Chapter Four
Cross-Sector Partnerships and Public-Private Partnerships
Partnerships have existed in some form since the earliest forms of government. The Roman Empire developed partnerships in the form of toll roads to expand portions of its roadways. The US government authorized the use of privateers to harass the British Navy during the Revolutionary War. Much of the western US territory was developed through a combination of public-private partnerships, including the cross-continental railroad (Bain 1999). Today governments around the world develop intricate agreements with the private sector to develop physical infrastructure. International organizations such as the World Bank and the US Agency for International Development partner with business and nonprofits to operate development programs. US state and local governments collaborate with nonprofits to address problems as diverse as disaster recovery and human services.
The aim of this chapter is to help public and nonprofit managers understand cross-sector partnerships as forms of collaboration and to identify and differentiate a number of the forms of these partnerships that are present in public administration. The rationale for and performance implications of business alliances have been studied at length (Gulati, Lavie, and Singh 2009). The following sections summarize core issues concerning cross-sector partnerships, including their characteristics, rationales for formation, and techniques for managing them. Key to this discussion is a thorough understanding of different forms of one-to-one relationships that can form among public and nongovernmental organizations when different organizations come together around issues of mutual interest.
We use the term cross-sector partnerships to describe both public-private partnerships (PPPs) and government collaborations with nonprofits. Cross-sector partnerships involve at least one government partner and one partner from the nonprofit or private sector. The focus is on one-to-one organizational partnerships, although in some cases, one partner may serve as a master contractor, special-purpose vehicle, or key actor in a wider network. Like the other forms of cross-sector collaboration (CSC) discussed in this book, all cross-sector partnerships involve some relational elements of governance and necessitate greater sharing of power than more transactional approaches to government collaborations, such as a traditional contract.
In many ways, public sector partnerships with private and nonprofit organizations necessitate a different way of thinking about how the government should interact with entities from other sectors. The traditional approach to public-private engagement has been contracting, where the disciplinary role of the market is expected to yield operational efficiencies in public service delivery. The public sector describes the service it wants delivered and seeks out the market of providers to find the lowest-cost option for delivering it. Cross-sector partnerships are often established by selecting a partner that holds unique capabilities, not by choosing a partner through a competitive process. This approach can be considered a shift from prioritizing contestability (or competition among potential contractors) to prioritizing collaboration (or cooperation among partners) in these relationships (Entwistle and Martin 2005).
Consider the role of the United Way of New York City (UWNYC) in the immediate aftermath of the terrorist attacks on September 11, 2001. The City of New York and the New York Community Trust partnered with UWNYC to establish and manage the September 11 fund (Kapucu 2006). UWNYC was uniquely positioned to contribute staff, volunteers, and its fundraising network to the effort. The UWNYC was not selected through a competitive process but was chosen deliberately for the unique resources and capabilities that it could offer to the city. The decision to partner also reflected a wider interest among public officials to select nongovernmental partners based on the expected value they can offer to a public sector effort rather than the expected cost of their service (Boyer, Kingsley, and Weible 2013). In addition, such partnerships involve a governmental approach that replaces strategic control with mutual influence (Bovaird 2004). The goal of these partnerships is to spend more time trying to nurture their relationship with one another instead of dictating the terms of the relationship (Kanter 1994).
TYPES OF CROSS-SECTOR PARTNERSHIPS
Cross-sector partnerships occur in a variety of forms and are formed for a variety of purposes. While a complete discussion of all partnership purposes and forms is beyond the scope of this book, we categorize the most significant as follows:
- Short-term, one-to-one partnerships for a specific purpose or goal. These might include joint efforts of the private and public sectors to form a downtown business district or commercial development (Alexander 2012) or a partnership between government and a local community organization to fund and equip a local park. Sometimes a specific agreement is involved (perhaps a memorandum of understanding), but often these partnerships are ad hoc, with either party free to opt in or out of the collaboration.
