Ppp Is A Form Of Partnership Between Government And Private Sector Accounting Essay

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Private public partnership is one of the important ways for the completion of public projects with the help of private partners. In the past government departments have the responsibility to complete all the government related projects but from the last two decades when the government has realized that they can complete government projects from the private partners because of the potential benefits like cost of project can be minimized, risk can be transferred to private partners, no need to spend higher resources for purchasing desired infrastructure, flexibility and budget certainty and getting expert and specialized human resources. Due to these benefits UK government has adopted this practice and now maximum projects under PPP are under the way in UK e.g. Transport for London, Redevelopment of Earls Court and PPP between Oldham council and Inspiral Consortium etc. (full list of different other projects that are being undertaken by UK government with their private partners is provided in appendix 1)

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Moreover in the current report I have provided the PESTLE analysis which is helpful to determine the affect of different external factors that are vital for the success or failure of a project because these external factors are out of control of management so the management should make a comprehensive policy that how the management is going to handle these factors. Furthermore SWOT analysis is also provided to check the potential strengths and opportunities of public and private partnership so that the government departments should start new projects under the same tool. The identification of weaknesses and threats are also highlights because government departments should make a plan to eliminate the potential threats and they should make their efforts to overcome their weaknesses.

Introduction:

Private and public partnership (PPP) is a form of partnership between government and private sector (availability of assets and provision of services that result in allocating responsibilities and facing different risk by the partners) for the completion of a project (Moszoro and Gasiorowski, 2007).

In private and public ventures government always remains active in the project's matters until its completion. Most of the times private partners have obligation to provide support in commercial activities like design, finance construction and operations of the projects. In the recent times partnership between public and private sector is vital for the provision of social welfare to the public. Due to this reason now governments have realized that if they involve private sector in the public projects then the governments can achieve their goals in the best possible ways. The reason behind this partnership is that governments knows that private sector have best possible human capital as well as resources for the completion of projects due to this reason government try to involve professionals so that government can provide best possible services or social welfare to its citizens (Spackman, 2002)

PPP has some of the vital characteristics, which can easily be seen from different projects that are underway through PPP. One of the major features is that the private sector has got free hand from government to add value in the form of innovation in designing, construction, utilization of asset and service delivery because government want to get better output from their joint venture with private sector. Second, government can easily define different measurable miles stones and the private sector can get payment after the achievement of these miles stones. Third, private partners can easily generate higher profit by reducing administrative cost that normally government sector do not able to reduce. Four, with the help of this arrangement government is able to transfer some of the risk factors to the private partner and able to protect it from losses. Fifth, government is dealing in similar projects and if a particular project is successfully completed by government and private sector then government can make same sort of arrangement for the other projects. Sixth, private sector normally has the access to the best human and non human resources so that they can contribute a lot for the success of PPP projects (Raman and Bjorkman, 2009)

Literature Review:

PPP is in discussion from the last couple of decades but most of the times it was considered as one off deals between government and private sector. In 1992 this idea was firstly executed by John Major in UK by introducing the concept of private finance initiative (a method for initiating PPP for public sector projects by the investment of private parties). There is a difference in PPP and PFI. As discussed before that PPP is a form of partnership between government and private sector (availability of assets and provision of services that result in allocating responsibilities and facing different risk by the partners) for the completion of a project (Moszoro and Gasiorowski, 2007). On the other hand PFI is way to create PPP by putting together public sector projects and private sector capital (Allyson, Shaoul and Vickers, 2002).

Private Finance Initiative:

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One of the much known forms of PPP is PFI agreement which gives a local authority accountability and admittance over a capital asset. In this case the public entity may not be the sole owner of the asset but is bound to pay for its usage and prerequisites. Extensive studies have identified that PFI is not an authentic form of PPP meaning implies that it undertakes restricted co-production as partnership is contractual based and risk sharing is also lacking.The private sector is primary investor in the asset that strives to recuperate the cost over a long term agreement. Other entity that takes the form of PPP includes:

There are different benefits of PPP to the tax payers and government sector as well as to private sector. The detail of potential benefits is provided below.

