Term Paper on "Public Sector Comparator in PPP Public Private Partnership"

Term Paper 10 pages (2793 words) Sources: 10

[EXCERPT] . . . .

public sector comparator in PPP (Public Private Partnership)-Partnership

The public sector comparator (PSC) in the public-private partnerships (PPP)

Integration is one of the more common concepts of the modern day society. It is pursued at numerous levels, with the more relevant example being probably represented by globalization. The opening of boundaries and the lifting of the barriers allow economic activities, business operations, political views, technologic developments, social views and other such values to migrate from one region to the other. In this migration, the values, norms and life styles interact and even become integrated.

Economic integration is also a highly relevant example and it is obvious at the level of the unions and alliances formed, such as the European Union or the North American Free Trade Agreements. Within these unions and agreements, the parties become integrated beyond the economic scope itself.

But integration is not only present within the international community, as it often becomes the scope of domestic agencies as well. And the more significant examples in this sense is represented by the situations in which the players in the public and private sectors come together to collaborate and achieve mutual goals.

The partnerships between the public and the private sectors are extremely complex, combining diverse features and sometimes even different scopes. Nevertheless, they are often the more viable solution for the completion of a given project. The management of such projects is then compound and requires specific tools. One of these tools is represented by the public sector comparator (PSC), representing a means by which partnerships between the state and the private players are assessed. The scope of this current endeavor is that of assessing the PSC, but in order to do so, it is first necessary to take a look at the public-private partnerships.

2. Public-private partnerships

At a basic level, the private-public partnership is represented by a collaboration between a state agency and one or more players in the private sector. The collaboration revolves around the attainment of a common goal, and the combined usage of the resources from the two sources. For instance, the government could provide the expertise and the labor force, whereas the private party could provide the financial resources and the technologies.

Virtually, any type of collaboration is possible between the public and the private partnerships, and the details of the partnership are subjected to the individual agreements and contracts. The public-private partnerships are not novel innovations within the economic and political climates, but they have existed for at least two centuries. Still, throughout the past recent years, they have become more popular. Within the emergent economies for instance, a market is currently developing for PPPs. In Korea for instance, the public sector becomes more decentralized and the partnerships with the private sector are more and more popular. The country continues to face political, social and economic challenges, yet the PPPs constitute one important source of development (Organization for Economic Co-operation and Development, 2005).

Public-private partnerships are different from other types of collaborations between the state and the private institutions and the primary differences are given by the fact that the scope of the collaboration is that of providing a public service, as well as by the fact that the two parties share in higher levels of risk. From this standpoint then, H.K. Yong defines the public-private partnership as follows:

"A PPP is a long-term commercial arrangement for the delivery of public services, where there is significant degree of risk-sharing between the public and private sectors" (Yong, 2010, p.7).

The public-private partnerships are characterized by numerous features, which make them applicable within the modern day setting. Some of these notable characteristics refer to the following:

The public-private partnerships allow federal agencies to seek funds in alternative sources, outside the federal budget; this feature is extremely useful especially when considering the economic crises facing the modern community.

The PPPs provide a higher level of capital mobility, which in turn materializes in a shift in power between the public sector and the private sector

The public-private partnerships are more complex and multifaceted and they better serve the growingly intricate tasks of the governments

The growth of the PPPs is also due to the increasing popularity of neoliberal ideas and the increasing role of market mechanisms and incentives (Bult-Spiering and Dewulf, 2006).

The public-private partnerships are different from one contract to the other, but trends are observed in various global regions. In countries with strong public sector traditions, the domination in PPPs is revealed by the public sector, whereas in states with a weaker public sector, the private party would be more dominant in the partnership. In the United States of America for instance, the autonomy falls primarily with the private sector, whereas the dominance lies with the public in the European countries. In the U.S., the relationship between the public and the private sectors is strong and stable, whereas in the European countries, it is weak and dependent (Bult-Spiering and Dewulf, 2006).

Due to the benefits they reveal, public-private partnerships are often appealing to the parties. Yet, the actual implementation of the project is often complex and difficult. The public and private agents have to decide upon a multitude of strategic issues, including the selection and delivery of the project, the transparency of the project or the terms of the PPPs agreements. Each of these decision categories is subdivided into more issues. For instance, the decisions to be further made in terms of project selection and delivery include the following:

Criteria to use in the decision of whether or not to use a PPP approach

The management of unsolicited proposals

The transportation planning processes

The roles of the two partners, the allocation of their adherent risks and the establishment of the expected rates of return

The tools used in the valuation of the public-private partnerships.

Regarding the terms of the PPPs agreements, some of the more notable decisions revolve around the following:

The control of the assets and the ownership of the project and the assets

The tolling policy

The non-compete and other unanticipated provisions

Revenue sharing and the use of proceeds

The maintenance of the standards and the provisions for hand-back

The environmental safeguards and issues with labor relations

The duration of the agreements, with the termination and buyout decisions

The commercial development rights; the data privacy and ownership

The implication of international trade agreements

Liability, insurance and indemnification (Buxbaum and Ortiz, 2009).

Finally, in terms of transparency, the issues upon which decisions have to be made include the levels of public participation, the adequacy of the legislative branch or the "perceptions of foreign control of domestic assets and the role of local contractors" (Buxbaum, Iris N. Ortiz, 2009, p.11).

Overall, the public-private partnerships are complex agreements signed between the public agencies and the private players and they have as final scope the provision of a public service. While the theory of the PPPs would seem accessible, the actual implementation of the projects is highly intricate and requires the usage of numerous tools. One such tool is the public sector comparator, and this would be addressed throughout the following section.

3. The public sector comparator

The public sector comparator was created to support the decision making process for public private partnerships. The tool is used before the actual agreement is signed and launched, and its scope is that of assessing its final worth. Specifically, as the decision has been made regarding the need for the project (public service), the decision has to be made of whether it is worth to complete the project through a public-private partnership.

The underlying question at this stage is that of whether the PPP offers a good value for the money, comparative to the value which would be offered if the project were to be completed by the public institution alone. In other words, the public sector comparator takes a comparative look at the costs and values of the project through a PPP and the same variables in the case of public project alone. Yescombe defines it as follows:

"A PSC is an assumption of what the NPV cost (sometimes known as the net present cost (NPC)) of the project would have been had it been acquired through a conventional public-sector procurement, which is then compared with the NPV cost of the PPP. The latter may also be estimated, or it may be known if bids have been received for it" (Yescombe, 2007, p.62).

The public sector comparator is as such the value of the project when completed in the absence of the PPP -- it is its alternative. From a financial standpoint, the net present values of the public sector comparator are compared and the adequate decisions are made accordingly. In this order of ideas:

NPV of PSC > NPV of PPP -> PPP

NPV of PSC < NPV of PPP -> PSC

If the net present value of the public sector comparator is higher than the net present value of the public-private partnership, then the PPP… READ MORE

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