- Intermediate-term partnerships involving government and nonprofit providers to deliver specific public goods and services, as might occur between a state department of human services and a local shelter for the homeless. These types of arrangements (through either contract or grant) are often year-to-year but are typically renewed as long as the nonprofit provider is serving the population identified by the partnership.
- Long-term partnerships involving the creation or renewal of major infrastructure projects. These PPPs, often termed P3s in North America (Boardman, Poschmann, and Vining 2005), involve the private sector in the financing and delivery of public infrastructure services, which transfers substantial risk to the private sector in return for an agreed-on payment (based on use or availability). These agreements are long term in nature, often extending thirty to forty years or more in length, and are structured through complex contracts (Grimsey and Lewis 2007).
Table 4.1 provides some examples and characteristics of the three types of partnerships.
Table 4.1 Characteristics of Different Types of Partnerships
Sources: Andrews and Entwistle (2010); Suarez (2010); Whitaker, Altman-Sauer, and Henderson (2004); Kapucu (2006); Zhang (2005); Forrer, Kee, and Zhang (2002); Grimsey and Lewis (2007); Yescombe (2007).
| Type of Partnership | Policy Areas | Structure of Relationships | Other Actors | Degree of Discretion |
| Short term: One-to-one relationships between government agencies and private or nonprofit providers for specific purposes | Natural disaster relief, site-specific development, community development | Range of formal, funded relationships and those less formal | Government may bring in other actors as partners but is the prime actor and decider. | Limited private or nonprofit actors generally acting within a narrowly defined agenda. |
| Intermediate term: One-to-one relationship between a nonprofit and a government agency to manage public services delivery programs | Human services, health, education, arts and culture, environment, education, economic development, disaster recovery | Highly formalized, structured by government funding Combination of formal and informal influence |
Government may play the role of an administrator of a larger network of providers or may use a nonprofit in that role. | Varies; the longer the relationship, the more discretion likely afforded the nongovernmental partner. |
| Long term: One-to-one relationship formed between a public and private organization to build or operate public infrastructure | Transportation, water, energy, telecommunications, or other physical infrastructure | Highly formalized: long-term contracts with substantial private sector discretion | Private partners often through a consortium of private actors, including funders and contractors. | The contract generally spells out the areas of discretion, which may be extensive. |
Short-term partnerships include a diverse range of cross-sector partnerships that involve a one-to-one relationship between a governmental and nongovernmental organization. Examples could include a Habitat for Humanity partnership with a local government agency to support housing needs for a community, or the work of a local energy company with local officials that aims to improve energy efficiency. The relationships can take on varying lengths or levels of integration across sectors, but they generally are of a short-term nature or for a defined project with limited duration. Short-term partnerships make sense when there is a specific action to be addressed or when the relationship involves limited commitments from either side.
Intermediate-term partnerships describe a variety of governmental relationships with nonprofit organizations, primarily in the human services area. Often government uses a preexisting group of nonprofits that are already serving a specific clientele and have contacts and expertise in the delivery of public services. Sometimes this is a one-to-one partnership; at other times, government may partner with a number of organizations in a network or use one organization as the primary contact, with other organizations acting as subcontractors to the primary nonprofit organization. This form of partnership is sometimes associated with federal aid for state and local governments or state aid to local government. Intermediate-term partnerships make sense when continuity of service and institutional memory are valued, balanced with keeping open opportunities for working with new partners with new ideas and approaches.
Long-term partnerships are commonly for delivery of infrastructure services and are highly formalized. On the private side, a separate legal entity is often established to represent a number of other partners who carry out roles in technical design, financing, construction, or operations and maintenance. The partnering relationship is established between a government agency (such as a state-level department of transportation) and the legal representative (or special-purpose vehicle), yet a host of other private sector organizations play a role. Long-term partnerships make sense when participants are heavily dependent on each other’s actions for successful outcomes and when the cost of investments is recovered over a long period of time.
