Is the Public Sector Ready for PPPs -Questions they Need to Ask Themselves

By David Baxter – Sr Fellow. “President Trump’s pledge to create a program that funds $1 trillion in new infrastructure programs has kicked off with numerous meetings but few firm decisions, beset by understaffing, bureaucratic decisions, and major questions about how to pay for everything…..Behind the scenes, a government-wide effort kicked off last week when White House Council Director Gary Cohn led a meeting with 15 federal agencies and departments pressing them to come up with answers to six planks for the infrastructure plan. They were told they need to identify new projects that need help with completion; identify policy; regulatory and statutory issues that would need to be addressed: and finally come up with ways to pay for it all. Trump has said he wants the financing to be a combination of public and private money…… “As the president has said many times, strong public private partnerships will be key to revitalizing our country’s roads, crumbling bridges and outdated airports,” White House press secretary Sean Spicer told reporters on Wednesday……..In anticipation of a major infrastructure initiative, the National Governors Association last month forwarded a list of 428 “shovel-ready” projects to the new administration.” Source: Washington Post – Trump’s trillion-dollar promise hits traffic early, by Damian Paletta and John Wagner.

“Smart investment will only be possible with leadership, planning, and a clear vision for our nation’s infrastructure. Leaders from all levels of government, business, labor, and nonprofit organizations must come together to ensure all investments are spent wisely, prioritizing projects with critical benefits to the economy, public safety, and quality of life, while also planning for the costs of building, operating, and maintaining the infrastructure for its entire lifespan.” Source: ASCE 2017 Infrastructure Report Card – 2017 (score = D+)

Last week I wrote on blog titled “10 Important Questions to Ask the Public Sector when Pursuing a PPP Procurement.” I was very surprised by how well it has been received. As a result of a comment written by Rebecca Woods who said the following: “I would add that the public sector should ask itself these questions when first considering P3 delivery for a project or program,” I decided to write a new post that focusses on questions that the public sector should ask itself when considering Public-Private Partnership (PPP) initiatives.

Institutional answers to specific readiness questions that must drive actions relating to public sector capacity to launch large initiatives under the new administration’ goals (see article above) are needed. The ability to initiate work on 428 shovel-ready infrastructure projects will be an enormous undertaking and require careful thought and planning that is focused and partly driven by the private sectors needs as well.

Private sector trust in public sector readiness to identify, procure, and collaboratively manage hundreds of large infrastructure projects will require federal, state, and local government to prove that they are serious and have the knowhow and resources to launch complicated PPP projects. This will require a transparent consultation and a strategically defined public sector path that presents the private sector with a clear portrayal of project opportunities. What the private sector will be looking for is an enabling and participatory environment that wins the trust of the private sector that their investments will be protected and that their innovations will be embraced. This will only be possible if the public sector is open to asking itself questions that will determine its own readiness to engage the private sector.

The infrastructure needs of the USA are enormous and should not be disregarded. The ASCE 2017 Infrastructure Report Card (Released last week) gives the USA a D+ score. This should be taken seriously as a clarion call for immediate action to engage the private sector. The question is, “Is the US Public Sector ready to collaborate with the private sector?” This question is also relevant for other national initiatives such as the Saudi Government’s Vision 2030, which will also require the massive mobilization of private sector resources (inclusive of human and financial capital) to be successful.

Being prepared is particularly important for public sector agencies in countries that are considering large PPP programs. Governments can unwittingly commit the public sector to infrastructure programs that could overwhelm them if they have not carried out an internal assessment of their own preparedness and planned for shortcomings. The scope and the scale of the upcoming programs in the USA and Saudi Arabia are astounding and will require considerable resources and institutional capacity that they might not have. If public sector institutional lack of readiness is not enhanced this could lead to them being overwhelmed and lead to serious challenges that could constrain ambitious national strategic initiatives that require private sector participation. Inertia induced by unpreparedness could eventually lead to paralysis of efforts to recruit the private sector and eventual failure.

