Before PPPs – Starting out
1.2 What are the key features of successful partnerships?
A. How public-private partnerships typically get started
Public-private partnerships may not seem to be a desirable solution at
first. Most organisations prefer to stay on paths they know, sharing goals
and work practices with other groups that think and act like them – governments
working with governments, businesses with businesses, non-profit groups
with non-profit groups.
Governments and private firms have long worked together under simple arrangements,
such as government purchase of products that have been produced by the
private sector. However, they are often hesitant to enter more complex
relationships. Governments are often concerned that private businesses
will take advantage of them, while businesses often consider the approaches
taken by governments to be burdensome and a waste of time.
there are three main conditions that favour the formation
of a partnership: a crisis; the involvement of a champion; and some kind
Generally, it takes a widely acknowledged crisis – for instance, the lack of particular services or the waste of resources – before partners are forced to decide to cooperate in order to resolve the problem. Although it is hoped that progress can be made in the absence of a crisis, in practice, the inertia that keeps many people on their familiar paths is usually broken only by the pressing need to work together.
Sometimes, even in the absence of a significant crisis, an individual,
group, or organisation will realise that separate, uncoordinated
actions are creating redundancies and missed opportunities
in terms of optimising the use of scarce resources. In reality, even if
the crisis is clear and the interest is there, partnership arrangements
will not succeed without the drive and commitment of a few individuals.
Such "champions" (leaders
or pioneers) can be government officials, NGOs, business people,
or citizens who – through their own personal motivation – make
partnerships happen. In other cases, champions are service providers who
stand to profit from the partnership.
Frequently, there is a need for some kind of catalyst to bring the partners together. Such a catalyst could be the actions of an external actor, such as one or more international finance institutions or other bodies that are respected and trusted by all partners.
B. Characteristics of successful partnerships
Government, businesses and community leaders must understand and respect
one another's goals. For instance:
- the government may initially have difficulty accepting the profit motive
of private businesses;
- the private companies may be tempted to walk away
from the more bureaucratic decision-making processes used
in the public sector; and/or
- local communities may not have the patience
needed to address issues affecting other areas of the city.
To resolve these differences,
all parties must focus on the broader, complementary goals
that are to be achieved. It is important for them to realise that public
and private goals do not necessarily need to be the same for partnerships
to work – they must be merely compatible.
For example, both the public
and private sectors want to raise general standards of living
– governments and communities wish to do so to alleviate poverty;
and businesses so that more people can afford their products.
Both sectors also want to build more links at the local level,
particularly in "emerging marketsí" – businesses to support
market growth; and governments and communities to promote development
and the idea exchange. In addition, both want to provide efficient services – governments
and communities to keep costs low and to increase coverage;
and businesses in the private sector so as to increase profits.
More on objectives can be found in [Tool
An enabling regulatory, legal and political environment is the cornerstone of sustainable private sector participation.
Early on, the public sector must establish an appropriate legal framework for contract procurement and private sector investment. It is very important that mechanisms be put into place to minimise the likelihood or appearance of corruption in any procurement processes. Unpredictable and unfair procurement processes reduce both political acceptability and the interest of many private investors.
The government must also establish a clear regulatory framework and it
must implement appropriate tariff regimes and subsidy mechanisms. The creation
of a regulatory framework alone, however, does not necessarily guarantee
effective regulation. As all local governments are different, the public
and private sectors will face a steep learning curve as they try to define
and regulate their relationship with one another and their roles in providing
services. In particular, the public sector needs to define a clear allocation
of responsibilities between the national and municipal governments, and
a clear statement of its role as a provider and regulator.
private sector companies prefer that the contract serve as
the major regulatory mechanism, and that local governments have very limited
regulatory discretion once the contract is in place. Highly specific contract
terms that establish duties, performance targets, rules for changing prices
and dispute resolution procedures, allow the private sector to better predict
the profitability of the venture and decide whether and what to bid for
the contract. Given these preferences, governments will have to make important
decisions about the degree of regulatory discretion they are willing to
give up, particularly for long-term contracts. More on PPP regulation can
be found in [Tool 15].
