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The escalating reliance between public and private organization has generated the needs of private public partnerships. This paper places effort on analyzing the extent to which public private partnership have delivered value for money to public projects in UK. PPP in version of PFI in UK has embraced approximately 10-15% of total investment in public projects and different sectors are collaborating to achieve the eventual value in form of simple cost reserves or real synergy that is the real intention behind PPP establishment. Research has examined that though extensive partnerships arrangements have been established in UK but the power disparity between public private partners have led to lack of mutual gains and thus unequal distribution of gains. The need of time is to focus on bringing productive modifications by constituting idiosyncratic traits of generating service s in public sector rather than just extension of private agreements. The regional contracts and local authority wide impacts of extensions of PPP has a crystal clear benefits for private entities but the matter of fact is to carry out accurate review, supervision and estimation of PPP with regards to value creation for public projects in such a way that it pick up the pace of PPP/PFI growth in UK and that private sector could fairly and successfully possess and drive the bulk of public sector delivering the value for money to public projects in UK. The research has comprehensively scrutinize the PPP/PFI structure in UK, the status of their growth, influence of their presence for UK economy and value being generated for public relevant projects and what substitute business structures can be adapted to economize UK public projects.
The recent expansion of new public management public private partnership or P3 is referred to as the business alliance that results from the co-operation of government and private area companies. This venture involves the agreement between both parties and undertaking of rational technical, economic and operational threats of a public project or service by private party. Public private partnerships involves a deliberate, permanent alliances that undertakes, cost sharing, risk sharing and resource sharing through unanimous decision making (Smith & Wohlstetter, 2006)
It is said to be a resilient coalition of public and private enterprises where joint product and services are developed undertaking the shared risk factor and other cost and return factors associated.PPP has transformed the way traditional responsibility of government as service provider and employer (Grimshaw et al., 2002)
The amount of investment depends upon the quality of agreement and is made mostly by private sector and the cost incurred in service provision rests with government e.g providing relevant subsidies or depending upon the type and configuration of project. Public-private partnerships (PPPs) are adding gradually more part in infrastructure course of actions in several countries. The crucial seek of this collaboration is to achieve exceptional advantage by conveying value that cannot be attained through other means (Weihe, 2008). the underlying principal for execution of PPP that it offers a more substantial platform for revenue generation as compared to traditional means of doing services so that finest collaboration of cost and quality of goods and services is attained contrary to other means of doing business (Zouggari, 2003). PPP is said to achieve incomparable synergy of behavioral and operational dimensions through cooperative practices of private and public firms (Ham & Coopenjan, 2001). The term PPP has multifaceted dimensions because it covers various perspectives that originates from primitive government procurement and moves on to individual participation in public dealings (Ghere, 2001)
PPP is normally distinguished by allocation of investment by both partners, the propensity of risk, accountability and reward sharing between associates. The vital aim behind such enterprise is to attain financial, constructional, operational excellence in public infrastructure and services. Both the partners benefit each other through extraordinary distinctiveness enabling them in perfect service or project execution. The success and strength of the public-private partnership stands on the potency to establish harmonizing association. The core rationale of PPP is to lengthen the existence of private enterprise in provision of public resources and services and privatization (Ball, 2011). The accountabilities in PPP vary from project to project from major to minor depending upon the involvement of each associate but differ on proposal of individual servicing.PPP is a platform of conveying public infrastructure which may include health services. Some take PPP venture as an allowance or chartered networks where the authority to the asset lays with government (Levy, 2003). The range of possible forms of public-private partnership is outlined in Figure 1. (Khalifa & Essaouabi, 2003).
