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NATIONS’ RATIONALE FOR DEVELOPING AND OPERATING PPPS
The import of market managerial processes and business practices into public organizations has been at the heart of the reform associated with the New Public Management (NPM) where this private participation was promoted as a key element of this reform and a main tool of public policies (Osborne, 2000). Private participation in public capital using PPPs structures concerned initially infrastructure projects and constituted an opportunity to build, operate and maintain facilities while bringing in innovative resources and developing cost-efficient ways to provide local services that meet social needs (Brinkerhoff & Brinkerhoff, 2011; Osborne, 2000). In the course of time and within contexts of divergent particularities, this participation evolved and took different forms to serve various purposes and most importantly called for multiple actors’ involvement from the government, business and civil society spheres. Increasingly this cross-sector collaboration became essential to address complex social issues through information sharing, mutual problem solving and resources allocation in the sectors of health care, housing and education. Governments saw in PPPs growing opportunities to address social and economic pressing needs and various motives stand behind governments’ decisions to invite private firms to enter into long-term contractual arrangements. At the time of their introduction the center arguments dominating some of the discussions on rearrangements and new forms of governance in public domains were finances-centered, aiming to improve and expand public facilities while reducing public budget deficit through private financing (Klijn & Teisman, 2000). In fact, the UK conservative government introduced in 1992 the Private Finance Initiative (PFI) as a form of PPPs arrangements and part of a wide financing program to increase accountability and efficiency in public spending. From this financial perspective, PPPs are designed on the basis of global project financing, consisting of a bundle of activities assigned to private actors from the early stages of the project conception throughout the different stages of a long-term contract. In such a context, private partners are in charge of reducing cost overruns and delays, allowing innovation at early stages of the project’s conception in order to reduce costs and enhance service quality during operational stages (Iossa & Martimort, 2012; Saussier & Tran, 2013). In the meantime, public actors remain able to control the project’s execution while holding its assets’ property rights, but also transfer key risks related to design, construction and finance to the private party to manage; an option that is not made possible under privatization or other types of public procurement. Scholars often recall the objectives of government in achieving “value for money” (VfM) through PPPs, in the sense that public funds are effectively used in return of private sector innovation skills and/or transfer of important risks to the private sector to manage (Grimsey & Lewis, 2002). More recent studies investigate the capacity of PPPs to close a financial gap by hiding part of public debts off the balance sheet (Buso et al., 2017). Therefore public actors tend to choose PPPs over traditional procurement projects when they face financial constraints and spending limits, for the reason that PPPs allow deferred payments through the different stages of a long-term contract. PPPs’ special attributes made them suitable for certain projects that provide tangible benefits in public infrastructure development as well as in communities’ empowerment. Infrastructure development and reforms in sectors like energy, water, sanitary services and telecommunication, and to construct and/or operate projects in transportation sector, drive public actors to partner with private firms in several developed countries as well as in developing economies. For instance, studies have reported information on PPPs’ desirability and popularity in the Chinese and the US transportation sectors which have particularly attracted PPP projects for building and maintaining highways and railways (Zhang et al., 2015; Levin & Tadelis, 2010). In Europe, PPPs were particularly popular for roads construction and the water sector (Blanc-Brude et al., 2006). Developing economies also put in place PPPs projects in various sectors. At a community level, important gains are also realized through PPPs by integrating private businesses and voluntary groups to help reforming public services in local communities; in countries like the US, PPPs are considered as appropriate structures, initiated at a national or state level, to regenerate local urban communities (Osborne, 2000). Local communities have also intensively used agreements with private agents to invest in education, healthcare, energy water and waste disposal (Levin & Tadelis, 2010). Urban developments are also enabled with the implementation of PPPs in infrastructural structures in India and agriculture activities in South Africa. The improvement of the Brazilian healthcare system was largely due to PPPs implementation. New trends in PPPs are also believed to shape their implementation in the coming years and enlarge the spectrum of sectors attracting private investment in renewable energies, ICT backbones and other projects that meet the needs of the Sustainable Development Goals.
PPPS IN PUBLIC MANAGEMENT
Given that the main aspect of PPPs is their public side, streams of literature in the discipline of Public Management have largely explored these networked governed mechanisms. Scholars recognize the importance to steer the public administration practices towards networked and collaborative approaches in governance and sharing power (Kettl, 2002). Within the emergence of networked governance, recent Public Management paradigms recognize further the legitimate role of a range of stakeholders in the conception and delivery of social and public value, contracting with private firms being one of these delivery modes, as well as the importance of collaboration that goes beyond the narrow focus on a contract to looking for sustainable long-term relationships (Stoker, 2006). Public Management literature enlightened the particularities of PPPs and brought further precisions about their nature, the diversity of their forms and the differences between traditional procurement and procurement through partnerships. This literature also emphasized the desirability of public policies in adopting PPPs, the purpose and rationale behind it, and the governance modes allowing their proper administration.
