerships that are as equitable as possible are those that are most successful. However, this does not necessarily mean that both partners must be able to commit equal amounts of each resource. One partner may contribute more capital, while the other might contribute a greater share of its human resources. Overall, both partners should try to contribute an equal amount of effort, however that is defined between them. As long as the contributions of each partner reach parity, the partnership is operating on equal footing, and stands a far greater chance of success.

In reality, however, partners from both the public or private sector may find themselves in asymmetrical partnerships due to capacity gaps-i.e., execution, financing, or innovation gaps. When faced with such constraints, either party should leverage its relative bargaining power through 3-D negotiation to level the playing field, thereby improving the likelihood of success in the PPP.

Does this partnership address a clinical care need or fill a scientific gap?

While many PPP projects are designed to improve clinical care outcomes-like the Lesotho Hospital Case-PPPs can also be helpful in developing new, innovative solutions. Many private-sector corporations, particularly those invested in developing innovations and new treatments, will be looking for specificity in terms of the project's goals. Value, to a private-sector company, might include offering or contributing financial support in return for developing innovative products or establishing a suitable authorizing environment for bringing those products to market. Projects with goals that align well with the business model of a private-sector partner are those that are more sustainable over the long run.

Furthermore, many of the most effective PPPs we have discussed in this Guide are not aimed at significant innovations, or "moonshot" objectives like a cure for cancer. In fact, while we have explored innovation as a potential benefit of PPPs, value creation can also happen with simpler interventions.

In Taiwan, at the beginning of the Covid-19 crisis, PPPs were used to quickly ramp up production of personal protective equipment, increasing daily production capacity from 1.88 million medical masks at the virus's first appearance in China to over 20 million.58 So, for all that PPPs can be used to spur innovation, they are also effective management tools; their ability to increase efficiency for low-cost interventions should not be overlooked. This proves especially effective in situations where the profit motive might incentivize companies to pursue long-shot (and patent-protected) innovations, rather than engaging in low-cost, low-profit solutions.

Are both partners in agreement about the metrics used to measure success?

It is crucial that partners agree on well-defined metrics for measuring success. These metrics should be as concrete as possible, and should be flexible enough that, as circumstances change and develop over the life of the partnership, they can be revisited. However, it is also critical that this performance is linked to a clear, fair system for resolving disputes. The more closely a clear definition of success and failure is tied to the resolution of disputes, the more easily those disputes can be resolved.

Are both partners in agreement on a timeframe for the project?

We have already discussed the importance of engaging in PPPs on longer timeframes. It is equally important, however, that both partners are in agreement about a project's timeframe. If disagreement exists about when to stop and measure success, partners could conceivably come to wildly different conclusions about whether success has been achieved or not. This can lead to contentious disputes, ultimately jeopardizing the sustainability of the partnership.

Does the partnership exist within a stable authorizing environment?

We have explored, as in the Park Plaza case, how the stability of the authorizing environment is crucial to executing effectively within a PPP. However, because PPPs take place over such long timeframes, it is not always possible to maintain total stability in this regard. This is because the broader enabling environment for PPPs tends to change over long enough timeframes.59 This type of instability is of particular concern to private-sector partners, who exert less control over the authorizing environment than their public-sector counterparts. It is crucial, then, that both partners agree to a regular reassessment and renewal of the authorizing environment underpinning a PPP.