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?
Our third response in this eight-part series comes from David Bloomgarden, Chief of the Basic Services and Green Growth unit of the Multilateral Investment Fund of the Inter-American Development Bank.
U.S. General George S. Patton famously said, “Take calculated risks. That is quite different from being rash.” This quote summarizes how countries should absorb risks into the learning process of a public-private partnership program.
Governments know that complex projects never go exactly as planned. PPPs are among the most complex of all infrastructure projects, because they involve multiple stakeholders in the public and private sectors and tend to be used to procure large infrastructure. Starting a new PPP program requires that governments learn to master the regulatory, institutional and technical challenges involved in planning, designing and implementing a PPP.
Few governments — and especially those of developing economies — can afford failure in the delivery of critical infrastructure and services given the scarce resources and enormous human needs.
To successfully launch PPP infrastructure projects, governments must develop a complete picture of the risks that flow from the scope and requirements of a project. This process begins with identifying risk for all phases of the project, from the earliest preparation stage to management of the PPP contract. This identification should list the nature of the risk, its probability of occurring, its expected impact on the project, and measures proposed to mitigate it.
Once a government has a good picture of the risk, it must allocate it. Risk cannot be made to disappear; the principle is to allocate it to the party best able to control its occurrence or manage its consequences and assess the likelihood of its occurrence.
The risk of a PPP can be allocated to either the government or the PPP contractor or shared between them. The PPP contract allocates this risk and includes risk mitigation measures as needed. Governments can also manage risk by using experienced advisors.
This exercise of risk allocation is the most important step a government can take to avoid failure in the delivery of critical infrastructure. This does not mean a government can avoid mistakes or that there is a way to avoid a learning curve; it means that a government is taking a calculated risk.
By carefully identifying and allocating risk, governments will climb the PPP learning curve faster. The result will be a PPP program that delivers value for money in terms of the efficient use of resources, transparency, and intended social and economic results.
Editor's note: this article originally appeared in the World Bank Group's Handshake journal.