Figure: 1 Possible forms of public private partnerships
Peters (1998) has identified five characteristics of PPP that engage two associates of which one is public entity, the involved partners negotiate on their own behalf, the stable agreement is on long-term basis, relationship requires investments of both partners either in form of goods or services and each associate have a shared responsibility for the outcomes
The propensity and nature of PPP is dependent upon multidimensional aspects of political, administrative, operational and socio cultural infrastructures of the state. Partnerships are distinguished on the basis of how they are originated, configured, based on how they are initiated, what services are provided, the form of the partnership and the degree of organizational contribution. In mechanized countries where things flow in a developed mode and it's far easier to configure public private partnerships effectively and efficiently (Daniel, 2008). Problem arises when the nature of PPP gets problematic due to cultural and institutional disparity due to the risk factor associated in that scenario in bringing partnership to a successful point. The major motivation behind PPP is restricting the financial scarcity of government through private investment involvement. The integration of private sector's assets, resources, proficiencies in public provisions has gained significance in fields of economic expansion, infrastructure development and public welfare issues the public private partnership schemes have gained fame in many government who have been making their best effort in its successful implementation to get best returns of investments (Nisar, 2007)
The role played by public and private association may vary depending upon the roles being played either the public sector keeps hold of regulatory and financial aspects and shares other services provision with private entity. It may take the form that public sector completely handover service provision role or it only retains regulatory control. There has been an argument on creation of PPP, it is believed and argued that with reference to public parties that they appreciate the involvement of public organizations for reason being their experienced market exposure, efficiency in operations and ability to innovate productively and on other hand for private parties the reason to take up such partnerships is the availability of investment opportunities and new market prospects but prerequisite to this is alliance with public authorities along with all qualms associated to it(Ham & koopenjam, 2002).
2.1 TYPES OF PPP
A concrete insight into comprehension of different types of partnership is lacking despite the record of partnership arrangements in many fields. Previous studies have undergone the analysis of partnerships and their causes of origin, their pros and cons and other associated factors to them. Rest it is agreed that partnerships are versatile and they are defined differently to highlight the differences between different types (Smith & Wohlstetter, 2006)
Ppp is just not restricted to accomplishment of innovation or achieving product synergy through non-standardized remedies it is far more than that undertaking the renewal and renovation of primitive working procedures, provisions, techniques and associations.PPP may constitute associations based on joint ventures that undertakes the contractual agreements .There are variety and versatile extension and types of PPP and one well-known extension of PPP is PFI:
Private Finance Initiative
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:
Strategic Service Delivery Partnerships (SSDPs)
Strategic Infrastructure Partnerships(e.g. local educational partnerships)
Contract operation &maintenance
The above mentioned types of PPP have been extracted from phases of project management. A particular type of PPP comes in to existence on the basis of partners' area of interest either design, build, operating as shown in the diagram below (Kopenjan, 2005)
Exploration planning Realization Operation
2.2 PUBLIC PRIVATE PARTNERSHIPS AND INFRASTRUCTURE:
Infrastructure of a country includes the roads, transport, communication structure, hospitals, and buildings thus all the physical structure needed to run the operations of the economy. Infrastructure serves almost every basic need of an economy thus handling and administration to achieve the desired results requires partnerships to keep hold of infrastructural operations (Zouggari, 2003). If its management is solely restricted to government without incorporation of private party it will lessen public awareness and realization and will for sure lead to some impediment or disaster that could be on a large scale and without involvement of public it would grow to extreme thus research has found PPP as an alternative to enhance infrastructure superiority and performance (Daniel, 2008).different modes of procurement have been integrated to enhance the role of PPP in structuring infrastructure that includes build-operate-transfer(BOT), design-build-finance-operate(DBFO)(Aziz & Russel, 2001). PPP has become the increasingly dominant and immense remedy to government's emerging dilemmas and problems specifically those relevant to infrastructure thus acting as a prevailing model in delivering public and private services to the economy (Forrer et al., 2010)
The component of reliability in performance of infrastructure is significant and vital that can be accomplished through amalgamation of PPP in infrastructure system. (Daniel, 2008). PPP is accountable for upgrading and renovating the infrastructure when there is a dire need of the economy with reference to advancement (Levy, 2008)
3.1 Public-Private partnerships in UK:
The extensive application of outsourcing and PPP has put forth test and has transfigured primitive concept of service provision through government as employer (Grimshaw. et al, 2002).recent researchers have identified that PPP networking has opened the new channels to eradicate the deficiencies and inadequacies linked with the traditional bureaucratic organizational configuration (Choe, 2002) Public services in UK gain success when in 1980's deregulation of employment allowed the privatization of various kinds and in addition to this PPP served the role of commencing the private sector in public entities including the foremost health, education and construction services. With reference to UK economy PPP is a vast perspective that overlaps a variety of partnering associations. The majority of these ventures include PFI which mostly involves the financial design and building of an asset that may be categorized as educational institutes, hospitals, infrastructure building, prisons, IT buildings like the London underground PPP where the grantor transferring the right of renovation or revamping of an asset to operator and then making use of it. Joint venture is also one type which though is uncommon within central government departments, such partnership undertakes the sharing of risk and reward judicially between both partners such partnership is more common in educational and health sectors(Broadbent & Laughlin,2003).
