To gain a better understanding of how innovation in public-private partnerships (PPPs) builds on genuine learning, we reached out to PPP infrastructure experts around the world, posing the same question to each. Their honest answers redefine what works — and provide new insights into the PPP process. This is the question we posed: How can mistakes be absorbed into the learning process, and when can failure function as a step toward a PPP’s long-term success?
It is a truism that infrastructure projects, like much else in life, do not unfold exactly as planned. However, there is little room for failure because it would affect a large number of users for which the government would be accountable.
India happens to be the largest laboratory of PPP projects and offers a plethora of evidence. While most projects have succeeded, some have faced failure mainly because they were encumbered by lack of conceptual clarity in policy formulation as well as contractual framework.
Many assert that all future events cannot be predicted and a PPP contract must, therefore, be regarded as incomplete. They need to be reminded that if man could succeed in sending a satellite to space and operate it for several years without any ability to modify it, why can’t this be done while launching an infrastructure project?
The key lies in rigorous preparatory action. Regrettably, the structuring of infrastructure projects is often left to commercial consultants who perform with insufficient incentives, besides lack of accountability, which in turn is compounded by inadequate capacity within the government.
While it may not be possible to predict future events, it is certainly possible to identify the various categories of events and state the principles that would be followed in dealing with them. Moreover, a clear focus on outcomes, as distinct from input specifications, would allow the private entity to innovate for improving efficiencies. This implies a fairly evolved contract based on prudence and diligence, as governance by trial and error is an unacceptable proposition.
It is important to recognize that whenever a failure leads to renegotiation of a PPP contract, the users usually end up bearing the burden — either as rate payers or as taxpayers. Granting favors to private entities beyond the terms of their contract must, therefore, be avoided as far as possible.
The short answer is that it is possible to formulate PPP contracts that neither fail nor need to be renegotiated. The challenge lies in putting together the capacity and effort necessary for achieving this objective.
Editor's note: this article originally appeared in the World Bank Group's Handshake journal.