Besides the normative view looking at PPPs as instruments of collaboration between the public sector and private firms to achieve public policy goals and find solutions to pressing societal problems (Brinkerhoff & Brinkerhoff, 2011) working with other stakeholders across different sectors is a central mechanism for promoting community well-being (Stoker, 2006) and more recently achieving sustainability-related objectives (Pinz et al., 2018). These recent Public Management paradigms suggest that “people are motivated by their involvement in networks and partnerships, that is, their relationships with others formed in the context of mutual respect and shared learning” (Stoker, 2006, p. 56), and the management needs to support this principle.
The main purpose of governments from seeking collaboration with markets is their search for surplus value either in the form of simple cost savings or substantive improvement and innovative products (Klijn & Teisman, 2005), and this surplus value can come from different forms of public contracting with private firms. In his sense, many publications contrast PPPs with concessions, outsourcing, traditional procurement or even privatization, emphasizing the role of the private actor and the timing of his intervention in the process of the needs’ assessment and project design. Moreover, scholars point out the principle-agent relationship inherent in traditional public procurement modes while the idea of partnership delineates horizontal relationships through shared responsibilities, joint decision-making and mutual accountability (Wettenhall, 2007; Forrer et al., 2010). The adoption of a unique definition for PPPs in Public Management studies is almost nonexistent (Hodge & Greve, 2010); however studies build on each other’s to provide further precisions of the different aspects of PPPs. Some studies recall a purpose or function-oriented definition of PPPs focusing on the domains or areas where PPPs are most needed such as the provision, construction and planning of infrastructures (Koppenjan, 2005; Grimsey & Lewis, 2002). Other studies attribute a more conceptualized definition underlying key features of PPPs as being a mutual commitment, a long-term cooperation involving intensive interactions, joint-decision making and assumption of risks (Brinkerhoff & Brinkerhoff, 2011; Forrer et al., 2010; Klijn & Teisman, 2005).
PPPS IN NEW INSTITUTIONAL ECONOMICS
PPPs are designed according to a large variety of contractual forms, therefore understanding the role of contractual ties in their heterogeneous nature is crucial. These contractual considerations along with institutional dimensions of local environments have conditioned to a high degree the performance of PPP projects, knowing that different ways were used to evaluate this performance and various limitations were encountered in these assessment methods (questions related to PPP performance are tackled later in this part). The predominant theoretical lenses associated to these studies were transaction cost economics and incomplete contract theory, with most studies focusing mainly on uncertainties inherent in PPPs and associated exchange hazards. In this part, we will be reviewing contractual issues and institutional determinants that have preoccupied scholars and were considered to be critical for the optimal conditions of public contracting efficiency through PPPs, such as : selection of partners, tasks bundling, optimal ownership, control rights, allocation of risks among partners, corruption, governance, contracts renegotiations and regulations. Costs and benefits of PPPs were largely investigated (Hart, 2003; Iossa & Martimort, 2012). The fact that PPPs are often designed as a bundle of activities or tasks assigned in their integrity to a private actor, over a medium-to-long period of time, drives the private partner to control, to a certain degree, costs overrun and delays during early stages with the aim to enhance quality and optimize exploitation at operational stages. This scheme of activities bundling is one of the main incentives for private investors to engage in PPPs, because of the possible tradeoff between construction costs and operational and maintenance costs at later stages. During the construction phase, the investments incurred by the private actor may enable him to reduce his operations costs during operating stage when running the service (Hart, 2003), which is one of advantages of bundling tasks. But this is not always possible and other scenarios are to be considered. In incomplete contracting the inefficiencies are like to arise because uncertainties are hard to foresee. Bundling is beneficial when demand risk is low. However, under asymmetric information, remunerating the private partner for risks beyond his control becomes more complex and the private firm might benefit from undue advantages. In this case, when uncertainties are unlimited and operational risks are high unbundling may be preferred (Iossa & Martimort, 2012). Authors suggest that PPPs are particularly beneficial when the demand for the service is rather stable or easy to anticipate, and when the quality of the infrastructure can reduce operational and maintenance costs (Iossa & Martimort, 2015).