Benefits to tax payers and government:

PPP helps government and private sector to improve the service of a particular project to tax payers because both the sectors can work on that part in which they are specialized. Core competency of government is in making policies and execution of projects while private sector has the availability of best infrastructure such as human and non human resources. In this way both the parties can perform well and provide maximum satisfaction to their customers (Gaffney, Allyson, Price and Shaoul, 1999)

One of the important benefits of PPP is that private sector is able to reduce the administrative cost but government is not able to do this. But in the case of PPP the administrative cost will be reduced because private sector has that ability and in this way stake holders are able to get services at the cheaper rates (Burnett, 2007)

With the help of PPP government can reduce its investment in the projects because private partners have their own infrastructure and these private companies are using their own infrastructure for the project. Due to this reason there is not need of government spending for getting required infrastructure (Quiggin, 1996)

Most important benefit of PPP is that government can easily transfer some of the risk factors to the private companies because they have specialization in the provision of particular tasks e.g. if the private company has the specialization in performance of all the operations of real state business and it will enter into an agreement with government for PPP regarding operations of real state project so in this case government can easily transfer all the operational risk to private partner (Gaffney, Allyson, Price and Shaoul, 1999)

Government can finish a project earlier if it is governed under PPP because private companies are more flexible, experienced and they have the required infrastructure available with them, which will enables them to finish a project earlier (Quiggin, 1996)

Government is able to transfer the risk to the private partner so it will reduce the uncertainty regarding different risks. As the risk is reduced by government so government is able to make a reliable budget for entire project (Quiggin, 1996)

Private sector is also a partner in PPP so private partners put all their efforts and try to use all the facilities so that they can maximize their profits from the project as well as they are able to provide best service to the customers (Burnett, 2007)

Benefits to private partners:

Normally government is involved in long term projects so if a private company is able to work with government then the private company has to make investment for long term and the private company is able to get revenue and profit from that project for a longer period of time (Quiggin, 1996)

When private company is working with government in PPP at that time private company will get higher certainty and security because they are working with government department and there is less chances of uncertainty and they know that government is there and it will help private company to fulfil all the terms of agreement related with PPP (Gaffney, Allyson, Price and Shaoul, 1999)

Private company always able to increase profitability whenever they will become a part of a PPP because they are more flexible, experienced and having right skills to perform a particular task in PPP. Due to this reason private companies always prefer PPP (Harris, 1996)

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When a private company will become a part of PPP then that company is able to under the concept of PPP in the real way. Moreover the management of that company also able to realize that what sort of benefits they can get with the help of PPP and then they will put their best effort to increase their expertise in PPP and want to get the same benefit from any future contract (Burnett, 2007)

With the help of PPP experience (long term experience working with government sector in the same sector) a private company is able to understand the needs and requirements of a particular sector of economy in the best possible way. In this way that private company is able to enhance its skill in that particular sector that can be helpful to it to start other projects in the same sector (Harris, 1996)

Expertise that private sector company can get by working in PPP environment as well as in a particular sector helps the company to open new opportunities for it in the future that will be helpful for increasing revenues and share holder's wealth maximization (Harris, 1996)

Competitive Analysis :

Analysis of every idea is vital so that one can check its effectiveness for the individuals and entire society. If a particular idea is helpful for the society then it should be implemented for getting the best possible results from it

Analysts are using different analytical tools (SWOT analysis and PESTLE analysis) to check the effectiveness of different ideas. SWOT analysis is helpful for the analysts to check the strength, weakness, opportunity and threat that a particular business unit is facing while PESTLE analysis is helpful to check the effect of different factors like political factors, economic factors, social factors, technological factors, legal factors and environmental factors (Johnson, Scholes and Whittington, 2008)

PESTLE analysis of PPP is provided as follows:

PESTLE analysis of PPP

Political factors

Political factors are the factors that are linked with the political situation within a country. If the political condition within a country is stable than the government will restrict with the same policies and peoples will be evident of consistency in the rules and policies

Political stability is much need for the success of PPP because if there is political instability in a specific country then it will result in change in government policies and rules again and again due to this reason PPP will get less time to flourish. Moreover desired objectives of PPP cannot be achieved by the government, private partners and tax payers so in this situation no one will support PPP in the future and it will leads to failure of PPP in that particular country (Brereton and Temple, 1999)

Economic factors :

Economic factors are being manipulated by the economic conditions within a country. If the economic conditions are good in a country then it will leads to higher level of investment by the private sector in the hope of earning higher profits through their investment

Good economic conditions within an economy are suitable for the PPP activities because government can only invest more in different projects that can provide social welfare to the society when it has funds. Government can generate higher level of funds only at that time when the economic condition within the country is good because when peoples are earning well only then the tax revenue is higher for government. Moreover private companies are also investing more in different projects when they know that individuals have enough money with them and they are able to invest it. So higher level of PPP activities are forecasted when the economic condition within the country is better (Hexham and Vangen, 2000)

Social factors:

Social factor are linked with the habits, norms, tradition, values and believes of the peoples that are living in a particular area. Whenever there is something that is acceptable by the norms, habits, tradition, believes and values of the peoples then it will get acceptance by the peoples who are living in that society otherwise peoples reject that activity that is not acceptable under their social norms.

