Public-Private Partnerships in the USA

Lessons to be Learned for the United Kingdom

Tony Wall

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136681639
• Edition: 1
• Topic: Business
• Subtopic: Government & Business
• Index: Business

Broadly, a Public-Private Partnership (or PPP) is any collaboration between the public and private sector, but research in the UK has tended to focus on those that have been used for major infrastructure projects, such as roads, schools, and hospitals. This book compares and contrasts PPP research in the UK with that of cases in the USA, including interviews with some of the key stakeholders (decision makers in the public sector, contractors, and users) of PPPs in North America, and observations of PPPs in action (such as schools and roads).

No prior major studies have compared the UK and USA when it comes to the development and operation of PPPs, and this book fills a gap in the literature, addressing a number of key questions, including: Is the private sector viewed with less suspicion in the USA when it comes to projects that would normally fall under the aegis of the public sector? How do politics affect PPPs? How do key players in the PPP process define project success, determine the merits and drawbacks of the initiative, and deal with controversial elements of the scheme such as value for money and risk transfer? The result is a volume that offers practical advice for the future development of PPPs in the UK.

1 Introduction

The aim of this book is to compare the usage and current state of public-private partnerships (PPPs) in the United States of America (USA) with that of the United Kingdom (UK). The author was fortunate enough to travel to the USA and observe some of the many PPPs in progress or in operation and also interview some of the key stakeholders in the PPP process, including government officials, private contractors, users of PPPs and academics. The latter group is seen as important as the context of this book is fundamentally academic, with the literature reviewed being primarily journal articles and texts; however, other sources such as newspaper articles, government reports and non-academic publications have also been used. The aim of the study was to establish if the UK, the government of which appears to have taken a far more cautious approach to using PPPs as a method of infrastructure development, could learn anything from the much wider usage of PPPs in the USA. Moreover, why have the academic communities taken such a different stance towards PPPs? On the face of it the scheme seems more acceptable in the USA, whereas in the UK it has never received much support.

To my knowledge no major studies have ever compared the UK and USA when it comes to the development and operation of PPPs. Fitz and Beers (2002) looked at what they saw as the privatisation of education in both countries, but did not look beyond this sector. Two US academics, Kee and Forrer (2008), investigated the UK's Private Finance Initiative (PFI), but did not set out to compare and contrast the model with PPPs in the USA. PPPs continue to be controversial in the UK despite a number of changes introduced in order to both speed up the contractual negotiation stages and improve the profit-sharing arrangements between the various partners. However, they are less controversial in other countries and thus comparisons are useful. International reviews of PPP projects in themselves are fairly sparse, with ones by Hodge and Greve (2007) and Grimsey and Lewis (2005) only really touching on very broad issues. Moreover, Dumort (2000) compared the use of social media in secondary and higher education in the USA and European Union, suggesting that PPPs would be an effective way of maximising its potential. This study is therefore seen as significant as it will compare the general use of PPPs in a region where the use of the private sector in public-sector infrastructure projects and service provision has always been viewed with a certain amount of suspicion with one where the private sector has traditionally had a much greater involvement with projects of this nature.

Accordingly, the objectives of the study are to try to answer the following questions:

• How has the PPP process evolved in the USA? Are there major differences when it comes to the use of PPPs between different states?
• Is the private sector viewed with less suspicion in the USA when it comes to projects that would normally fall under the aegis of the public sector? Is this due to different political systems, with the neo-liberal, free market thinking still more in favour in the USA?
• Are public-sector employees in the USA better when it comes to negotiation with private-sector partners? There is a suspicion that UK public-sector employees are often at a disadvantage when dealing with contractors and their consultants, due to reservoirs of expertise not being built up in more commercial areas.
• How do key players in the PPP process in the USA define project success; determine the merits and drawbacks of the initiative; and deal with controversial elements of the scheme in the UK such as value for money and risk transfer?
• Are there any areas of good practice or lessons that can be learnt for the future development of PPPs in the UK?

Before embarking on any text on PPPs it is perhaps important to define exactly what they are, although this is not a simple task. There are many different definitions of what constitutes a PPP (see, for example, Garvin, 2010, p. 404), with the United Nations General Assembly (2005, p. 4) defining them as ‘voluntary and collaborative relationships between various parties, both State and non-State, in which all participants agree to work together to achieve a common purpose or undertake a specific task and to share risk and responsibilities, resources and benefits’. Going by its broadest definition, a PPP can be any collaboration between the public and private sectors—for private enterprise; however, there is some debate whether contracting out constitutes a partnership. Under certain conditions, where there is no shared risk taking or development of ideas, the arrangement seems to be more of a traditional contract. Peters (1998) stated that there were five points that characterized a PPP:

1. The partnership must involve two or more actors, at least one of which is a public entity;

2. Each of the participating actors must be able to bargain on its own behalf;

3. The partnership involves a long-term, enduring relationship;

Table 1.1 The DBFO Model and its Variants (Adapted from Grimsey and Lewis, 2004)

Term	Description
Build, own, operate (BOO)	The developer is responsible for design, funding, construction, operation and maintenance of the facility during the concession period, with no provision for transfer of ownership to the government. At the end of the concession period, the original agreement may be renegotiated, a new agreement may be negotiated, or the facility may be purchased by the government.
Build, own, operate, transfer	An arrangement where a facility is designed, fi nanced, operated and maintained by a concession company. Ownership rests with the concessionaire until the end of the concession period, at which point ownership and operating rights are transferred to the government (normally without charge).
Build, operate, transfer (BOT)	An agreement where a facility is designed, financed, operated and maintained by the concessionaire for the period of the concession. Legal ownership of the facility may or may not rest with the concession company.
Design, build, finance, operate (DBFO)	The main form of contract in the PFI whereby the service provider is responsible for the design, construction, financing and operation of an asset. Operation refers to the provision of some or all of the services related to the asset's use.
Design, build, operate (DBO)	A form of PPP, in which the public sector provides fi nance for a capital investment project, but the providers of the projects retain the design and construction, and deliver some or all of the operational elements.

