Adjusting the Role and Size of Government: Who Leads in Today’s Pubic Private Partnerships?

1. Adjusting the Role and Size of Government: Who Leads in Today’s Pubic Private Partnerships? Andrew Graham School of Policy Studies Queens University Kingston, Ontario

2. Outline of Presentation • Background • Defining public private partnerships • Potential benefits and risks of public private partnerships • Types and uses • Specific examples • Lessons learned and policy implications for government and partnering sectors

3. Background • Emergence of new public management concepts • Alternative Service Delivery – public private partnerships are a part of this • More business like approaches • Seeking collaborative solutions • Third party delivery – either through private sector or voluntary sector • Fiscal challenges of 90s and search for new strategies to finance costing capital projects • Efforts to downsize government either by reducing its size completely (full privatization or downloading) or moving projects and organizations “off the public books” • Steering and rowing: setting policy and program directives versus actual service and project delivery • “To a growing degree, the work of government is only partly work by government.” – Donald F. Kettl, Brookings Institute

4. Defining Public Private Partnerships “A formal agreement to share power with others in the pursuit of joint goals and/or mutual benefits.” - Professor Kenneth Kernaghan, Brock University

5. Potential benefits Cost savings Risk mitigation Improved service levels or innovations Enhancement of revenues Other economic benefits Acquisition and sharing of skills and new technologies Potential risks Loss of control by government Increased user fees Political risks Accountability issues Unreliable service Lack of competition Bias in the selection process Poor management of the relationship Potential Benefits and Risks of Public Private Partnerships

6. Types of Public Private Partnerships: A Spectrum • Consultative arrangements: governments seek expert input form groups and organizations in society – little real empowerment of participants • Contributory partnerships: a public organization agrees to fund or sponsor a non-governmental organization (or level of government) that will carry out an activity or project over which the sponsoring public agency exercises little control • Operational partnerships: government and an organization work together to achieve compatible or complementary goals – typically with the non-profit sector – government often provides seed or support funding • Collaborative partnerships: private-public partnerships where this is joint responsibility for decision-making and the provision of resources by both parties – risks and goals are shared

7. Examples: The Confederation Bridge 1997 • Linking mainland Canada and the island Province of Prince Edward Island • Major technological and logistical challenge – 13 kms in length over open water • Federal government developed project criteria and held open bidding for private sector partners: Straight Crossing Development Incorporated • Private sector responsibilities: finance, design, plan, engineer , construct, manage and complete the bridge on time

8. Examples: The Confederation Bridge 1997 • Further, it would operate the bridge for 35 years, taking the revenue from the tolls charged after maintenance was complete – after that period, the Bridge reverts to public ownership and operation • Public funding to reduce toll rates equivalent of public funds previously expended on subsidized ferry services • Extensive efforts to ensure that the public interest was protected: • Careful monitoring by public officials of the project • Detailing of maintenance responsibilities and control of toll revenue until maintenance is complete • Environmental assessment and monitoring

9. Examples: Canarie: Canada’s Information Superhighway 1993 • Joint effort of the federal government and over 140 fee-paying members from the public and private sector • Led by Industry Canada, a federal government department • Develops both hardware and software to operate and continuously upgrade Canada’s high-speed Internet backbone • Has succeeded in making Canada one of the most connected countries in the world • Canarie is run by a board of director with equal representation from the public and private sectors • Quarterly reports to the Minister of Industry and annual reports to the Auditor General • Federal contribution is 25% of costs – private sector is 75%

10. Examples: Building a New Expressway in Toronto 1995-1999 • Project of the Government of Ontario • New highway needed to by-pass Toronto: while it had planned to build it, the Government did not have the financing • Opened to public bidding by private firms: highway built by Canadian Highway international Corporate: concept was that this corporation would operate the toll road and turn it over to the province in 30 years

