Document 6c, WG-E/May 2003, version 28.05.

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Expert Group E Objective 1.5 Making the best use of resources Mapping of existing activities Key issue 3: Public private partnerships

1. Introduction
A public-private partnership (PPP) is a partnership between the public sector and the private sector for the purpose of delivering a project or a service traditionally provided by the public sector. PPPs are especially common in anglophone countries like Australia, New Zealand, Canada and the USA, in the latter in use since the 70s. In Europe the beginning of PPP can be traced back to the early 1990s, when they were applied in the UK, which is still the European country where PPP are most widespread. Recent years have shown a marked increase in PPPs, especially infrastructure and a spread to countries like Ireland, the Netherlands and to Southern Europe as regards transport infrastructure projects. Such Public-Private Partnerships (PPP) arrangements were mainly driven by limitations in public funds for investments but also by efforts to increase efficiency of spending and the quality of public services. Public bodies like government administrations, government agencies and contracting authorities use PPP as a way of achieving the involvement of the private sector for example in the construction and of public facilities and amenities1. The motivation for using PPP-constructions is the assumption that private companies are more efficient than public bodies. The ultimate purpose of the collaboration between public and private sector is added value: a qualitatively better product for the same money or the same quality for less money. In some cases better accountability and the promotion of innovation are also mentioned as strategic objectives. The Commission recently identified four principal roles for the private sector in PPP schemes 2: to provide additional capital; to provide alternative management and implementation skills; to provide value added to the consumer and the public at large; to provide better identification of needs and optimal use of resources. The use of PPPs can by no means be seen as a panacea for a cost-cutting or failing government. Although PPPs can present a number of advantages, according to the European Commission report it must be remembered that these schemes are also complex to design, implement and manage. They are by no means the only or the preferred option and should only be considered if it can be demonstrated that they will achieve additional value compared with other approaches, if there is an effective implementation structure and if the objectives of all parties can be met within the partnership3. The Commission identified several possible advantages of using PPP arrangements:

1 2 3

European Commission/DG Regional Policy, Guidelines for successful public-private partnerships, Brussels, March 2003. European Commission/DG Regional Policy, 2003, op cit. 1

Acceleration of infrastructure provision - PPPs often allow the public sector to translate upfront capital expenditure into a flow of ongoing service payments. This enables projects to proceed when the availability of public capital may be constrained (either by public spending caps or annual budgeting cycles), thus bringing forward much needed investment. Faster implementation - the allocation of design and construction responsibility to the private sector, combined with payments linked to the availability of a service, provides significant incentives for the private sector to deliver capital projects within shorter construction timeframes. Reduced whole life costs - PPP projects which require operational and maintenance service provision provide the private sector with strong incentives to minimise costs over the whole life of a project, something that is inherently difficult to achieve within the traditional public sector budgeting. Better risk allocation - a core principle of any PPP is the allocation of risk to the party best able to manage it at least cost. The aim is to optimise rather than maximise risk transfer, to ensure that best value is achieved. Better incentives to perform the allocation of project risk should incentivise a private sector contractor to improve its management and performance on any given project. Under most PPP projects, full payment to the private sector contractor will only occur if the required service standards are being met on an ongoing basis. Improved quality of service -international experience suggests that the quality of service achieved under a PPP is often better than that achieved by traditional procurement. This may reflect the better integration of services with supporting assets, improved economies of scale, the introduction of innovation in service delivery, or the performance incentives and penalties typically included within a PPP contract. Generation of additional revenues the private sector may be able to generate additional revenues from third parties, thereby reducing the cost of any public sector subvention required. Additional revenue may be generated through the use of spare capacity or the disposal of surplus assets. Enhanced public management by transferring responsibility for providing public services government officials will act as regulators and will focus upon service planning and performance monitoring instead of the management of the day to day delivery of public services. In addition, by exposing public services to competition, PPPs enable the cost of public services to be benchmarked against market standards to ensure that the very best value for money is being achieved. Designed appropriately, PPPs can generate substantial benefits for consumers and taxpayers. The scope of potential benefit will, however, depend on the type of project being undertaken and the exact terms of the contract governing the PPP. It is important to note that public bodies have a critical role to play in the management and regulation of PPP during their design, construction and operation. PPPs also require effective contract monitoring procedures to ensure that contractual obligations continue to be met in terms of both quality and timing.