COMMON ASPECTS OF CROSS-SECTOR PARTNERSHIPS
The three types of partnerships also share a number of common attributes or aspects. For one, partnerships adhere to the core characteristics of CSC presented in chapters 1 and 2: power sharing and risk sharing. The more that decision making and project risk are shared, the more interdependent are the partners on each other. Klijn and Teisman (2003) suggest that relations among public and nongovernmental actors also are more equitable. The distribution of power within the partnership, however, actually increases partners’ risks, since partnerships can create greater interdependence and leave partners more vulnerable than the arm’s-length transactions typical in contracting (Chen and Graddy 2010).
Partnerships are dynamic, and relationships can vary across different stages of their development and operation (Velotti, Botti, and Vesci 2012). The California SR-91 roadway partnership is a good example. In 1995, the express lanes on 91 were opened using a variable pricing system based on the time of day. Operating responsibilities for the roadway were initially assigned to a private consortium. Later the Orange County Transportation Authority “repurchased” the roadway from the consortium (Ni 2012).
Cross-sector partnerships can involve a complex set of stakeholder relationships that go beyond the primary government partnership with a business or nonprofit; in some PPPs, a third-party nonprofit group may serve as an intermediary to foster more trust or legitimacy (Mendel and Brudney 2012). An example is the role the Cleveland Development Foundation played in bringing together the City of Cleveland and a steel company (Republic Steel) to create office buildings, housing, and commercial and retail business districts in Cleveland (Mendel and Brudney 2012). In PPPs for infrastructure, stakeholder relationships are particularly complex: involved parties often include a sponsoring public agency, private transaction advisers, auditors, regulators, and international construction and investment firms (Jooste and Scott 2012).
RATIONALES FOR CROSS-SECTOR PARTNERSHIPS
Governments seek out partnerships with private and nonprofit organizations for a variety of reasons, including their dependence on outside resources to carry out their work, the reduction of transaction costs achieved by working in a sustained, integrated partnership, and the expected reciprocity of social exchange inherent in partnerships.
Resource dependence argues that an organization can accomplish a given task only through the contributions of another (Pfeffer and Salancik 1978; Thompson 1967). A business may depend on a governmental partner for providing it legitimacy in working within a community, or a nonprofit organization could provide similar reputational value for a government working with a specific constituency (Provan and Kenis 2008). In other cases, organizations seek out partnerships because another entity has the skills that they desire (Gazley and Brudney 2007). The need for resources from other organizations is particularly prevalent as government agencies strive to address complex problems that are beyond the capabilities of a single organization (Rittel and Weber 1973).
Resource dependence among organizations is supported by the expectation that the sector identity of any organization contains qualities that organizations of other sectors lack. Since the legal classification of an organization (public, private, nonprofit) facilitates certain operational limitations and advantages (Rainey 2003), the very nature of an alliance that crosses sectors implies that one organization has the potential to contribute resources that another does not have. The government, for example, can bring public responsiveness, local knowledge, and equity concerns (Pongsiri 2002); the private sector offers unique approaches to efficiency, innovation, and financial capital (Savas 2000); and the nonprofit sector can bring access to a voluntary workforce, grassroots community connections, or a voice to marginalized groups in a community (Te’eni and Young 2003).
The costs of transactions when governments work with other organizations include monitoring the outcomes of nonstate providers. The possibility of reducing these costs prompts some governments to move from a contractual relationship to a partnership. As two organizations work with one another over time, trust often develops among the individuals involved. This trust can lead to greater reliance on shared norms for governing their interactions with one another. Over time, a formal, contractual relationship can develop into a relational partnership (Johnston and Romzek 2005). Long-term relationships can also reduce the costs of monitoring work, allow easier communication, and lay the groundwork for more agreement in collective decision making (Chen and Graddy 2010). For these reasons, PPPs often are a good option for public-private collaborations that involve long-term engagement and mutual dependence.
Social exchange theory provides a third reason for public managers to collaborate through partnerships. Most people are interested in contributing to a shared cause when they feel that there is some level of reciprocity, or return, for their contributions (Blau 1964). Throughout a partnership, each party is expected to exchange a combination of material and nonmaterial goods, like symbols of approval. In a structural agreement where many of the terms of exchange are ambiguous and evolve over the course of interaction, social exchange is expected to play an even more important role, since the terms of cooperation are often governed through informal means (Gazley 2008).
