Crisis for Public-Private Partnerships: how can the law help? By Yseult Marique

August 21, 2014

academic law, Author Articles

Construction

Public-Private Partnerships are responsible for providing many public services in the UK and can make the businesses that run them hundreds of millions of pounds of profit. In times of government austerity they are controversial but, as Dr Yseult Marique argues, they are here to stay. Here she lists some changes in the legal framework that would make them more effective and lead towards the delivery of better services.

On 4th June 2014, the Independent reported on the huge profits that private contractors were pocketing when selling their shares in Private Finance Initiatives (PFIs) and Public Private Partnerships (PPPs). Mainly developed since 1992 in England, PFIs are schemes whereby public bodies ask private contractors to design, finance, build, maintain and operate public facilities and public infrastructures such as prisons, hospitals, schools, highways etc. PFIs have been controversial from the beginning as they could entail privatisation of public services and lower the quality of the services provided to service users. More recently, attacks against PFIs have become even more virulent as schools and hospitals face spending cuts: the profits that private contractors reap would be very welcome to buffer the harshness of the spending cuts.

 

Three Lessons To Learn

At a time when governments faced with reduced public budgets seek to be innovative in financing their industrial policy and the reduction of public services, the law can draw three lessons from the PPP experience:

  • first, cooperation between the public and the private sectors, such as that entailed by PPPs/PFIs, is part of a constantly evolving architecture of policies, institutions and documents. The law can help secure a degree of stability in this constant search for fine-tuning.
  • Second, PPPs/PFIs are complex projects and the law needs to accommodate this complexity, not add an extra layer of difficulty.
  • Third, PPPs/PFIs need to be carefully monitored once they have been set up; the law can provide the framework for this monitoring.

Firstly, the law could provide PPPs with a minimum of stability. So far, projects involving cooperation between public and private actors in England become known as PPPs/PFIs once they are supported by one of the agencies in charge of developing PPP policies (such as, currently, Infrastructure UK) and overseeing the financing of PPP projects (currently the Major Projects Authority). Then, a range of official documents and standard contractual terms become available and are applied to them. These agencies and standard documents are not stable, however: they especially change according to the political parties in power and evolving market practices. This re-organisation and the development of new policies take time and disrupt the development of PPP/PFI projects. Furthermore, the implementation of these new policies by new agencies involves a time of trial and error. This makes it difficult for private contractors to anticipate the options available, for service users to gain confidence in the services provided, and for local governments to plan their future investments. A stronger formalisation and institutionalisation of some of the key features of PPPs/PFIs and their supporting environment may help secure continuity, reduce costs related to uncertainty and risks and improve value for money. The extent to which the law could be helpful here requires further careful consideration.

Secondly, PPPs are highly complex and technical contractual arrangements. For instance, in the London Underground PPPs, the state of the tunnels deep down was not known, leaving it uncertain how extensive and expensive the works for upgrading the tube would be. Developing contractual solutions to address such issues takes time. Their implementation may easily take longer than planned and run over budget. The law, here included in an EU public procurement directive from 2004, had developed a specific process, the competitive dialogue, which was supposed to build on previous negotiation practices between public bodies and economic actors. However, the legal provisions were themselves difficult to interpret, leaving scope for uncertainty, and were too rigid in prohibiting changes in contracts after they had been awarded. The EU public procurement directive has been revised in 2014 and the competitive dialogue extended to contracts other than PPPs. These revisions generalise the competitive dialogue without solving the interpretation problems. This calls into question how legal reforms answer or should answer the needs of practitioners for simplicity or seek to protect more diffuse interests in society, such as value for money or vulnerable people’s interests.

Finally, PPPs need sound contractual arrangements to organise the relationships between the public and private partners. Yet, the best-written document is not worth the paper it is written on if no robust processes are in place to monitor how the parties perform their contractual duties and to ensure the accountability of the partners for their use of taxpayers’ money. Major failures with PPP projects such as the London Underground PPPs and the Lewisham PFI hospital remind us of this. Parliamentary reports hammer home the need to improve the financial transparency of PPP arrangements: they seek to know how the private partners make profits and whether the PPPs are on the balance-sheet of the public sector, i.e. whether they are taken into account in calculating the overall public debt of the country.

 

ppp and law

‘Public Private Partnerships and the Law’ by Yseult Marique

What Constitutes Transparency?

These two points need careful consideration. Yet, PPPs are one of the most systematically scrutinized public policies, and rules regulate their on-balance sheet treatment. The main issue is to assess whether these processes really help with understanding how PPPs actually work. In that respect, one needs to keep in mind that transparency includes more than access to the financial relationships and accounts of the private partners. Transparency also includes, for instance, understanding how decisions are made day-to-day to perform contracts and how the interests of users are taken into account in these decisions. On this score, it is worth mentioning that no systematic process tracks the potential complaints expressed by PPP users during the performance of PPPs. Are there no complaints at all? Are redress mechanisms efficient and easily accessible to users? Here again the law could provide a framework clarifying the scope of transparency obligations outside the financial arrangements and specifying the legal entitlements of service users.

 

Legal Change Is Not Enough…

At the core of this public private cooperation lies the question of how taxpayers’ money should be spent: what are the priorities in time, in space, in needs to be addressed? PFIs and PPPs are here to stay in one form or another because public bodies need private contractors to help them deliver public services and infrastructures, and private contractors need the certainty that their investments will be paid back. The modalities of this cooperation have changed over time and will continue to do so, in a search to find a balance between the autonomy of the partners and control over how the cooperation works.

Public and private partners need to develop ways to ensure that the services provided are of a satisfying quality and maintained over time. To do so, legal improvements have been suggested and institutional dynamics could be fine-tuned. However, legal and institutional changes are limited in how far they can help transform the ways in which public services and infrastructures are provided. Something else may also need to be changed: the decision-making culture in which PPPs are embedded. Also, the allocation of public interest and private profit may need to be discussed. In this sense, the development of genuine care for the interests at stake in PPPs, i.e. children, patients or prison inmates, is strongly recommended.

 

mariqueYseult Marique (PhD, Cantab) is Lecturer in Law at the University of Essex (United Kingdom) and teaches at the Université libre de Bruxelles (ULB, Bruxelles). Her research investigates the regulation of procurement and implementation of public contracts. She is developing a special interest for the integrity of public contracts and the involvement of local actors in public contract. She usually brings a comparative and European approach to her discussions.  Her latest book Public-Private Partnerships and the Law will be published by Edward Elgar at the end of August.

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