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?
Although not a desirable outcome, failure is always the first step of the learning process toward more successful projects, in terms of implementation, value for money, and financial and fiscal sustainability. There is an enabling prerequisite for the learning process, particularly given the complexity and long duration of PPP arrangements: the establishment of institutional arrangements that provide stable, professional and fully dedicated teams of experts within the structures of the public sector.
A central PPP unit — ideally located in the Ministry of Finance — should participate in all stages of a project lifecycle, from structuring to contract management, allowing continuous feedback and dialogue between contract management and public teams. In such an environment, the role of external advisors has to be carefully planned, as they provide key skills along the project lifecycle, but must not substitute those tasks where knowledge must be developed, stored and used by the public sector.
In microeconomic terms, there are several key stages where public sector teams can extract valuable lessons from every project developed.
During project planning, infrastructure needs across sectors must be duly appraised, ranked, and analyzed within the framework given by the long run fiscal policy objectives. During project definition and structuring, a clear and detailed risk matrix must support the analysis of risks transferred to the private partners and risks retained by the public sector, and must include as well a set of mitigation strategies for the latter. During contract management, an adequate enforcement of the contractual dispositions must be performed in a stable business environment.
Taken together, this virtually eliminates the probability of unilateral decisions by the public sector — thus maximizing predictability and minimizing the probability of contingent liabilities and the unexpected costs that damage a PPP’s value for money.Editor's note: this article originally appeared in the World Bank Group's Handshake journal.