The present coercion of UK government is to become efficient in outsourcing more services to boost up PPP to fulfill stern objectives that will facilitate savings and returns at every stratum of government. The local government has pioneered the strategic service delivery partnerships PPP programs have been implemented with variations in different parts of UK. Till March 2006, it has been estimated that 750 PPP contracts have commenced with an investment of £26 billion. It has been found that majority PPP projects in UK are associated in health, and educational sectors that involves efforts in building new academic institutes and health clinics and hospitals rest the prisons based agreements are organized by private body (Whitfield, 2007)
3.2 PFI development in UK
Colchester Borough Council
Whitecross High School
Herefordshire County Council
Balmoral High School
Belfast Education and Library Board
Worcestershire Royal Hospital
Worcestershire Hospitals NHS Trust
PFI has been identified as a best suitable alternative of raising fund in UK that permits the public party to construct, make possession of and drive infrastructures and other services in partnership. The private agent of the partnership keeps hold and record of investments and resources and is liable to make it available to the authorities for a service fee depending upon the presentation, accessibility and the degree to which they have been used. PFI has been extremely motivated by UK government reason being the ease it has bring forth for the implementation of many projects that were restricted in traditional public methods and procedures.
In UK, PFI has been identified as pride and joy of new labor's stakeholder's community(Hodge, 2004) PFI is covering every second government sector and department in UK with variation in ethical and regulatory policies but the authorization for any PFI proposal is from national and government units. The financial assistance in form of PFI credits are agreed upon by local establishments.PFI incorporates a private sector association making efforts to enhance investments and constructions including public service institutes, hospitals and then working for the maintenance and operations till agreement. The service is chartered to the public party usually enduring 25-30 years that will assure the associations with returns by public service contributor.UK firms have been successful in accruing gains from PPP. The chief secretary of HM treasury has identified the fact that PPP has enabled enhancement in construction sector. During early period of commencement of PFI in UK the estimated returns of PFI were not completely comprehended because in public sector the successful execution of such projects required competencies in project management and public enterprises lacked viable knowledge and skills. Alongside PFI the UK government has introduced a range of other PPPs, some as below.
Examples of Types of PPPs in different sectors
TYPES OF PPP
Strategic Service Delivery
Building schools for the Future:
Profit making company 80% private
owned; 10% municipal owned
with exclusive contract for all
current and future school building
+ possible future
ALMO :Arms Length Management
with minority municipal ownership
Primary health care
LIFT: Local Improvement Finance
Trust- Nonprofit company with
60% private ownership and
exclusive contract for all current
and future development
PFI and many types of PPP
plus all prison
The housing councils seeks to incorporate local in order to enhance ways of living, accommodation, boosting living facilities and flourishing job opportunities(Richardson,2009). Seeking PPP as a mean of transforming the gateway of accommodation
There is lack of debate on examining the long term role of PPP/PFI and their consequences.PPP outcomes have been restricted to individual projects. The problem is not restricted to the execution or cost element of PPP but it can serve better value for money, quality services with ground-breaking service. The HM treasury that is dedicated as UK'S economic and finance ministry gives statistics relevant to public and private spending in PPP in the document of "the economy and public finances -supplementary material". HM treasury UK publishes the budget table twice a year. In the supplementary documents of budget 2010, the departmental estimate of capital investment by the private sector has been calculated that gives the total estimated expenditure by the private partner in PFI contract on basis of relevant department for next two fiscal years the capital expenditure refers to the capital outflow by private sector not to the value of project
Departmental estimate of capital spending by the private sector
Communities and local government
Culture, media and sport
Environment, food and rural affairs
Work and pensions
*Others departments including BIS,CPS,FCO,GCHQ,HMT,HMRC,MOJ,NSG
Source: HM treasury PFI data collection exercise-FEB 2010
3.4 Role of PPP in the UK economy and UK public projects
Do Public Private Partnerships provide value for money for UK public projects?
