ABSTRACT
Public-private partnerships denote a sophisticated interface between public authorities and private sector undertakings, which aims at delivering infrastructure projects 1 , as well as public services. 2 According to the EU institutions, the term public-private partnership refers to ‘forms of cooperation between public authorities and the world of business which aim to ensure the funding, construction, renovation, management or maintenance of an infrastructure or the provision of a service’. 3 At European level and as part of the Initiative for Growth, the Council has approved a series of measures designed to increase investment in the infrastructure of the transEuropean transport networks and also in the areas of research, innovation and development 4 , as well as the delivery of services of general interest. 5
The term public-private partnership is not defined at European Union level. Public-private partnerships denote a contractual format between public authorities and private sector undertakings. 6 Such relations aim at delivering infrastructure projects, as well as many other schemes in areas covering transport, public health, education, public safety, and waste management and water distribution and have the following characteristics 7 : the relatively long duration of the relationship; the funding source for the project; the strategic role of the private sector in the sense that it is expected to provide input into different stages of the project such as design, completion, implementation and funding and finally the distribution of risks between the public and private sectors and the expectation that the private sector will assume substantial risk. 8
Public authorities in the Member States often have recourse to publicprivate partnership arrangements to facilitate mainly infrastructure projects. 9 Budget constraints confronting national governments and the widespread assumption that private sector know-how will benefit the delivery of public services appear as the main policy drivers 10 for selecting a public-private partnership route. 11 Also, the accounting treatment of public-private partnership contracts benefits national governments as the assets involved in a public-private partnership should be classified as nongovernment assets 12 , and therefore recorded off-balance sheet for public accountancy purposes 13 , subject to two conditions: i) that the private partner bears the construction
risk, and ii) that the private partner bears at least one of either availability or demand risk. 14 However, it is necessary to assess whether a public-private partnership option offers real value added 15 compared with the conclusion of traditional public contracts. 16
The principal benefit from involving the private sector in the delivery of public services has been attributed to the fact that the public sector does not have to commit its own capital resources in funding the delivery of public services, whereas other benefits include quality improvement, innovation, management efficiency and effectiveness, elements that are often underlying private-sector entrepreneurship. 17 Consequently, the public sector receives value-for-money in the delivery of public services, while it can also be maintained that through this process the state manages in a better, more strategic way the public finances. Value-for-money denotes a concept which is associated with the economy, the effectiveness and the efficiency of a public service, product or process, that is, a comparison of the input costs against the value of the outputs and a qualitative and quantitative judgment of the manner in which the resources involved have been utilised and managed. 18
The erosion of confidence in the role of the public sector as organiser and asset holder in the sphere of public services has led to attempts to moderate the widespread dissatisfaction from traditional public procurement methods in delivering public services and infrastructure projects. 19 The outcome revealed that the nexus of contractual relations between public authorities and the private sector were not providing genuine value-for-money outcomes. 20 The criticism has been primarily directed towards: (i) adversarial contractual relations as a result of competitive tendering, (ii) inappropriate risk allocation and (iii) poor contractual performances resulting in delayed and overbudget completions. 21
Competitive tendering as a procedure to deliver public services has been reproached for creating a confrontational environment, where the antagonising relations, which emanate from the tendering processes, are often adversely reflected in the performance stage of the contract. In addition, competitive tendering has been dissociated with innovation and quality. Also, as a result of inefficiently written specifications upon which the tenders have been constructed, the deliverables or the outcomes often differ dramatically from contractual expectations and stipulations. 22
On the other hand, risk allocation is probably the most crucial element in contractual relations between public and private sectors that affects pricing as well as the overall contractual framework. Risk represents the level of financial exposure of a party prior to, after the conclusion of, or during its performance of a contract. In a traditional public contract, risk is apportioned in accordance with the expected modalities, features or perceptions of the public and private sectors; contractual elements of risk, which are associated with the design or construction of a project, maintenance and operational matters, are usually passed to the private sector. On the other hand, risks related to the required investment, financing and currency transactions, planning issues,
residualisation, obsolescence, political and legal aspects, industrial relations and usage volumes remain with the public sector.