In addition to the regulatory climate, a bad political climate caused
by the pressure of election cycles, the potential instability
of new democracies, the personal agendas of government officials
and the special status of some services (particularly in terms
of access to water, for example), can create barriers to starting or maintaining
public-private collaborations. Governments must provide assurances
whenever possible to private sector partners that such political factors
will not disrupt the contractual partnership.
The government and business leaders cannot build partnerships alone –
political and social acceptance of private sector involvement is essential.
The population must see private sector participation as beneficial
if the partnership is to last over time. Public support of
private sector involvement over the long term will depend on
primarily the delivery of promised services and benefits at reasonable
costs. Therefore, it is of the utmost importance that mechanisms be developed
to ensure that the organisation providing the service, whether it is a
public or a private sector organisation, be accountable to its customers.
Public support will also depend on the ability of the partnership to meet
the needs of all stakeholders. For example, public sector
workers can be a source of tremendous opposition to increased private involvement
in the provision of services. Contracts should ensure the employment
or placement of public employees and local residents to the
greatest degree possible.
Credibility and transparency
Effective cooperation between local government, businesses and the community
is always difficult to achieve because of the wide range
of participants involved, the low level of trust that often
exists between potential partners and the lack of predictability
in the process. The credibility of champions and other
leaders involved, as well as transparency in the process, are
critical determinants of long-term success. Experience suggests that
genuine partnerships must include the principles of equity,
transparency of operations and mutual benefit. Trust and confidence in
any project is necessary for successful partnerships. More on principles
can be found in [Tool 8].
C. Factors contributing to the durable partnerships
Governments clearly want to establish PPPs that are sustainable over time. Essential ingredients of durable PPPs include those listed below:
Commitment of resources
All partners to the arrangement should be obliged to commit resources (financial, human, capital) to increase their interest in seeing the partnership succeed. This implies shared risks and rewards.
Projects requiring substantial institutional change or large capital investments will require capacity development within all groups of stakeholders [Tool
21]. For example, development of:
- consumers, in terms of the nature of the service they are to receive
and the costs associated with its provision;
- service providers,
particularly local organisations, in terms of entrepreneurial
- governments, in terms of their adopting the frameworks
necessary for, and overseeing the provision of, the service.
Roles and responsibilities
The delineation of appropriate roles and responsibilities is another element necessary in the development of effective partnerships. It is essential that partnerships be organised in a concerted fashion in order to make the most effective use of the resources committed by both parties.
Individual responsibilities should be clearly outlined from the beginning
so that there is no ambiguity in the tasks that each party is expected
to perform. Furthermore, these responsibilities need to be defined realistically
with a clear understanding of the strengths and weaknesses of each individual
All partnerships are context-based and different locally. Partnerships should draw upon other experiences, but at the same time should be opportunistic about exploiting the comparative advantage of local resources. Over the long-term, changes in investment plans, technology choices and priority actions will be necessary in response to unforeseen circumstances. Including clear procedures for making such changes over the life of the project will reduce the chance that they will have a negative impact on the partnership.
Partnerships take time. The process of understanding the problems to
be addressed and the impacts on potential partners, as well
as those partners' needs and aspirations, all takes time. Progress
can certainly be made along the way, but the process of achieving and maintaining
acceptance among users, providers and regulators is a continuing one – a
cooperative dialogue to address shared needs must be maintained throughout
Projects requiring substantial institutional change or large capital investments require a lot of time. Careful attention must be paid to the balance between responding rapidly to the most pressing crises and developing integrated solutions that will last. Political cycles and the desire for immediate improvement in a crisis situation often lead to the development of time frames that are too short. Such short-term agendas and limited horizons lead to unrealistic expectations and unsustainable solutions. Major institutional change (such as developing regulatory capacity) and major private investments both take time. It is not realistic to expect that private sector involvement will overcome public institutional and operational inefficiencies quickly, nor that it will compensate immediately for a history of insufficient public sector resources and funding.
Public services provide public goods – in other words, goods that
should be available to everyone. Improving provision of such
services is about making people's lives better, especially
those of the urban poor. Governments should always make sure that the changes
they make promote increased access to, and better quality of, services.
An emphasis on social responsibility will also increase political gain,
as better services will lead to greater political acceptance by the general