ISSUES OF WORKING IN PARTNERSHIPS
The two most prominent traits in partnerships are the high level of interdependence that is demanded by the unique nature of the relationships and the extent of shared power, which may create vulnerability for the public sector organization. A number of issues can arise from this vulnerability in ways that may compromise the public interest (Forrer et al. 2010). The same motivations that drive organizations to work with one another can also lead to conflict (Mendel and Brudney 2012). Potential problems include mission drift, a loss of public accountability, co-optation of actors, financial instability, difficulty in appropriately evaluating results, and the overall challenge of managing the costs of transactions necessitated by interdependent exchanges (Mendel and Brudney 2012).
The host of challenges created through cross-sector partnerships originates from two potential threats: the need for adequate government capacity to manage these relationships and the need to negotiate divergent interests in partnerships. Although these threats offer differing levels of severity in different types of partnerships, they are apparent to some extent in any cross-sector partnership.
Government Capacity
The importance of government capacity as an essential component of any agreement between public and private sectors is well documented (Kettl 2002; Brown, Potoski, and Van Slyke 2006). While government may defer various functions to the private or nonprofit sector through different formal or informal relations, it remains responsible for ensuring that the public is served. Ensuring appropriate service delivery through agreements with the private or nonprofit sector requires public management skills in areas such as developing project proposals, bargaining and negotiating with partners, and providing oversight and auditing of private vendors once a partnership has been created or an agreement signed (Van Slyke 2003).
The overall capacity for government to oversee projects with the private or nonprofit sector can be considered in terms of design (preparations for engaging the private or nonprofit sector) and implementation (ongoing oversight once a contract has been awarded or agreement reached). Preparations for engaging the private sector require skills in a host of activities that lead up to selecting a provider. As indicated in chapter 3, the basic tools require determining whether the government should deliver a product or service directly (the make-or-buy decision), specifying the scale and scope of the product or service desired, determining the market of nongovernmental providers for the item in question, and developing a bidding process to identify an appropriate partner (Brown et al. 2006). The issue of capacity is explored in more detail in chapters 7 and 11.
Managing the relationship in partnerships, once a partner has been selected, often requires government to oversee a set of agreed-on service standards. The overall steps draw on skills in codeveloping performance standards for a given product or service with a nongovernmental organization and overseeing their achievement. The sum of the tools required for designing and implementing partnerships, like any other form of cross-sector collaboration, represents the overall costs of transactions among public and private sectors and constitutes some of the most important factors in ensuring that the public interest is protected when goods and services are delivered by nongovernmental actors (Van Slyke 2003).
The challenge for public managers is that the skills for designing and implementing partnerships are different from traditional modes of government contracting and government-run provision (Forrer et al. 2010). Consider the following quote from a study of infrastructure-based public-private partnerships:
Public agencies that seek PPPs for transport projects commonly lack productive, financial, or managerial expertise and capacity and, very likely, have no previous experience in managing a PPP. In contrast, private entities that bid for, and win, public contracts generally have long engaged in the business and have accumulated expertise in assessing risks, negotiating benefits, and crafting contracts. They may also demonstrate considerable experience in various aspects of developing the facility. (Ni 2012, 259)
Adding further evidence of this challenge, a survey conducted in 2008 found that numerous transportation departments identified knowledge gaps related to PPPs. The survey was administered to all fifty state-level departments of transportation and assessed PPP skill areas along a number of dimensions related to project experience, project conceptualization, bidding process, and overall management of PPPs (Buxbaum and Ortiz 2009). Almost all of the reporting agencies expressed the need for more knowledge of PPP concepts and trade-offs, necessary skills, using private capital, developing contractual terms, and effective measures and monitoring.