The preparation phase, including the activities of tendering and negotiation has particularly gained the interest of PPP scholars. This initial phase that concerns partners’ selection constitutes a solid baseline for a PPP project and any deficiency taking place at this level, might have heavy and negative impact on the project execution, and therefore on its performance (Saussier et al., 2009). Studies have stressed the importance of carefully planning PPP projects and integrating all stakeholders in this planning. The tendering procedure is very critical – the same way ‘planning of a marriage is vital’ – and constitutes a pivotal step in the smooth survival of the partnership. Proper planning stresses the importance of being vigilant to the different types of risks and their proper allocation during the primarily stages of the contract design and tendering process; which is also believed to comfort private investors, especially in contexts prevailed by asymmetric information and favorable for incomplete contracts. The tendering process is costly and the selection process is complex and both cannot be dissociated from the institutional settings in which the partnership is made (Saussier et al., 2009; Guasch et al., 2008). The selection criteria of the private actor are therefore to be considered carefully, because after the contract is awarded and due to the complexity of the partnership and the difficulty to specify all the inherent risks ex-ante, “considerable discrepancies between the lowest winning bid and the final costs leading to costly and uncertain ex post adaptations and renegotiations” (Saussier et al., 2009, p. 9) are likely to happen. Private bidders may for instance unintentionally or strategically underestimate production costs and related risks just for the purpose of winning the deal, which also raised lots of questions in the literature around the opportunistic behavior of partnering actors (discussed later in this part). From an economic perspective, and according to the same authors, Saussier et al. (2009), the winning bidders of PPPs are mostly selected based on multi-dimensional selection criteria like quality, cost-effectiveness, completion date, functional and technical characteristics, labelled as “the most economically advantageous tender” criteria. Although these criteria provide a more comprehensive and effective approach to selection process than the “lowest-price” criterion taken solely, studies have shown that it may also affect the probability of renegotiations of PPPs contracts (Estache et al., 2009).
RECENT THEORETICAL TRENDS ADDRESSING PPPS
Governments’ engagement in cross-sector partnerships has been observed among several public activities that have a significant social impact like charter schools, defense and prisons (Cabral et al., 2013). This engagement tends lately to be oriented towards people-focused activities with an increasing subscription of private actors and financial institutions with governments in strategies incorporating Sustainable Development Goals, materialized in social services for healthcare, housing and education. This is reflected in the emergence of new research ideas taking theoretical conceptualization on PPPs to a new level; defining new dimensions for the performance of these arrangements and highlighting further their “humane” features.
At some point, literature on cross sector partnerships has been criticized for weakly taking into its consideration social issues (Selsky & Parker, 2005) while gaps between public expectations and the actual performance of public institutions are expanding. In a respond to this expansion and in order to address this underexplored aspect that is growing in importance, a special issue of the Journal of Management Studies (2017)21 has recently addressed hybridity embedded in inter-organizational arrangements and how it can lead to economic and social value in PPPs, followed by another special issue of Strategic Management Journal (2019)22 addressing the different dilemmas related to both private and public value creation. Contributing authors base their work on the consensus that the hybrid nature of PPPs implies great interdependencies between public, private and social actors and the complexity of their interactions increases the challenges for designing effective arrangements. In addition, the efficiency, effectiveness or even performance of these partnerships is a function of dimensions that are not exclusively defined through financial and economic indicators, and not even through contractual terms. Cross-sector partnerships have the ability to produce value with respect to the socio-economic problems they were designed to address, which makes their performance difficult to understand and not simple to assess because it needs to be related to the overall value they create in this regards. These thoughts were behind the recent introduction of “value creation” and “value appropriation” as a new way for PPPs performance evaluation. Furthermore, what makes the studies published in contemporary issues of leading journals particularly engaging is the authors’ contribution in combining different theoretical approaches from both economics and management scholars’ perspectives, in the aim to understand the extent to which PPPs can be a mechanism for social value delivery and therefore a phenomenon to be observed through conceptual underpinnings in organization studies. Authors are convinced that they “still have much to learn about their [PPPs] management and about what underpins their ability to create value for stakeholders” (Villani et al., 2017, p. 877) and are also driven by the need to “move beyond PPPs contractual considerations to accommodate broader organizational, relational and contextual factors that may promote social value” (Quélin et al., 2017, p. 765). In a gripping attempt to build links between the disparate streams of PPP literature and with the absence of a comprehensive theoretical framework that integrates different insights on public-private interactions within a partnerships, authors tried to connect perceptions from both Strategic Management and Public Management to illustrate how this type of collaboration can span beyond contracting partners’ interests to broader notions of public and social value (Quélin et al., 2017) and to benefit from a greater understanding of the progress of these interactions (Cabral et al., 2019). Similarly, authors agreed on the fact that public contracting can still benefit a lot from contribution coming from strategic management academics and organization studies with the aim to provide new insights on the relationship between public policies and strategic actors.
