Role Of Public Private Partnerships In Public Procurement

The traditional way of procuring public infrastructure and services through fiscal budgets is increasingly becoming unviable particularly in developing economies in view of the endemic budget deficits.  This has necessitated the consideration of public private partnerships (PPP) which studies suggest constitute a viable option and may even dominate infrastructure and service delivery in developing countries.

Public private partnerships (PPPs) refer to arrangements for the procurement of goods and services utilizing franchising and similar arrangement with the private sector. The private sector is contracted to provide public goods and services on behalf of government. In essence the private entity becomes the long-term provider of services while government becomes the purchaser of the services. PPP schemes are built on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.

A well-designed Public private partnership process can bring procurement out from behind closed doors. The PPP tender and award process should be based on open competitive bidding following international best practice procedures.

Public private partnerships progressively engage the expertise or resources of the private sector. At one end, there is straight contracting out as an alternative to traditionally delivered public services. At the other end, there are arrangements that are publicly administered but within a framework that allows for private finance, design, building, operation and possibly temporary ownership of an asset.

Using private sector finance also allows the public sector to move large capital expenditure programs ‘off balance sheet’. This has been a motivating factor for PPPs in countries where the constraint on finance is a government commitment to borrowing or public debt.

The allocation of risk and the associated performance rewards and penalties create incentives in the public private partnerships contract that encourage the private partner to achieve efficiency at each stage of the project and to introduce efficiency improvements where possible. By shifting risk onto private partners the public sector is able to limit its own exposure to cost escalation.

Public private partnerships are structured so as to create a whole-of-life focus in which the private partner designs the project to take account of the link between construction and operation so that the cost will be minimized over the project’s lifetime.

Access to private sector finance has a very large infrastructure need and an associated funding gap. Public private partnerships can help both to meet the need and to fill the funding gap. Public private partnership projects often involve the private sector arranging and providing finance. This frees the public sector from the need to meet financing requirements from its own revenues (taxes) or through borrowing. This is an advantage where the public sector is facing limits on how much capital it can raise, as in India. By shifting the responsibility for finance away from the public sector PPPs can enable more investment in infrastructure and increased access to infrastructure services.

Through public private partnerships (PPPs) schemes, it is envisaged that private expertise and finance enable governments to meet rapidly growing demands for public services, radically improves infrastructure networks and enhances service delivery. Furthermore, value for money, a vital perception of public procurement is often realized because costs are shared.

It’s important to note however that public private partnerships also have a few complexities such as the fact that the long-term nature of public private partnership contracts requires greater consideration and specification of contingencies in advance and also contract uncertainties.