Prime duty of the government is to provide social welfare to the society and for this purpose governments of the different countries try their best to make a partnership with the private sector so that individuals can get maximum benefit from it. This practice of PPP is also acceptable by different societies or countries of the world due to the benefit which these PPP are able to deliver to the individuals of the society. As this particular concept is in line with the societal norms and it is also helpful to achieve different benefits for the individuals so this concept gain acceptance from the society and becomes one of the powerful tool for the provision of better social benefits to the society (Brereton and Temple, 1999)

Technological factors:

Technological factors are related with the technological break through and technological advancement within a country. As the peoples within a particular country are using latest technology in every field of life they are able to get better and improved results

Most of the times government sector is involved with private partners because the private partners have access to the latest technology or the private partners have relevant infrastructure available that is required for the completion of a particular project. For this reason government sector involved in PPP with the private partner and try to get the benefits of expertise of private partner that can play a vital role in the success of a particular project (Clark and Guy, 1998)

Legal factors:

Legal factors are related with the rules and regulation and changes in them because whenever government is making changes in rules then the new rules can affect different parties

According to the rules that were implemented in past, government departments were responsible for the completion of all government projects and government departments were not allowed to get any support from private sector organisations for the completion of government projects. But as the governments of different countries have realized that with the help of private sector support they can better able to perform their tasks. So in 1992 government officials made changes in the rules for the creation of PPP and after that government organisations were allowed to make PPP with the private organisations so that whenever government find any benefits in make PPP then government can make it for getting higher benefits from the private sector support (Hexham and Vangen, 2000)

Environmental factors:

Environmental factors are the factors that have impact on the environment and in the current time period individuals are environmental agencies are very much concerned about environment. According to environmental agencies every business unit should make proper arrangements to dispose off waste material properly

In the case of PPP, government departments have more responsibility to carry on all PPP related activities in the best possible way so that no environmental issue will be raised from any environmental agency. Moreover government department should make proper rules of conduct which the private partner should follow for eliminating the chances of any environmental issue (Brereton and Temple, 1999)

SWOT analysis of the PPP is provided below

SWOT analysis of PPP:

Strengths:

One of the important strength of PPP is that private sector is able to reduce the administrative cost but government is not able to do this due to a proper set up of government department (Burnett, 2007)

Most important strength of PPP is that government can easily transfer some of the risk factors to the private companies because they have specialization in the provision of particular tasks (Gaffney, Allyson, Price and Shaoul, 1999)

Government can finish a project earlier if it is governed under PPP because private companies are more flexible, experienced and they have the required infrastructure available with them, which will enables them to finish a project earlier (Quiggin, 1996)

Government is able to transfer the risk to the private partner so it will reduce the uncertainty regarding different risks. As the risk is reduced by government so government is able to make a reliable budget for entire project (Quiggin, 1996)

Private sector is also a partner in PPP so private partners put all their efforts and try to use all the facilities so that they can maximize their profits from the project as well as they are able to provide best service to the customers (Burnett, 2007)

Private company always able to increase profitability whenever they will become a part of a PPP because they are more flexible, experienced and having right skills to perform a particular task in PPP (Harris, 1996)

Expertise that private sector company can get by working in PPP environment as well as in a particular sector helps the company to open new opportunities for it in the future that will be helpful for increasing revenues and share holder's wealth maximization (Harris, 1996)

Weaknesses:

For PPP it is essential that private sector should have those skills and infrastructure that is required by government sector for the effective implementation of a particular project. Sometime after making PPP government sector came to know that private sector does not have relevant skills or infrastructure

Lack of proper coordination between government department and private organisation can result in failure of PPP and it will reduces the chances to provide best possible output to tax payers

PPP is a long term commitment between government and private sector organisation and due to any sort of inconsistency by any of the party can create problem for both the parties

Opportunity:

PPP helps government and private sector to improve the service of a particular project to tax payers because both the sectors can work on that part in which they are specialized (Gaffney, Allyson, Price and Shaoul, 1999)

With the help of PPP government can reduce its investment in the projects because private partners have their own infrastructure and these private companies are using it for the project. Due to this reason there is not need of government spending for getting required infrastructure (Quiggin, 1996)