Value for money is not restricted to cost efficacy it is far more than that including cost effective means of achieving high quality service. In order to determine the efficiency and effectiveness of PPP performance in UK, they are assessed against the standard of value for money. Value for money defines whether the public private partnership has been conferred on best possible conditions and ways and whether the best possible combination of suppleness, cost efficiency and excellence is achieved (Forrer, 2010). The performance factor of PPP in terms of value for money in UK is usually measured against (Nisar, 2007):
The tactics and policy to accomplish effectual, competent objective through collaborative measures involving both public and private members.
Identifying the responsibilities for scrutinizing and assessing performance and the procedures to evaluate private partner's performance against government's prospects.
The flow of value for money in PPP is determinant for service selling to the private sector. It is said that value of money will increase with the expected transfer of risk to the private sector up till the best possible level at which risk allocation is made has been achieved for the partners to handle them and inequity due to further increase in risk transfer will lead to decline in value for money(Labuschagne, 1998)
Hood et.al (2006) has found out that the lack of transparency and undefined accountabilities have led to insufficient value for money in UK that has resulted in a democratic liability discrepancy in public sector and lack of translucent data accessibility to private sector stakeholders. One of the foremost restructuring movements in UK government is dealing with reinforcement of autonomous control and political accountability to enhance the transparency of PFI/PPP contracts in UK that has been eradicated by increasing employment of subcontracting within contracts and partnerships (Connor & Rowe, 2007)
CHARACTERISTICS OF PPP/PFI IN UK:
Some important features of PPP/PFI in UK evaluated by Whitfield (2007) are listed below:
The degree and extent of project in UK is superior and wider.
The versatility and variety of projects based on PPP/PFI has grown the partnership network extensively but focus is more on social infrastructure and welfare.
The network is dispersed in many regions of UK but the consistency elements of PPP in UK is the distinguishing factor as compared to other economies.
There is broad set of PPP/PFI connections in government departments that has broadened the national infrastructure in UK.
The legislation based on employment aspect with reference to PPP in UK is much more secure that avoids deregulations and other impediments
UK has enhanced its PPP/PFI structure as compared to network in other countries. The initiation of multi-service strategic service delivery projects (SSPs).
PPP has opened new market channels for replacement of debt obligations more precisely refinancing of debt and PPP equity clearance along with additional funds by investments entities.
