What we’ve learned about public-private partnerships

Seeking a deeper commitment than traditional service contracts, local governments have entered into a number of long-term relationships with private providers over the last few decades. The public-private partnerships (PPPs) have taken many forms — from operating infrastructure assets to running all city services — and those experiences are building a body of knowledge about what makes good partnerships work.

The National Council for Public-Private Partnerships (NCPPP) and the University of Kansas (KU) School of Public Affairs and Administration have been studying PPPs to determine best practices for governments that would like to incorporate them into their relationships with private contractors. Early experiences showed that well-written contracts were the foundation of successful PPPs, but recent research is revealing that much more is needed from both partners to sustain successful relationships and provide excellent public services, including the skills of dedicated people and a strong focus on collaboration.

American City & County spoke with Richard Norment, executive director of NCPPP, and Marilu Goodyear, director of the KU School of Public Affairs and Administration, about their most recent research into successful PPPs. In the interview excerpts below, they describe the current local government PPP landscape, the best circumstances for PPPs and the dynamics that make them successful.

ACC: Are you seeing local and state governments more willing to consider PPPs today?

Norment: They're much more willing than before, and I think part of it is being driven by the debt/demand problem that every level of government has. They're looking for options, and if they see examples where it has worked elsewhere, it makes it much easier.

ACC: Does the private sector see more opportunities today to work with local and state governments? If so, where does the private sector see opportunity to get involved?

Norment: There is a tremendous amount of funds that have become available in the last couple of years for partnerships. One major source of this has been the public employee pension funds. You invest in T-bills, and you get an interest rate that's close to zero, but infrastructure investment can get you something that is much closer to the nominal range that they're looking for in pension funds, which is about 8 percent and sometimes even in excess of that. There are some pension funds that are taking hundreds of millions of dollars — in some cases even billions of dollars — and investing it in public-private partnerships because a long-term investment is very logical for a pension fund.

Everybody thinks of transportation projects as being the most predominant sector [for PPPs, but] a very fast-growing area that never gets reported, surprisingly, is energy savings performance contracts. Take a 20- to 30-year-old building that is horribly energy inefficient — the private sector will do the complete refit, bring the energy costs down substantially and pay for that capital investment from the energy savings. So, the net cost to the public is zero, and at the same time, an enormous amount of energy savings at the end of two or three years, the private sector has recouped its investment, and the public sector begins saving enormous amounts of money.

I think the private sector looks at PPPs as a growth opportunity. It doesn't answer all infrastructure or all service needs — far from that. Maybe 15 to 20 percent of projects really will fit for PPPs, but that's a substantial amount of growth that you can put into your business.

ACC: What dynamics should exist among the public and private partners to make PPPs successful?

Norment: You have to have a collaborative environment — open and honest sharing of information, objectives, concerns — because you want to build a working relationship between the two sectors. It's not just a matter of you sign a contract, and the public sector turns everything over to the private sector. This is a partnership, and the two entities need to work effectively together. That takes some learning curve on both sides — for the public to understand the private objectives and concerns, and vice versa for the private sector to understand the public objectives and concerns. Working those out is one of the most important parts in making a successful PPP.

ACC: What professional and personal skills should public officials and organizational leaders have to successfully manage PPPs?

Goodyear: One of our faculty members, Heather Taylor, has done some great work in this area about what the competencies are that people need to have to be successful in collaborative environments. She came up with four competencies.

The first is an interpersonal understanding competency — just basic interpersonal skills: demonstrating empathy for others, understanding where motivation is coming from. Teamwork and cooperation you would expect would be one of those competencies — being altruistic about the fact that we're accomplishing this together, not being so focused on one unit or the other. Team leadership — understanding what's your strength, what's my strength, and how can we put those together and accomplish something better? The last one is really being able to be flexible and adapt to a situation — that ability to start out on one path but then see other things that can be done and other strategic partnerships that can come off of a base of a beginning partnership. We're beginning to see that these things grow and develop as the two organizations get to know each other and what their assets are.