Normally government is involved in long term projects so if a private company is able to work with government then the private company has to make investment for long term and the private company is able to get revenue and profit from that project for a longer period of time (Quiggin, 1996)

When private company is working with government in PPP at that time private company will get higher certainty and security because they are working with government department (Gaffney, Allyson, Price and Shaoul, 1999)

When a private company will become a part of PPP then that company is able to work under the concept of PPP. Moreover the management of that company can also realize that what sort of benefits they can get with the help of PPP and then they will put their best effort to increase their expertise in PPP and want to get the same benefit from any future contract (Burnett, 2007)

With the help of PPP experience (long term experience working with government sector in the same sector) a private company is able to understand the needs and requirements of a particular sector of economy in the best possible way. In this way that private company is able to enhance its skill in that particular sector that can be helpful to it to start other projects in future in same sector (Harris, 1996)

Threats:

If any of the party is not able to perform its duty in the best ever way then it will bring adverse affects for PPP

Any changes to the government rules and regulations can bring negative impact on the already started projects on the PPP basis

If the private sector organisation is not able to perform well for the operations of the PPP project then it will result in dissatisfaction of stake holders to the project

On the basis of PESTLE and SWOT analysis it is clear that PPP is in the interest of private and public sector so both the sector should come forward and work on the partnership basis for the optimum satisfaction of their customers.

Advantage and disadvantage:

Advantage:

The most vital value for money-drivers are the transmit of risk,

The production based Feature.

Lasting nature of contracts.

Performance measures.

The greater competition and the private sector management.

Cost efficiencies.

Faster implementation:

In public private partnership the developing duty is attached with payments and link with the service. And they provide longer projects rather than shorter construction.

Better risk allocation:

To ensure best value the aim is to optimize rather than maximize. Allocation of risk to the best contender is the core principle of Public Private Partnership.

Acceleration of infrastructure provision:

public private partnership is a expenditure

PPPs often allow the public sector to translate upfront capital expenditure into a flow of ongoing service payments. This enables projects to proceed when the availability of public capital may be constrained (either by public spending caps or annual budgeting cycles), thus bringing forward much needed investment. 

compact full life expenditure:

Public Private Partnership projects which need operational and Care help preparation allow.

Disadvantage:

Critical Analysis:

Current section is based upon different figures that are provided in appendix 1. These figures are providing the detail of PPP in UK as compared to different other European countries and with the rest of world. Moreover current section is providing the details of different PPP projects that are underway in UK

Figure 1 is providing the detail about PPP projects in UK. UK is most actively involved in the PPP throughout the world from 1990 to 2009 UK has started two third of PPP projects of entire Europe and in the world it share remain at 10 percent. Moreover Spain is at number two position with the total share of 9 percent according to PPP projects. France, Italy, Portugal and Germany have represented between 2 to 5 percent of total PPP projects. Moreover the total amount of PPP projects in Europe by UK, Spain, France, Italy, Portugal and Germany is 92 percent. The total figure of PPP in Europe has decline by 3 percent in 2007 as compared to last year (Blanc-Brude, Goldsmith and Valila, 2007)

Table 2 is providing the detail of singed PPP between government and different other private partners. There were 407 PPP projects that were under process between government and private partnership until the end of 2005. The total amount of capital that was being invested in these projects was £ 42,435.6 million by both government and private partners. With the help of these figures one point is clear that government, private sector and the stake holders all of them were satisfied with the progress of PPP and all the stake holders want to make same sort of investment in the future as well (Eurostat, 2006)

Major Public Private Partnership of UK:

Transport for London:

The biggest project that is still under operation in UK is transport for London which is now in its eight year. This project is undertaken by the government and private companies for the thirty years. Purpose of this project is to improve the working condition and to extend the capacity of the London underground so that it will meet the needs of the customers. The major achievement in 2010 was the successful test of air conditioned and walks through train by transport of London. Moreover in summer 2010 after the successful test 191 of similar trains were handed over to the transport for London and now these trains are providing luxury service to their customers (Brown, 2010)

Second major achievement that is gained by us is the improvement of signalling system of the underground trains through which we are able to improve the significant capacity during the year (Brown, 2010)

Moreover in the last year we were able to complete around 90 percent of the redevelopment work of St. Pancras King's Cross station as well as we are expecting the construction of new North ticket hall in time and in budget (Brown, 2010)

All the major miles stones that are achieved by the transport for London were achieved by it due to the partnership of government sector and private companies because both of these sectors have contributed their best for the achievement of these results

