The OECD is in a unique position to assist member countries in responding to the challenges of using public-private partnerships (PPPs) to deliver public services efficiently and effectively. Using lessons learned by member countries, the OECD developed principles for the institutional and procedural treatment of PPPs. These principles, based on experience, help governments implement PPPs without jeopardizing fiscal sustainability.
The OECD’s PPP Principles are based on lessons gleaned from mistakes, missteps, and project twists that could never have been predicted at the outset, and these tenets will aid decision makers facing the tradeoffs among three de-mands inherent in developing a PPP.
First, the public sector must be a prudent fiscal actor. It falls on the decision-maker to ensure that the PPP is affordable, that it represents adequate value for money, and that any fiscal risks, such as contingent liabilities, are limited. Second, the demands for investment from particular sectors such as transportation, health, and education have to be assessed prudently against each other so that the projects that are pursued are those that yield the highest return on investment for society as a whole. Finally, decision makers must balance the risks taken by the private sector and those retained by the public sector. It also requires deciding what the appropriate price of such a transfer should be.
There is not necessarily one right solution to these tradeoffs; much will depend on the concrete circumstances of each project. However, these principles—which promote a focus on value for money, efficiency, effectiveness, and transparency—have guided OECD PPP Network officials to the best outcomes.
Establish a clear, predictable, and legitimate institutional framework supported by competent and well-resourced authorities
- The political leadership should ensure public awareness of the relative costs, benefits, and risks of PPPs and conventional procurement. Popular understanding of PPPs requires active consultation and engagement with stakeholders as well as involving end-users in defining the project and subsequently in monitoring service quality.
- Key institutional roles and responsibilities should be maintained. This requires that procuring authorities, PPP units, the central budget authority, the supreme audit institution, and sector regulators are entrusted with clear mandates and sufficient resources to ensure a prudent procurement process and clear lines of accountability.
- Ensure that all significant regulation affecting the operation of PPPs is clear, transparent, and enforced.
Use the budgetary process transparently to minimize fiscal risks and ensure the integrity of the procurement process
- The project should be treated transparently in the budget process. The budget documentation should disclose all costs and contingent liabilities. Special care should be taken to ensure that budget transparency of PPPs covers the whole public sector.
- Government should guard against waste and corruption by ensuring the integrity of the procurement process. The necessary procurement skills and powers should be made available to the relevant authorities.
Ground the selection of PPPs in value for money
- All investment projects should be prioritized at senior political level. As there are many competing investment priorities, it is the responsibility of government to define and pursue strategic goals. The decision to invest should be based on a whole of government perspective and be separate from how to procure and finance the project. There should be no institutional, procedural, or accounting bias either in favor of or against PPPs.
- Carefully investigate which investment method is likely to yield the most value for money. Key risk factors and characteristics of specific projects should be evaluated by conducting a procurement option pre-test that enables the government to decide on the path forward.
- Transfer the risks to those that manage them best. Risk should be defined,
identified, and measured.
- The procuring authorities should be prepared for the operational phase of the PPPs. Securing value for money requires vigilance and effort of the same intensity as that necessary during the pre-operational phase.
- Value for money should be maintained when renegotiating. Only if conditions change due to discretionary public policy actions should the government consider compensating the private sector. Any re-negotiation should be made transparently and subject to the ordinary procedures of PPP approval. Clear, predictable, and transparent rules for dispute resolution should be in place.
- Government should ensure there is sufficient competition in the market by a competitive tender process and by possibly structuring the PPP program so that there is an ongoing functional market. Where market operators are few, governments should ensure a level playing field in the tendering process so that non-incumbent operators can enter the market.
- In line with the government’s fiscal policy, the central budget authority should ensure that the project is affordable and the overall investment envelope is sustainable.
This article is based on the OECD report “Recommendation of the Council on Principles for Public Governance of Public-Private Partnerships,” OECD Publishing. Any additional opinions expressed or arguments employed herein are solely those of the author and do not necessarily reflect the official views of the OECD or its member countries.