2. Definition of PPP
A PPP is a partnership in which a publicly financed organization and the private sector together carry out a project on the basis of an agreed division of tasks and risks, each party retaining its own identity and responsibilities4. Sometimes the concept of PPP is simplified to any collaboration between public bodies, such as local authorities or central government, and private companies tends to be referred to a publicprivate partnership (PPP)5. A PPP project must meet a number of criteria: i) public and private sectors work together on the basis of clear contractual agreements; ii) the division of responsibilities, costs and risks is agreed by contract; iii) both public-interest and commercial goals are served; iv) both parties expect, through collaboration and the input of each partys specific expertise, to achieve a better result for the same cost (or the same result for less cost); v) each party retains its own identity and responsibility. Some definitions of PPP emphasise that the relationship between the public and the private sector should be of medium or long term 6. From a public point of view it is also stressed that the aim of PPP is to deliver outcomes that are in the public interest.

3. Classifications of PPP
Public-private partnerships can be classified using a scale from full public responsibility to full private responsibility. In the Commission Guidelines for succesful public-private partnerships the following for cases are differentiated.

Public responsibility Traditional Public Sector procurement Build-Operate Transfer

Private responsibility Design-Build-FinanceOperate (DBFO) Concession Build-Own-Operate (BOO)

PPP

The Institute for Public-Private Partnerships (IP3) in Washington D.C. (USA) uses the following classification. It should however be noticed that the given classification more in general seems to refer to contractual relations between the public and the private sectors, which do not all match the given definition of PPP.

4 5 6

http://kenniscentrumpps.econom-i.com/uk/pps/kennis_frameset.html?pps_intro.html&links_o_def.html&pps_b.html

S. Johannisse,G. Coenen, A Textbook case for the use of PPP, PPP Knowledge Centre, The Hague, 2000.
Review of opportunities for Public Private Partnerships in Norhern Ireland, Working Group Report,

Main types of PPP arrangements

Type of contract Duration What the contractor usually receives A fee from the government for performing the service A fee from the government for performing the service and a performancebased incentive All revenues, fees or charges from consumers for the provision of the service; the service provider pays the government rent for the facility The government mostly pays the service provider on a unit basis Nature of contractor performance A definitive, often technical type of service Manage the operation of a government service Example

Service contract

Short-term (1-3 years) Medium-term (38 years)

Management contract

Facility repair and maintenance laundry Regional water supply management

Lease

Long-term (8-15 years)

Manage, operate, repair and maintain (and maybe invest in) a municipal service to specified standards and outputs Construct and operate, to specified standrads and outputs, the facilities necessary to provide the service. Manage, operate, repair, maintain and invest in public service infrastructure to specified standards and outputs.

Existing airport or port facilities

Build-operatetransfer

Long term (15-25 years)

Building construction, maintenance of regional schools, prisons or hospitals

Concession

Long term (15-30 years)

All revenues from consumers for the provision of the service; the service provider pays a concession fee to the government and may assume existing debt

New airport or seaport facilities, toll roads or bridges

Source: J. Loew and M. Lindon A P3 Primer, Why are countries interested in P3? see: http://www.ip3.org/publication002.htm

In the Guidelines for Successful Public Private Partnerships the Commission distinguishes four main types of PPP, each having its own strengths and weaknesses. The fout types of PPP are: - Contracting - Build Own-Operate (BOT) - Design-Build-Finance-Operate (DBFO) Concession - Concession The main features, applications, strengths and weaknesses of these PPP-arrangements are presented in the following table.

Strengths and weaknesses of PPP arrangements PPP Type Main Features Application Contract with Private Suited to capital Contracting
party to design & build public facility Facility is financed & owned by public sector Key driver is the transfer of designand construction risk.

Strengths
Transfer of design and construction risk Potential to accelerate construction programme.

Weaknesses
Possible conflict between planning and environmental considerations. May increase operational risk. Commissioning stage is critical. Limited incentive for whole life costing approach to design. Does not attract private finance Possible conflict between planning and environmental considerations. Contracts are more complex and tendering process can take longer Contract management and performance monitoring systems required. Cost of re-entering the business if operator proves unsatisfactory. Does not attrand commits public sector to act private finance providing long term finance.

projects with small operating requirement. Suited to capital projects where the public sector wishes to retain operating responsibility.

