Colors NW, Inc.
The public sector's lack of skills, expertise and overall capacity for negotiating and overseeing contracts with the private sector have been the focus of much recent criticism of government contracting. But could governments' own processes and approaches be at least partly to blame?
A report published recently in IACCM's Journal of Strategic Contracting and Negotiation (JSCAN)1 highlights the real reasons for the often stark public-private sector imbalances seen in government contracting. It reveals the truth behind outsourcing decisions that are often taken for ideological or political purposes - leaving public sector organizations unprepared.
With values often exceeding US$2 billion, Public-Private Partnership (PPP) contracts may be in place for 40 years or more. But the private sector typically brings far more expertise and knowledge to the table than their government partners, who often have no previous experience in managing PPPs. And they are being implemented on a case-by-case basis by both state and local agencies.
Now that so many public sector organizations the world over are adopting the PPP model, it's becoming increasingly important to understand the underlying issues and their causes, and what can be done to overcome them.
Titled Developing Government Expertise in Strategic Contracting for Public-Private Partnerships2, the report looks behind the scenes at the actual experience of two government transportation agencies in designing and implementing contracts for PPPs. Although this research is US-based, the experience described will resonate with public sector organizations worldwide and inform their approach and practice.
Seeking strategic advantage through contract design
Used as a method for jointly funding and operating public services, PPPs are unlike typical government contracts, where the government develops a design and identifies a contractor to build it (“Design-Bid-Build”). Instead, PPPs are knowledge-intensive, arms-length, transactions, delegating multiple roles to the private sector, including the design, financing, construction, and, in this case, operation of transportation facilities.
The PPP's success depends very much on how this contract is constructed. Errors in contract design may lead to projects that do not meet public expectations, prioritize private earnings over public values or leave the public sector with too much risk.
However, the report suggests, partners may seek strategic advantage not only in contract design and implementation, but also through the content of industry-sponsored PPP knowledge and information provided to inform government decision-making. A key challenge therefore is to develop government capabilities to scrutinize and make sense of that information and leverage that knowledge effectively.
Look outside or learn from experience
Little has been known until now about how governments go about developing their own internal capacity and knowledge in contract design and implementation. With little in-house expertise available, and no opportunities to gain experience, public managers involved with PPPs must either look individually outside their organization to identify and leverage knowledge - or engage in the PPP and learn directly from experience.
The report examines the ways public managers leverage lessons from their own organization to improve their approach to contracting for PPPs. It presents a four-part framework of organizational learning with internal management reforms that will both support this approach, and address the related organizational challenges identified. It also contributes to better understanding of the cultural change needed in public agencies involved in PPPs to address and overcome resistance to those changes, and apply the new knowledge that has been gained.