The erosion of confidence in the role of the public sector as the organizer and asset holder in the public services sphere has led to attempts to moderate the widespread dissatisfaction from traditional public procurement methods in delivering public services and infrastructure projects hence, public private partnerships (PPPs).
PPP devotes a sophisticated interface between public authorities and private sector undertakings which aims at delivering infrastructure projects as well as public services.
According to the European Union (EU) institutions, the term PPP refers to “forms of cooperation between public authorities and the world of business which aim to ensure the funding, construction, renovation, management or maintenance of an infrastructure or the provision of a service.”
As part of the initiative for growth at the European level, the council had approved a series of measures designed to increase investment in the infrastructure of the trans –European transport networks and also in the areas of research, innovation, and development, as well as the delivery of services of general interest.
On its part, the United Nations (UN) followed the suit and embraced the concept, defining PPP as “Innovative methods used by the public sector to contract with the private sector who bring their capital and their ability to deliver projects on time and to budget, while the public sector retains the responsibility to provide these services to the public in a way that benefits the public and delivers economic development and an improvement in the quality of life.”
In order to close the gap between the poorest countries and industrialized nations, the UN in the Millennium Declaration, committed its members to a new global partnership and emphasized the potential of PPPs in achieving the realization of the United Nations’ developmental goals.
In today’s article, the benefits of PPPs as opposed to traditional methods of procurement will be highlighted.
The principal benefit of involving the private sector in the delivery of public services has been attributed to the fact that the public sector does not have to commit its own capital resources in funding the delivery of public services.
Other benefits include quality improvements, innovation, management efficiency and effectiveness-the underlying elements in the private sector entrepreneurship.
Consequently, the public sector receives value-for-money (VfM) in the delivery of public services, while it can also be maintained that through this process the state manages in a better and more strategic way the public finances.
VfM in this sense denotes a concept which is associated with the economy, the effectiveness and efficiency of a public service, product or process, i.e. a comparison of the input costs against the value of the outputs and a qualitative and quantitative judgement of the manner in which the resources involved have been utilized and managed.
Research revealed that contractual relations between public authorities and private sector were not providing genuine VfM outcomes. This is due to:
a) Adversarial contractual relations as a result of competitive tendering;
b) Inappropriate risk allocation and
c) Poor contractual performances resulting in delayed and over budget completions (C.H.Bovis, 2006).
Competitive tendering (CT) in public procurement on the other hand has been reproached for creating a confrontational environment where the antagonizing relations which emanate from the tendering processes are often adversely reflected in the performance stage of the contract.
In addition CT has been dissociated with innovation and quality.
Also, as a result of inefficiently written specifications upon which the tenders have been constructed, the deliverables or the outcomes often differ dramatically from contractual expectations and stipulations (J.J. Laffint and J.Tirole, 1993).
Risk allocation is probably the most crucial element in contractual relations between public and private sectors that affect pricing as well as the overall contractual framework.
In a traditional public contract, risk is apportioned in accordance with the expected modalities, features or perceptions of the public and private sectors. Contractual elements of work which are associated with the design or construction of a project, maintenance, and operational matters, are usually passed on to the private sector.
On the other hand, risks related to the required investment, financing, and currency transactions, planning issues, residualization, obsolescence, political and legal aspects, industrial relations, and usage volumes remain with the public sector.
In traditional public procurement, the risk allocation tends to favour the supply side (the private sector) which mainly assumes the risks related to the tendering process and includes project risks.
During the performance stage of the contract and up to its completion, the public sector would usually place an amount of or risk to the private sector by requiring performance bonds or other means of financial guarantees.
Thus risk allocation and overall pricing for a traditional public contract operates in an analogous relation within a contract. The more risk a party assumes, the higher the price to be paid by the other party and vice versa.
Finally, traditional procurement methods have often revealed a picture of poor contracts management as a result of inefficient control systems operated by public authorities.
Poor contracts management systems have often resulted in out-of-control contractual performances with all adverse financial consequences attributed to the delayed completions of the projects.
The traditional public procurement process often suffers from unnecessary repetitive functions which do not offer long-term savings and VfM considerations particularly the advertisement, selection and qualification processes and would pose a considerable financial burden on the public sector.
While PPPs have been utilized as a credible solution to bridge the infrastructure deficit of many states in both the developed and developing world, its applicability in Tanzania is still at its infancy stages although a special Act (PPPA) was enacted in 2010 and part XII of the Public Procurement Regulations, 2013 also provides procedures for procurement under PPP.
An emphasis should be purposely made to make use of PPP in order to exploit the benefits behind it as Tanzania prepares to industrialize.
The author is an authorized Procurement and Supplies professional.
E-mail [email protected]
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