The research efforts and audit procedures of PPP /PFI in UK is wide-ranging
4.0 PROS AND CONS OF PUBLIC-PRIVATE PARTNERSHIPS
When undertaking a partnership risk and benefit factors are two dimensions that has propensity to occur for both the parties involved. The risk factor associated may act as a barrier to the participants until and unless some alluring angle of the association is made prominent. The perception about the risk factor varies depending upon the notion participant had from a partnership. The requirement is to have a clear cut depiction of procedures embarked on by them. In speculations, these inventive partnerships are said to bring forth potential payback including enhanced service value, cost reserves and sharing of risk factor mutually however putting this thing into practice the extensive challenges confronted with these contracts can destabilize the successful execution (Bloomfield, 2006)
In order to sustain and attain a downright coherence and quality excellence certain fundamentals of mutual aid is required (Spekman et al., 2000). Lawther (2000) has recognized three points of views in favor of PPP that is motivating public sector projects without engulfing government debt and boost up in taxes, secondly, a cost effective and aggressive substitution to primitive public sector projects, thirdly, the initiation of competent project management proficiencies thus fostering the efforts of public sector more on vitalizing policy issues making time and resources available (Holden, 2009). PPP allows the long term platform to the government in yoking up the competencies of private sector offering enticements for effective presentations accompanied by savings and reserves with enhanced public services (Woods &Woods, 2005).it is identified that certain soft factors in a synergistic collaboration are needed that includes the element of trust, equal involvement of both party members this will help in attaining a more collaborative relationship rather than exchange relationship(Weihe, 2008). Research has identified certain features that have been resulted from a collaborative and successful PPP including trust, thoughtfulness, and empathy for the partners, optimistic and practical attitude and mindset, shared values, goals and objectives and high level of connection between partners that will enhance the proximity between both partners (Takahasi, 2004). Efficiency, effective management, cost efficacy; increased resources are identified benefits of PPP (Labuschgne, 1998)
It is not necessary that above mentioned objectives are accomplished in every situation at an ease there are amount of specific risk or drawbacks associated in different scenario
As long term contracts involve intricate and uncertain accomplishments. The government speculates to acquire the paybacks from these extensive agreements but with continual risk and intimidating administration and management issues. In case of PPP the risk associated may be categorized as public and private risk.
With reference to public party risk lies in context of advanced competencies of private parties that conceals the proficiency of public parties. In joint development of PPP the public party is also burdened with the project that is not of their desire and demand. The dominance of private party suppliers also hinders the interest of public party that obstructs their concern and public party being under financial threat from private party as public funds may solely be used in generating private gains (Bell, 1998).
On the other hand risk incorporated in PPP for private body is inadequate cash generation or revenues and repressive cost investment in long term contract previous studies have assessed that insolvency was the consequence in many cases where government turned hard if private entity failed to fulfill the agreement obligations (Ghere, 2001). Grimshaw et al., (2002) has identified power imbalances as one of the drawbacks in PPP and certain other contributing factors that has served as hindrances in maintaining synchronization in PPP
Figure: Factors contributing to power imbalance in PPP
Public sector purchaser private sector provider
Expertise in outsourced activity
Medium-high, but declining
Medium-high and rising
Expertise in negotiating and working to contract
Sensitivity to reputation in area of service and delivery
Political obstacles due To negative attitudes of partners, lack of cohesiveness and unified efforts with the fear of private sector as a threat also include some of the pros of PPP. (Labuschagne, 1998)
Some recommendations to overcome drawbacks can be followed:
On commencement of PPP both the public and private entities should make an analysis of competencies and proficiencies and develop joint objectives through collaborative decision making.
The core of PPP should be to situate sovereign and fair professionals who will be accountable for safe guarding the concern of both public and private partners scrupulously and insistently.
As PPP embark on long-term contract that consequently involves long term endorsement of resources, assets, skills so feasible partners and candidates who can fulfill the long term obligations should be implicated.
PPP collaboration shall embark at continuity for the maintenance, recreation and welfare services with private partner showing foreseeing ability to create new market for services (Domberger & Fernandez,1999)
5.0 APPLYING PPP FOR EXECUTION OF PUBLIC PROJECTS
The implication of PPP/PFI in UK is extended to infrastructure such as academic institutes, hospitals welfare agencies, courts and prisons, due to collapse of service, cost swarming and long impediments, the ICT projects were deducted from PPP/PFI programs in UK but the initiation of other encouraging projects like LIFT (Local improvement finance trust), BSF (building schools for future and NHS (national health service) has implanted private investments and private prerequisites in public sector of UK. By 2010/2011 the total capital value of PPP/PFI project is estimated to be £75 billion. Apart the initiation of strategic service delivery projects based on ICT has imposed the value of £3 billion and more. There are some internal and external forces that impact the performance of PPP/PFI that influence the homogeneity of PPP/PFI in public framework and policies. The long-term influence of PPP/PFI with reference to UK economy is contentious that may underline downward curve in public sector employment, the downfall of public oriented services organizations and promotion of private entities, diminished competence, attrition of autonomous accountabilities and lucidity and outstanding position of private sector in holding the administrative and management issues of public sector. The practice of refinancing has facilitated public sector to boost up productivity of PFI above the desired average thus enhancing the level of borrowing and length of contracts that will inhibit termination of public sector thus increasing boundaries for them. The evidence of studies has shown that PPP/PFI has not met the real standards of value for money in UK.