BOT

Contract with a private sector contractor to design, build and operate a public facility for a defined period, after which the facility is handed back to the public sector. The facility is financed by the public sector and remains in public ownership throughout the contract. Key driver is the transfer of operating risk in addition to design and construction risk.

Suited to projects that involve a significant operating content. Particularly suited to water and waste projects.

Transfer of design, construction and operating risk Potential to accelerate construction Risk transfer provides incentive for adoption of whole life costing approach Promotes private sector innovation and improved value for money. Improved quality of operation and maintenance. Contracts can be holistic Government able to focus on core public sector responsibilities. As for BOT plus: Attracts private sector finance; Attracts debt finance discipline; Delivers more predictable and consistent cost profile; Greater potential for accelerated construction programme; and Increased risk transfer provides greater incentive for private sector contractor to adopt a whole life costing approach to design.

DBFO

Contract with a private party to design, build, operate and finance a facility for defined period, after which the facility reverts to the public sector. The facility is owned by the private sector for the contract period and it recovers costs through public subvention. Key driver is the utilisation of private finance and transfer of design, construction & operating risk. Variant forms involve different combinations of the principle responsibilities. As for DBFO except private party recovers costs from user charges. Key driver is the Polluter Pays Principle and utilising private finance and transferring design, construction and operating risk.

Suited to projects that involve significant operating content. Particularly suited to roads, water and waste projects.

Possible conflict between planning and environmental considerations. Contracts can be more complex and tendering process can take longer than for BOT. Contract management and performance monitoring systems required. Cost of re-entering the business if operator proves unsatisfactory. Funding guarantees may be required. Change management system required.

Concession

Suited to projects that provide an opportunity for the introduction of user charging. Particularly suited to roads, water (nondomestic)and waste projects.

As for DBFO plus: Facilitates implementation of the Polluter Pays Principle; and Increases level of demand risk transfer and encourages generation of third party revenue.

As for DBFO plus: May not be politically acceptable Requires effective management of alternatives / substitutes, eg alternative transport routes; alternative waste disposal options)

Source: European Commission/DG Regional Policy, Guidelines for successful Public-Private Partnerships, 2003

Yet another classification is used by the authorities in Northern Ireland. In this classification PPP arrangements are distinguished according to purpose, service scope and legal structure 7: A. Arrangements where the government contracts to purchase services from the private sector. B. Arrangements where an element of private sector ownership is introduced C. Arrangements where the private sector is utilized to exploit the commercial potential of government assets D. Arrangements where the public and private sectors work together to bring about more general policy outcomes. Arrangement A is a more traditional way of using the private sector in the production of (formerly) public services. Garbage collection is an example of this. Arrangement B is a more innovative way of co-operation between the public and private sector. It is especially this type of PPP that is in the central focus of the discussion, also in the field of education.

4. PPP in education and training

In the education field PPP is still a relatively new phenomenon. The most common forms of PPP in education relate to the (re)building of new schools, refurbishment, repair and maintenance work, energy and energy management, school meals, kitchen facilities. These types of PPP can especially be found in the United Kingdom and, to a lesser extent, in Ireland. So far PPP in most cases are not used for the core service of education. Although PPP in education is in most countries a new phenomenon, various types of relationships with the business sector always existed. In its meeting in May Working Group E four types of publicprivate co-operation were identified 1. Purely contractual relationships where the government out-sources the execution of an activity 2. True partnerships where the private sector contributes something, featuring shared risks and objectives with well defined returns (real PPP) 3. Implicit partnerships 4. Donations Type 1 corresponds to traditional public sector procurement, already used universally in education, e.g. contracting out maintenance of cleaning of buildings. Type 2 could be called a true PPP in the sense as it is discussed in this document. In the last decade this model especially evolved in the UK. Type 3 and 4 have their own merits for the education field, however lacking a contractual basis. In the frame of the goal of the eEurope 2002 initiative of linking all European schools to the Internet by the end of 2001 many partnerships between government, the schools and industry (Internet service providers, software companies, hardware manufacturers and others) were set up. In the context of promoting eLearning the European Commission has expressed strong interest in the concept of Public Private Partnership (PPP) 8: Public-Private-Partnerships need to be explored new mechanisms need to be explored for increasing co-operation between schools, universities, training institutes, industry, lifelong learning providers, etc. Not only to explore new funding models, but also to

7 8

Review of opportunities for Public Private Partnerships in Northern Ireland, Working Group Report, year?