Redevelopment of Earls Courts:

The second project which is near to be finalized is the construction of 7500 houses in the areas of Earls Court Village, West Brampton Village, North End Village and West Kensington Village. The developers Capco and architects Terry Farrell are hopeful that this PPP will give enormous benefits to the local peoples and it will also helpful for the economy

because there is a possibility for the creation of 12,000 permanent jobs at the start of the project and after the completion of every year of the project 1,500 more jobs will be created (Hodges, 2011)

In this way the PPP project of redevelopment of Earls Courts will be helpful for the government, private sector and stake holders. Moreover this project will help government to start economic recovery

Oldham Council and Inspiral Consortium (PPP):

Another PPP project has been started in 2009 by Oldham Council and Inspiral Consortium for the construction of 430 new houses as well as refurbishment of 324 houses that are existed now. With the help of this project four neighbourhoods (Crossley, Clarkwell, Primrose Bank and Fitton Hill) will becomes an attractive for the residential houses. This PPP project will expires after 25 years and in these years this PPP will have to provide all the services for their stake holders (Jon, 2009)

Conclusion and Recommendations:

Private public partnership is one of the important ways for the completion of public projects with the help of private partners. In the past government departments have the responsibility to complete all the government related projects but from the last two decades when the government has realized that they can complete government projects from the private partners because of the potential benefits like cost of project can be minimized, risk can be transferred to private partners, no need to spend higher resources for purchasing desired infrastructure, flexibility and budget certainty and getting expert and specialized human resources. Due to these benefits UK government has adopted this practice and now maximum projects under PPP are under the way in UK e.g. Transport for London, Redevelopment of Earls Court and a long detail is provided in the Appendix 1

Public-private partnerships are about create planning, a lot a authenticate contract, they provide opportunity to both part. The private sector needs to make a return on its ability to spend and complete. The public area needs to deliver our services to the normal particular and to make the best use of public resources.

On the basis of comparative analysis and competitive analysis I am sure that the public sector projects should be started with the help of public and private partnership because this tool has lot of advantages as compared to the projects that are only financed under public sector. Moreover government should implement tight check and balance system so that the private sector will give their best input and with the help of that government can easily able to get the best results.

References:

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Blanc-Brude, F., Goldsmith, H. and T. Valila (2007), Public-Private Partnerships in Europe: An update, Economic and Financial Report, EFR 2007-03, EIB

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Burnett, M. (2007), A Decision Maker's Guide, European Institute of Public Administration

Clark, J. and Guy, K. (1998), Innovation and Competitiveness: A Review of Technology Analysis and Strategic Management, Vol. 10(3)

Eurostat (2006), Long Term Contracts between Government Units and Non-Government Partners: Public-Private Partnerships, Methods and Nomenclatures

Gaffney, D., Allyson, P., Price, D. and Shaoul, J. (1999), PFI in the NHS: Is There an Economic Case, British Medical Journal, Vol. 31 (9), pp. 1543 - 1551

Harris, A. (1996), Financing Infrastructure: Private Profits from Public Losses, Audit Office of NSW, Public Accounts Committee, Sydney

Hexham, C. and Vangen, S. (2000), What Makes Partnerships Work' in S. Osborne (ed.) Managing Public-Private Partnerships for Public Service. London: Routledge pp293-310

Hodges, D. (2011), Master Plan Revealed for Complete Redevelopment of Earls Courts, Chronicle Fulham and Hammersmith

Johnson, G., Scholes, K. and Whittington, R. (2008), Exploring Corporate Strategy: Text and Cases, 8th edition, FT Prentice Hall, London

Jon, L. (2009), Oldham Council Selects Inspiral Consortium for £ 130 million Gateways Housing Regeneration, 16/11/ 2009

http://www.24dash.com/news/Housing/2009-11-16-Oldham-Council-selects-Inspiral-Consortium-for-130-million-Gateways-housing-regeneration

Moszoro, M. and Gasiorowski, P. (2007), Optimal Capital Structure of Public-Private Partnership, IMF Working Paper No. 08/1

Quiggin, J. (1996), Private Sector Involvement in Infrastructure Projects, Australian Economic Review, 1st Quarter, pp. 51 - 64

Raman, V. and Bjorkman, J. (2009), Public Private Partnerships in Health Care in India: Lessons for Developing Countries, Routledge, London

Spackman, M. (2002), Public Private Partnerships: Lessons from the British Approach, Economic Systems, Vol. 26 (3), pp. 263 - 301