4. Each actor must be able to bring either material or symbolic goods to the relationship; and

5. All actors must have a shared responsibility for the outcomes of the partnership.

In the author's opinion, there are two other factors that distinguish a PPP from other arrangements: there has got to be some sort of return for the private sector, be it financial or non-financial in the form of marketing or brand awareness; and the private sector must be taking on a role that hitherto was carried out by the public sector. If these two factors are not part of the agreement then it is either charity or a form of corporate social responsibility on behalf of the private partner or a normal commercial arrangement (see the example of the use of Web 2.0 tools ahead). Notwithstanding, for the purposes of the UK part of this report, a PPP refers to the design, build, finance and operate (DBFO) model or its variants (see Table 1.1), although it is not the only use of PPP in this country (see McQuaid and Scherrer, 2010).

There are also several different types of PPP, which are used to achieve varying outcomes. Brinkerhoff and Brinkerhoff (2011, pp. 6–7) categorise these types in the following way:

• Policy PPPs, which seek to design, advocate for, coordinate or monitor public policies of various types;
• Service delivery PPPs, which engage non-state actors in delivering public services;
• Infrastructure PPPs, which bring together governments and the private sector to finance, build and operate infrastructure such as highways and sewage and waste treatment facilities;
• Capacity building PPPs, which can address service delivery needs or more explicitly focus on helping to develop the skills, systems and capabilities that allow groups and organisations that have been targeted for assistance to help themselves; and
• Economic development PPPs, which are cross-sectoral collaborations that promote economic growth and poverty reduction.

This book will focus mainly on PPPs that come under the umbrella of service delivery, infrastructure and economic development, although examples of the other two will be provided in Chapters Three to Six. Moreover, one of the interviewees in Chapter Seven is involved in capacity building.

It is also worth mentioning at this stage that the term ‘private’ in the USA definition of PPP does not always, but often does, denote a profit-making organisation (see, for example, Lovrich, 1999; Moulton and Anheier, 2001). However, for the purposes of this study the term private will indicate a private-sector, profit-making organisation. Therefore, PPPs in which the private partner is a religious entity (see, for example, Minow, 2003; Yancey et al., 2004) or a non-profit agency providing social services (see, for example, Hill, 2002; Morland et al., 2005; Oakley, 2006) will not be covered in the literature review. Likewise sometimes the word ‘private’ is used to refer to a private individual giving up his or her spare time to help a public-sector organisation become more effective in some area, but such a meaning will not be relevant to this study. Another area of ambiguity could arise from different uses of the word ‘privatisation’; in the USA privatisation is defined as any shift in the locus of the production of services from public to private, whereas in the UK it means the explicit transfer of public assets to private ownership (Grimsey and Lewis, 2005). There are also instances where some research has referred to PPPs, when in fact the public sector is merely using a private-sector supplier as no public-sector organisation is capable of providing a similar service. For example, Hui and Hayllar (2010) give several examples of US public organisations making use of Web 2.0 tools (e.g., YouTube, Facebook, Google maps, Twitter) to better engage with its citizens. Whilst the authors suggest benefits such as the provision of ‘fresh opportunities and new ways for governments, the private sector and citizens to collaborate together’ (p. s128), it is debatable whether the use of the tech-nology provided by global organisations by governments really constitute PPPs. Likewise, Schuster and Lundstrom (2002) analysed the role of the US government in international trade, stating that it had an interest in promoting the exports of private companies as this usually adds to the wealth of a nation. However, despite the authors labelling such arrangements as PPPs, it could be argued that such activity comes under the umbrella of normal government duties. Finally, PPPs are sometimes referred to as P3s in the USA, although the term will not be used in this study.

The book is laid out as follows. Chapter Two gives a very broad overview of PPPs in the UK; it is not intended to be a thorough review of all PPP activity and could never hope to capture the huge amount of research. However, it will hopefully provide a starting point for the far more in-depth literature review of PPPs in the USA in the following four chapters. Moreover, UK literature will be covered in Chapters Three to Six, whenever it complements or appears to contradict that of the USA. It is worth stating that although the review of the US literature is comprehensive, it by no means covers everything written on the subject. The aim is to provide a good overview of what sectors are being studied and the differing viewpoints of academics in the USA regarding PPPs. Chapter Three gives a brief introduction before looking at a key area of PPP activity—namely, their use by local governments for economic development or urban regeneration. Chapter Four investigates another major area, that of transportation, mainly roads, and more general infrastructure. Chapter Five looks at the important areas of health and education. Chapter Six aims to capture all the other areas which have been studied, but to a lesser extent, probably due to the much smaller amount of PPP activity within the various sectors. These include research and development (R…D) and other business initiatives, prisons, defence, waste management and water and to a lesser extent nuclear power and space exploration. This chapter will also look at research into contract management and accounting and finance issues. Chapter Seven outlines the methodology used in the study before presenting the results of the interviews with the key stakeholders. Chapter Eight will present four case studies of PPPs either under opera-tion or in the planning stages in the USA. Chapter Nine draws on all...