Public Sector Preparedness to launch PPPs is a serious topic of discussion for donors, financial institutions, and the private sector. On Thursday I participated in a panel discussion with participants from the World Bank, Inter-American Development Band, USAID, DEVEX, and the National Council for Public Private Partnerships which was organized by the Global CEO Alliance and the GWU School of Business. The topic was, “PPPs, Inclusive Partnership and the 2030 Agenda” and was one of the forum discussions held as part of the Global Partnership Week 2017 which was organized and led by the US Department of State. An underlying common sentiment that was expressed by panelists was the concerns that exist about public sector institutional capacity, procurement transparency, private sector trust, and standard guidelines which are indispensable for PPPs procurements to be pursued by serious and qualified private sector players. These very same sentiments were expressed by speaker after speaker at the Powering Africa Conference held in D.C. last which I was fortunate to attend as well. Building institutional capacity and trust in the public sector to launch PPPs is thus critical to the private sector and requires clarity on reasons why the private sector would consider partnering with the public sector.

It is important that public sector agencies assess their competencies before they launch PPP initiatives. A serious capabilities assessment is often overlooked in the haste to embrace PPPs and this oversight can lead to over confidence by the public sector in their ability to deliver. This over confidence (or lack of confidence) can have serious consequences for the public sector especially when it comes to the private sector investor’s trust of the public sector and willingness to partner with the public sector.

So how does the public sector go about making a public sector institutional assessment that will instill private sector trust?

There are a number of tools available.  UNESCAP developed a PPP-Readiness Self-Assessment tool that I constantly use when holding PPP strategy sessions with clients.   I was introduced to the tool by an employee of UNESCAP in Myanmar two years ago when I collaborating on a PPP training and readiness capacity assessment workshop sponsored by the Dutch Government. At the workshop the team worked closely with over 20 directors-general of public sector agencies to help them prepare a national PPP program. Since then, I have used this tool with aspiring public sector practitioners from at least 20 African countries and most recently with four Saudi clients.

The aim of the UNESCAP PPP-Readiness Self-Assessment is to provide a diagnostic tool for identifying the key areas that government agencies at national and subnational level need to address in order to involve the private sector more actively as partners in the PPP infrastructure development method. This tool can be universally used and is valuable for any public-sector institution entering the PPP market for the first time. The tool in essence helps the public sector score the health of their PPP enabling environment by using a scoresheet. It reviews the countries background environment; PPP Policy framework; PPP legal and regulatory framework; PPP institutional capacity; and PPP process.

Source: UNESCAP: http://www.unescap.org/resources/ppp-readiness-self-assessment

Every time that I have used this tool’s score card in a workshop setting, there has been an almost unanimous agreement that participants were over confident of their abilities at first and needed to review their approach to launching PPPs when they returned to their offices. It is interesting to note that differences in scoring when the assessment is completed by an individual (usually higher score) or with a group of peers (lower combined score).

For beginner public sector champions and practitioners, it is important that they reference available information sources that can inform them about the status of their national PPP enabling environment. The World Bank’s “Benchmarking Public-Private Partnership Procurement Document: 2017,” provides valuable insights into assessing government’s capability to prepare, procure, and manage PPPs for 82 countries.  Benchmark scores that are provided include: preparation of PPPs; procurement of PPPs; unsolicited PPPs; and PPP contract management. These benchmarks scores are a valuable gauge for public sector agencies to determine their areas of strength and areas of procurement that need mitigation if they are to attract private sector interest. See the benchmark assessment for the USA – Virginia below. It is encouraging to note that the World Bank intends to update the report with more countries in future reports as PPP markets evolve in new national markets.

Source:  World Bank: Benchmarking Public-Private Partnerships Procurement, 2017.

So, what are the questions that the public sector should be asking itself, if it wants to create a positive collaboration climate with the private sector that is based on trust and confidence in the ability to deliver PPP projects.

Public sector champions and practitioners should ask the following questions of their peers (stakeholders and partners) in a collaborative setting and then take specific actions to ensure that deficiencies are addressed at the national or subnational level or where appropriate. The questions that should be asked before any PPP project or program is launched include the following:

Question One: Do we have specific procedural guidelines in place that determine how decisions are made regarding the appropriateness of PPPs?

It is important that informed decisions are made that include a Public-Sector Comparator (PSC) assessment of Value for Money (VfM) and project bankability. Specific procedural guidelines should be developed if no national guidelines exist. There should be no private sector doubt that projects are financially viable and sustainable before they are lunched.

Question Two: Who made the decision to implement PPPs?

It is important to determine if the decision was imposed by a national program or driven by an institutional need. Different mobilization strategies need to be developed according to who the initiator is. Unless this is done, the private sector might be concerned about the true viaiblty of the project.

Question 3: What is the capacity of our institution to implement PPPs.