In order to improve the performance of PPP/PFI certain strategic implications have to be implemented to achieve real means of value for money that includes amendments in financial policies to foster public investments but there is reluctance to this approach in UK, secondly the precedence of investment in infrastructure is disinclined that should be encouraged to generate funds by allotment of taxes. Motivating the public sector investment is not the only sustainable strategy but alteration in public policies to improve project management and procurement is required to advance control over resources speculations.
In order to foster the completion of public projects in UK local establishments need a careful scrutiny of relevant acts and legislations so that the relevant use of power can be exercised by service provider and appropriate allocation of accountability in order to apply regulatory powers (Torres &Vicente, 2001). For flourishing PPP, novelty and skills in asset design, operational practices and creative construction techniques is needed from private sector to derive value for money and for this, amalgamation of design, build, operate, maintenance is required to create synergy property(Hart, 2003).PPP incorporates allotment of accountabilities and risk sharing in a cooperative structure, the best possible skills, knowledge, and assets are incorporated by both public and private partner to deliver the best possible outcome based upon value for money chasing a number of different means including focus on services, innovation of opportunities and incentives for partners, integration of different cost structures, generating revenues through asset usage, appropriate risk allocation that will reduce the overall substantial cost to government(Grimsy & Lewis, 2002). The PPP is said to be in a best possible situation if achievement of value for money is based upon realizing optimal risk and entity is able to manage it at the lowest possible price (Davies, 2006). Strengthening the public sector management and availing gains of public sectors from refinancing shall be guided. Alternative strategies of modernization that requires revision of public service guiding principles, redesigning programs and projects and authorizing local government is required
6.1 ALTERNATIVE BUSINESS STARTEGIES FOR UK PUBLIC PROJECTS
Each economy design PPP depending upon the economic viewpoint, political scaffold, and business needs of an economy. The best business model of PPP strives to achieve a balance of public organizations and private companies to keep the business aggressive in business arena. (Schuster & Lundstrom, 2002). The matter not only lies with the steep learning curve of public sector to make the existence prominent in the market but thing is efforts have to be expanded far beyond just providing sufficient training to make such alliances successful. It requires the acceptance and approval of competencies and discrete qualities in public sector that incorporates the eminence of being fair in procedures, ethically standardized, anticorruption activities, sustainability and reliability is also a compulsion. The UK economy in order to deliver projects through PPP federal and state level agencies should trigger the formation of databases to assemble both monetary and non financial data on project performance to levy the value for money (Siemiatycki, 2010). Following business models can be incorporated as recommended strategies in UK public projects:
The public sectors require the development of long term planning regarding cost structure and investments in infrastructure projects.
The concept of infrastructure bond shall be interrogated to motivate new modes of public funding in infrastructure
Project management by public sector should be build up to foster capacity of to draw upbeat an infrastructure that will help in gaining competencies.
Regaining public services principles through substitute transformation strategy will help in retrieval of transparency and democratic accountability
The aim of this paper was to analyze the significance of PPP in context of UK economy, the role of public and private partners in generating the fundamental value for money and other dimensions of PPP. The potential investment performance of PPP cannot be judged fully due to lack of information and knowledge of private sector partners, and thus representing poor value for money what is required is to address accountabilities on behalf of both public and private partners to fully judge the worth of these ventures and to enhance transparency(Hood et al,. 2006) . Achieving the best value should be the eventual aim of PPP that strives at achieving maximized business transactions, performance standard excellence and value for money (Zhang, 2006). In order to achieve best returns of PPP the investments from private parties in public projects should be fostered as they are profit oriented this will yield a positive atmosphere to accomplish a mutual return on investment (Koopenjan, 2009). Affordability, right approach for risk relocation and proficiencies needed to implement PPP are the elementary drivers of value for money (Nijkamp et al., 2002).