Role of Public Private Partnership for eLearning, EU-Workshop, November 25-26 November 2002, Brussels 6

encourage longer term relationships to ensure that education remains appropriate to the needs of adult life. Regarding the applicability of PPP in eLearning, the Commission concludes for the time being, that the existing state of the art of PPPs is largely Public Private Collaboration, providing for business sponsorship, corporate social responsibility initiatives, researching innovative training, skills-gaps initiatives etc9. The Private Finance Initiative in the United Kingdom The Private Finance Initiative (PFI) in the UK, which was introduced in the early 1990s, is a form of PPP that has become a key element of the UK governments strategy for improving and modernising public services, after an extended period of falling investment. PFI schemes differ in their details, but typically involve investment by a private consortium the PFI provider in new, rebuilt or refurbished buildings, such as schools. The PFI provider takes responsibility not only for providing the premises but also for maintaining the buildings and, in many instances, for some or all of the facilities management (FM) services, such as caretaking and cleaning. Local authorities pay a monthly charge to use the serviced buildings, providing that the standards built in to the contract are met. At the end of the contractual period, the responsibility for the buildings will typically revert back to local authority control. The UK Government expects the Private Finance Initiative (PFI) to improve the run-down school estate by providing new investment, better quality, innovation and greater efficiency. In England, PFI commitments to 2005/06 involve the building or refurbishment of over 500 schools at a cost of 2.4 billion. Most centrally funded new schools now involve PFI. In Wales there are six school PFI schemes signed or in procurement, involving 13 schools in all, including two already built 10.

Role of Public Private Partnership for eLearning, EU-Workshop, November 25-26 November 2002 (?), Brussels
Audit Commission, PFI in schools, London, 2003

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5. Examples
The following table presents some examples of PPP in education in Europe.
Type B Example Lifelong Learning Centre Liverpool (UK) Financing the building of schools in Scotland (UK) Information This project involves the replacement of a secondary school and the provision of a Lifelong Learning centre together with new and enhanced community facilities Public Private Partnership is the Scottish Executives preferred way of financing the expenditure involved in building and renovating schools. It involves banks and construction companies working in partnership with the council. Working with partners, possibly through a joint venture company, the education service would be able to renew or refurbish a range of educational establishments so that the accommodation can be equipped to meet the changing educational needs of the 21st century. The project is to provide energy and energy management and a degree of repair and maintenance work to all 120+ maintained schools in Stoke on Trent. This is one of the five large grouped PPP Pilots being supported through the New Deal for Schools This project is to rebuild CastleHillPrimary School and provide a learning resource centre offering facilities to the wider community. D21 is a public-private partnership of leading enterprises, enterprise personalities and the German government. By combining politics, science, and society, D21 seeks to create the optimal framework of conditions necessary for change in the information and communication age. Intel conducts the D21 working group "Teacher Training." Initiative aimed at enhancing the availability of hard and software. It brings together schools and enterprises that are willing to help through sponsoring of hard and software. It also connects IT professionals as ambassadors to the school. Intel has supported the technological high school Zwickau in the implementation of an e-business innovation center (e-BIC). This very modern facility is used for the education of IT specialists. The roadshow, which is being jointly run with the European Branch of IPFA will be targeting education procurement officials to explain the role and benefits of PPP in the sector. The roadshow will encourage education boards to fully appreciate how PPPs work and ultimately lead to more projects within the education sector Documentation http://www.dfes.gov.uk/p pppfi/projects/proj1.shtml http://www.dfes.gov.uk/p pppfi/projects/proj1.shtml

Stoke on Trent (UK)

http://www.dfes.gov.uk/p pppfi/projects/proj1.shtml

B B

Bolton (UK)

Stewart

Knight

http://www.dfes.gov.uk/p pppfi/projects/proj1.shtml http://www.bildungsserve r.de/zeigen.html? seite=611

Germany: Initiative D 21 (Germany)

Marktplatz (Germany)

fr

Schulen

http://www.bildungsserve r.de/zeigen.html? seite=611

e-BIC: e-business innovation center (Germany) Roadshow PPP in Education (Netherlands)

http://www.intel.com/edu cation/projects/global_tou r/H_09_germany/ http://www.ipfa.org/shock ed_index_branch1.htm

6. Other types of co-operation

Besides public-private partnerships there are also public-public partnerships and private-private partnerships. In addition to formal partnerships there are informal ones.