No matter who initiated the PPP initiative it is critical that an institutional capacity assessment be launched to determine what resources are needed. If resources are lacking, it is important that a public sector agency reach back to national institutions (a national PPP unit for example) or to consultants (best recommended by donors and financial institutions) to provide the needed resources until they can be built internally. The tools referenced earlier in this post can be a useful starting point to determine institutional ability to deliver partnerships with the private sector which are mutually beneficial.

Question 4: Is there long term political commitment?

Complex PPP infrastructure projects can require contractual commitments of 20+ years. In democratic countries, this is longer than most politicians terms of office. Because of this it is important that projects be vetted and supported by public sector proponents in a bipartisan manner to ensure that the public sector’s resources allocated for PPP projects will remain in place should a political change take place. This is of particular importance when political appointees are assigned critical decision making powers in public institutions. It there is no political commitment, the private sector could consider the political risk to be untenable and shy away from collaboration

Question 5: Who are the project stakeholders?

Many large infrastructure projects include a number of stakeholders who should be consulted before PPPs are launched. This includes other ministries and agencies that might provide complementary services or be required to permit projects, national strategic decision makers, and representatives of impacted communities. Understanding who these stakeholders are and the impact that they could have on a project’s success is worth the consultative effort. It is important to draw a strong definition between stakeholders (impacted and interested parties) and partners who are contractually bound to formally structured PPPs. Clearly defined responsibilities and full disclosure of stakeholder sentiments can only ensure the confidence of the private sector.

Question 6: Is the private sector ready to support our PPP initiative?

Often it is assumed by the public sector that there will be automatic interest shown in a PPP project by the private sector. In a competitive financial market, this cannot be assumed. International finance is not sentimental and it will be attracted to the best enabling environment and markets that are least risk prone. This requires that the public sector launch a marketing program based on facts and figures that will excite the private sector. In new markets it might also be important to educate the domestic private sector about PPPs before they show any interest. In African markets, local banks often have little PPP experience and are hesitant to make loans.

Question 7: Will the private sector find the terms of the PPP project contract appealing?

Structuring deals and writing good contract terms is an art based on years of experience and best practice. Poorly written procurement documents and ill-conceived contract terms will drive away experienced and serious private sector partners, thereby imperiling the success of a procurement. It is important that a PPP qualified public sector procurement team be established. If the in-house capabilities do not exist, it would behoove a novice public sector team to hire specialist to fill the gap.

Question 8: Have we ever launched a PPP project before and are we ready for long term commitment?

In many instances, public authorities have never launched a PPP project before and do not understand the long term commitment that is required. If no in house experience exists it is important that an advisory partner be sought nationally or internationally. The worst mistake that can be made is to appoint a team that only has general procurement experience. If a long-term PPP program is going to be launched, it is also important that the public institution commit the necessary resources to build a team that is ready for a long-term collaboration with the private sector . This will instill confidence in the private sector for future PPP procurements.

Question 9: Is our proposed program aligned with national strategic initiatives?

PPP projects require many different types of resources. If a project is aligned with national strategic goals (or state goals at subnational level), it is more likely to receive the support it needs. Projects that follow well designed and widely supported national strategic guidelines are also most likely to be projects that have merit and are included in national PPP project pipelines. These projects are more likely to receive interest from private sector investors, both domestically and internationally.

Question 10: Have we actively engaged the private sector?

Active engagement of the private sector at PPP planning sessions, workshops or bidding conferenced is an important avenue to assess the concerns of the private sector. Public-private engagement forums allow both sides to share concerns and provide invaluable insights into what will work. Feedback from the private sector can help the public sector recalibrate their efforts and engender an increased interest in projects that need collaboration.

There are many more questions that the public sector can ask itself while seeking to engage the private sector. If the public sector is interested in being a good partner of the private sector, it needs to constantly engage with the private sector so that an enabling and collaborative environment is shaped that encourages private sector participation in substantive, bankable, feasible, and sustainable PPPs. This is relevant whether we are exploring PPPs in the USA or Saudi Arabia or further abroad.

Should you wish to find out more about PPPs, please feel free to contract me at baxterintdev@gmail.com

Referenced Resources:

ASCE Infrastructure Report, 2017: http://www.infrastructurereportcard.org

UNESCAP: Public-Private Partnerships Readiness Assessment – http://www.unescap.org/resources/ppp-readiness-self-assessment

Washington Post – March 9, 2017: Trump’s trillion-dollar promise hits traffic early – D. Paletta and J. Wagner.

World Bank: Benchmarking Public-Private Partnerships Procurement, 2017.

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