11. Examples: Building a New Expressway in Toronto 1995-1999 • Financed by a provincial Crown agency: Ontario Transportation Capital Corporation (OTCC): borrowed the funds with province assuming full responsibility for financing and building the highway • Strongly criticized by the Provincial Auditor as a poor public-private partnerships since the government assumed too much risk and got little benefit: very few contracted risks assumed by the private sector • Government admitted that this project was a failure and subsequently sold the road, thereby losing future income flows and return of the property • Tolls have risen significantly as the private firm seeks to meet its revenue requirements

12. Examples: Ontario Ministry of Community and Social Services: Technology Upgrading through partnerships 1996 • Comsoc wanted to replace its computer systems and develop a province-wide delivery system with new business procedures • Linked to the Ministry’s overall business transformation project, including welfare reform • Anderson Consulting was selected as partner • Project administered through a cost pool and a benefit pool (attributable savings): both parties could recoup their costs from either pool, although the private firm recouped significantly more than government: built on the assumption that benefits will exceed costs: this did no happen here • Costs rose exponentially, from $50 million to $180 million – all risk reverted to government • Many of the cost overruns were associated with changing and increasing demands of Anderson by Comsoc: out of scope costs outside the initial agreement

13. Examples: Ontario Ministry of Community and Social Services: Technology Upgrading through partnerships 1996 • Agreements were made to take certain costs “off book” so that there was not a full reporting of either costs or savings • Comsoc decided, as a matter of good faith, to distribute benefits to the Anderson before they were realized • By 2000, costs continued to outpace benefits by $30.5 million • The implied notion that the private sector firm should pay part of the risk was never explored. • Comsoc failed to protect the government from uncontrolled cost risk: it did not use traditional public-service concerns for process, control and public oversight in a rush to bring in a private sector partner: it became subject to continuing external scrutiny from the Provincial Auditor and Legislature committees • In truth, its reputation as a sound public manager on virtually any front was severely damaged as well as its credibility

14. Lessons Learned and Observations • Risk sharing is a crucial element of successful public-partnership agreements: a strong tendency for the private sector to minimize risk is natural • Need to build in safeguards that commitments will be upheld, e.g. withholding earnings until maintenance is complete • Governance is important: how decisions are taken and an understanding of the accountabilities and how they will operate • Collaborative partnerships, especially with the not-for-profit sector can often become confused when both sides pursue a multitude of goals and roles and the purchase and provision of services is but one element of the relationship

15. Lessons Learned and Observations • Accountability is indivisible: the public sector partner has a unique set of accountabilities that cannot be divested: Ministers are accountable and answerable; public sector legislated auditors have the duty to examine these partnerships and report to their legislatures; the public has the right to see an accounting of funds and program objectives • Success stories show the potential to import private sector practice to complex projects and deliver them in a timely and cost-effective manner

16. Lessons Learned and Observations • Rushing to involve the private sector without hard negotiations, definition of risk and documentation of the contractual relationship will only increase public risk • Governments appear to be able to build better partnerships around specific projects and with the private sector or not-for-profit sector but perform poorly when the partnership is less clearly defined and closer to involvement in policy making, i.e. with NGO and interest group – those partnership that are more consultative or contributory

17. Elements of success in public private partnerships • Broad interests included: greater public good and recognition of private sector requirements • Mutual dependence • Empowerment: clarity of who is responsible for what • Synergism: the fit is right • Mutual goals: agreement on the roles and responsibilities of each party

18. Elements of success in public private partnerships • Contractual arrangements: a hand shake will never do; the devil is in the details • Effective public managerial oversight: traditional public sector concerns for process, control and oversight remain essential • Shared risk: governments have to become sharper at estimating and managing risk • Prevalence of countervailing expertise essential: ministries cannot simply act as ‘hollowed-out’ entities devoid of knowledge: they must, in fact, be knowledgeable buyers • Clear thinking: precise goal setting, avoidance of ‘fuzzy boundaries” • A well developed understanding of the financial and administrative capabilities of each partner: the adequacy of its infrastructure