Table of contents :
Acknowledgements
Abstract
Résumé
Table of Contents
List of Tables and Figures
List of Abbreviations
List of Appendices
General Introduction
Context of the Research
Theoretical Advancements on PPPs
Research Question
Structure of the Research
Expected Contributions to Research and Practice
Chapter 1 Public-Private Partnerships: Theoretical Foundation
INTRODUCTION
PART 1 – AN OVERVIEW OF PPPs
1. Definitions of PPPs
2. Nations’ Rationale for Developing and Operating PPPs
3. PPPs Contracts Typology
PART 2 – A MULTIDISCIPLINARY PERSPECTIVE ON PPPS
1. PPPs in Public Management
2. PPPs in New Institutional Economics
3. PPPs in Strategic Management
4. PPPs Performance Across Disciplines
5. Recent Theoretical Trends Addressing PPPs
PART 3 – OPPORTUNITIES FOR FURTHER RESEARCH ON PPPs
1. Limits of Existing Studies
2. Research Question and Proposed Analytical Framework
SYNTHESIS AND TRANSITION
Chapter 2 New Lens on PPPs: a Coevolutionary Perspective
INTRODUCTION
PART 1 – UNDERSTANDING PPP DYNAMICS
1. PPP’s Perceived Complexity
2. PPPs Regulations: an Evolving Domain
3. Process-Based Research Approach to Understand PPP Dynamics
PART 2 – RELEVANCE OF THE COEVOLUTION FRAMEWORK TO EXAMINE PPPs
1. Need for Channeling Research on PPPs
2. Coevolution: Features and Conceptual Development
3. Properties and Requirements for Research on Coevolution
PART 3 – LITERATURE ON COEVOLUTION
1. Empirical Studies Using the Framework of Coevolution
2. Focus on Strategic Alliances
PART 4 – REFINING THE RESEARCH QUESTION
1. Re-Oriented Research Question
2. Expected Managerial and Theoretical Contributions
SYNTHESIS AND TRANSITION
Chapter 3 Research Methodology & Design
INTRODUCTION
PART 1- DESIGN FOR A QUALITATIVE RESEARCH AND THEORY BUILDING
1. Philosophical Assumption Underneath the Research
2. Inductive Reasoning for a Single Case Study: In-Depth Look at PPPs
3. Process Research for a Rich Exploration of a Case Study
4. Gioia Methodology: a Systematic Technique for Data Analysis in Inductive Research
PART 2 – CONTEXT OF THE STUDY
1. PPPs in the MENA Region and Focus on the Lebanese Economy
2. State of the Art of the Lebanese Energy Sector
PART 3 – DEFINING THE OBJECT OF STUDY
1. Exploratory Study
2. The DSP: Choice and Relevance of the Case
3. Contract Design, Terms and Conditions
4. A Contextualized Process Research
PART 4 – DATA COLLECTION
1. Accessing Informants and Data Collection
2. Developing and Defining the Interview Questions
PART 5 – DATA ANALYSIS
1. Preparation of the Data and Data Processing
2. Documents Analysis
3. Interviews Translation and Transcription
4. Coding and Data Structuring
SYNTHESIS AND TRANSITION
Chapter 4 Empirical Results
INTRODUCTION
PART 1 – TIMELINE AND SEQUENCE OF MAIN EVENTS
PART 2 – PPP LEGISLATION AND EMERGENCE OF A REGULATING BODY
1. Need for PPPs Regulation
2. Emergence of PPP Regulatory Framework
3. Political Power Game
4. Development of PPP as Collaborations
PART 3 – CRAFTING A PPP FOR ENERGY DISTRIBUTION
1. Need for Technical and Administrative Reform
2. Framing Partnership Design
3. Resisting Private Participation
4. Questioning Partnership Viability
5. Resisting Partnership Activities
6. Pursuing Partnership
Analysis of the process of crafting PPP as collaborations
PART 4 – DYNAMICS OF PPPs EMERGENCE AND DEVELOPMENT
1. Political Actors Contesting PPPs Regulation
2. Resisting the Creation of PPPs
3. Challenging PPP Evolution
SYNTHESIS AND TRANSITION
Chapter 5 Discussion, Contributions and Limits
INTRODUCTION
PART 1 – GROUNDED THEORY DEVELOPMENT
1. Crafting of a Regulatory Framework for PPPs
2. Crafting PPPs as Collaborations
3. Institutionalization of PPPs: a Coevolution Perspective
PART 2 – RESEARCH CONTRIBUTIONS
1. Contributions to Theory
2. Contributions for Managerial Practices and Policy Makers
PART 3 – LIMITATIONS AND IMPLICATIONS FOR FUTURE STUDIES
1. Limitations of the Study
2. Future Research Paths
SYNTHESIS AND TRANSITION
General Conclusion
List of References