Contractor Ownership Public

Public

Private

Private

Public-Public partnership (institutional arrangements) -

Public-private partnership

Private-Private partnership

Increasing private investment in education and training may also be realised by other types of relationships between business and education and training, where the business sector is somehow financially involved in the organisation of the educational process. Examples of these are: work placement for students (including supervision) student visits to companies apprenticeship system visiting lecturers work placement for teachers sponsoring consultation of business (to enhance the transfer from education to labour)

In the United States several programmes (e.g. the Corporate Partnership Program (CPP) and the Job Training Partnership Act (JTPA) n vocational education are categorised as PPP, although they only fall in the wider concept of education-business relationship. In both examples the business community is closely involved in the education and training of respectively employees and unemployed.

References
Literature Akintola, A., Beck, M (ed) Public-private partnerships: managing risks and opportunities, Oxford [etc.], Blackwell Science, 2003. Audit Commission PFI in schools, London, 2003. http://www.audit-commission.gov.uk/Products/AC-REPORT/D7701D4F-C130-4BA6-B10D6D0644BDAA98/pfi_report.pdf European Commission/DG Regional Policy Guidelines for successful public-private partnerships, Brussels, March 2003.

http://europa.eu.int/comm/regional_policy/sources/docgener/guides/PPPguide.htm
Department for Education and Skills (DfEE), UK Investing for Excellence - Guide to the structure and financing of the Education and Employment sectors, March 1998. Department for Education and Skills/Treasury Taskforce / /4Ps Public Private Partnerships - A Guide for School Governors Johannisse, S and Coenen, G., A text Book Case for the use of PPP, PPP Knowledge Centre, September 2000. Johnston, B. PPP in Europe, Bristol, Jordans, 2002. Lissauer, R., Robinson, P., A Learning Process: public private partnerships in education, Institute for Public Policy Research, London, 2000 Office of the First Minister and Deputy First Minister, Northern Ireland Review of Opportunities for Public Private Partnerships in Northern Ireland, Working Group Report Pepper, D. Culpepper, Creating cooperation: how states develop human capital in Europe, Cornell University Press, New York, 2003. Rhoden J., Public private partnership and education in America, Alexis de Tocqueville Institution (This text appeared on the Web site EducationNews.org, Feb. 3, 2000).

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Web sites
Organisation European Commission DG Regional Policy United Nations UNECE World Bank Publication/website
http://europa.eu.int/comm/regional_policy/sources/docgener/guides/ ppp/ppp_en http://www.unece.org/operact/ppp/ http://www.worldbank.org/education/economicsed/tools/training/pu blic/public.htm

PPP Forum International Project Finance Association Project Finance, PPP and PFI Institute for Public-Private-Partnerships Business 2000 UK Department for Education and Skills (DFES) Local government procurement agency UK Partnership UK Department of Education Northern Ireland PPP Ireland

http://www.pppforum.com/faq.html http://www.ipfa.org/shocked_intro.htm http://www.ip3.org/a_publications.htm

http://www.business2000.ie/cases/cases_6th/case4.htm
Project list: http://www.dfes.gov.uk/ppppfi/projects/proj3.shtml http://www.4ps.co.uk/ http://www.partnershipsuk.org.uk/refer/index.htm http://www.deni.gov.uk/ppp/ http://www.ppp.gov.ie/sectors/education/? PHPSESSID=b4990839fad11bce4d31c9b353ea91c6

Deutscher Bildungsserver Initiative Marktplatz fr Schulen

http://www.bildungsserver.de/zeigen.html?seite=611 http://www.marktplatz-fuer-schulen.de/

Alexis de Tocqueville Institution

PPP and education in America http://stars.csg.org/spectrum/2000/winter/wi00spec25.pdf

Education ministry Australia P3 office, Canada

http://www.gov.ns.ca/cmns/msrv/nr-1997/nr97-03/97032504.htm http://strategis.ic.gc.ca/SSG/ce01401e.html

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