When considering public-private partnerships (PPPs), the million- (or even billion-) dollar question is: What is the single most relevant factor that drives PPP projects to failure?As a governmental officer, managing PPP transactions for many years, and later as a consultant on the private side of transactions, I have led more than 40 PPP initiatives. Many succeeded and are delivering Value for Money for users and taxpayers. However, several others failed along the way, and contracts never got signed. What surprises me is that failure came even to some technically perfect projects.
Every successful PPP with which I’ve been involved shared one important factor: effective governance in the project level, from the identification of the project, all the way to the tender process.
By governance I mean the set of processes that allows decisions to be made by the right people, with access to the right information, at the right time, so the project can meet the requirements defined by the project’s stakeholders.
What kind of decisions?
The project preparation exercise is full of decisions, which are taken in a daily basis during most of the identification, appraisal and structuring stages. These are decisions about the project scope, revenue model, service levels, contractual mechanisms, risk allocation, and other key considerations.
I have made the mistake myself of believing that these technical issues could be dealt with, from a purely technical perspective, by the project team or the transaction advisers. Eventually the project turned out to be very different from what many people inside the government expected, leading to the cancellation of the project.
Therefore, decisions need to be made very consciously and, to the extent possible, by the right people.
Who are the right people?
PPPs are very complex and usually large projects, which affect a wide variety of interests held by government agencies and departments. The effects of PPP projects extend to a lot of people with the ability to design policy and affect the government’s agenda. These people need to be heard during project preparation. If they don’t, projects become subject to high risks, as the government decision mechanisms can turn against the initiative.
These can be composed of committee(s) with regular meetings (some cases in more than one level), or even internet systems that aggregate the voice of key governmental stakeholders. The inclusion of multi-sector decision groups into the general workflow of PPP projects also help to mobilize efforts of other agencies and departments who need to collaborate in project preparation (such as environmental agencies, finance departments and other key stakeholders).
The secret for the effectiveness of these forums is a clear decision methodology, which, in turn, depends on providing decision makers with the right type of information.
What is the right information?
Decision makers need to have access to information, which means the project team should adopt a clear and explicit internal communication strategy. They need to be fed with information not only on technical aspects of the matter at hand, but also project management issues. Key decision makers will also benefit from a detailed timeline, clear identification of tasks and responsibilities, and timely reporting on project status.
What is the right time?
Decisions need to be timely — that is, they need to be taken when they are effective to implement the appropriate change in the project, as well as when the manager or owner can still effectively make route corrections.
Ultimately, PPP projects are only good or bad to the extent the stakeholders judge them as such, at least for final approval purposes. So the implementation of governance mechanisms that allow for the concerns to be understood, and effectively processed can turn opposition into decisive support and help technically good projects become reality for service users.
This, however, is not spontaneous, neither intuitive. Governments — especially those not too experienced with PPPs — need to adopt specific efforts to design governance mechanisms. A good resource to start with is PPIAF-sponsored guide: How to Engage with the Private Sector in Emerging Markets, which devotes a specific session to this topic.
In the end, I still do not have a thorough answer for the million-dollar question; projects indeed fail for a whole lot of different reasons. But this is a certainty: I have yet to find one single PPP initiative that succeeded without incorporating, to some extent, governance concerns during the project preparation phase.
(Editor's note: the observations and opinions in this blog post express the individual views of the author, not the World Bank Group.)