Managing Divergent Interests
The same issues that make partnerships attractive for the public sector also make them inherently difficult to manage. Much of the problem is due to the divergent interests that bring two organizations together within a single partnership. A nonprofit organization working with government, for example, may enter into a partnership with the goal of assisting a narrow portion of the community, while the public sector takes care to ensure that the entire community is well served. Or a private sector partner entering into a partnership for a toll road project may care first and foremost about its long-term profits, while the public sector wants to achieve good financial value for the traveling public (Grimsey and Lewis 2007). The reality is that while organizations from different sectors have some interests that align in a partnership, the institutional incentives driving their respective organizations put pressure on each of them to serve their own interests, even at a cost to the partnership.
The reason divergent interests in partnerships deserve so much attention is that they create incentives for noncooperative behavior (Ni 2012). Put in economic terms, the individual interests of partner organizations can lead a nongovernmental organization toward a moral hazard, or behavior that puts the partnership at risk for their own personal gain. In addition, a nongovernmental partner may be inclined to hide information (information asymmetry) in order to protect trade secrets or individual knowledge that increases its leverage in the relationship. These divergent interests often play out in the identification and allocation of risks. The more risks that either party bears with respect to the wider goals of the partnership, the more inclined each will be to cater behavior toward shared interests because it will be in both parties’ interest to achieve the desired results. The challenge is that many of the risks inherent in a new project are difficult to define in advance, and the very open-ended and discretionary nature of partnerships often masks the extent to which either party is carrying project burdens.
Table 4.2 summarizes the major issues to consider before agreeing to work in cross-sector partnerships.
Table 4.2 Issues to Consider Prior to a Partnership
| Government capacity |
|
| Managing diverse interests |
|
THE PUBLIC MANAGER AND SUCCESSFUL PARTNERSHIPS
The techniques presented in this section provide a broad framework for partnership engagement and governance that can be adapted to the particular circumstances of any cross-sector partnership. Figure 4.1 presents the essential practices for governing successful cross-sector partnerships.
Figure 4.1 Elements of Cross-Sector Partnerships
Risk Allocation
The first dimension that is important in assessing cross-sector partnerships is understanding and allocating risk among the partners. Rigorous risk analysis can help to identify areas where partners are inclined to compromise shared interests for personal gain, and the proper allocation of those risks can improve the alignment of partners’ goals. Negotiations between the partners should begin by explicitly identifying and defining the risks and agreeing on who is in the best position to bear the responsibility for the risks in the partnership. For the public sector, this process often means identifying project risks that they are not used to monetizing, such as the long-term operations and maintenance costs related to physical infrastructure facilities.
The goal of risk identification, allocation, and negotiation is “assigning risk to the organization that best understands and can control the risk and maximizes public benefit” (Eggers and Goldsmith 2004, 141). The objective is not to transfer all of the risks associated with a partnership onto a nonprofit or private sector partner. If the risks are not addressed properly, the partners may be tempted to avoid any relational interactions in order to minimize the risk of acting outside their prescribed contractual terms. Discovering the appropriate balance of risk allocation ensures a greater accountability for the services delivered and their conformance to public expectations.
Costs and Benefits
Cost–benefit analysis is critical for determining which projects are appropriate for cross-sector partnerships. While controlling the cost of a partnership is vital and also a major reason for government to enter into the partnership in the first place, it is also important to weigh the benefits in order to fully appreciate the overall value of the projects. Financial costs and benefits include both monetary expenditures and other gains and losses resulting from the partnership. Opportunity costs, or those costs associated with the option of not entering the partnership, also should be identified. Saavedra and Bozeman (2004) find that cost–benefit analysis allows partners to determine whether a comparative advantage for a cross-sector partnership exists. Alternative approaches for examining collaborative value are presented in chapter 7.
There often are unanticipated costs and benefits in most cross-sector partnerships. For example, a study of one state’s early childhood partnership with private firms (and local nonprofit childhood centers) indicated a decrease in center directors’ focus on their education programs and a reduction in parent participation. Many of the forty-six center directors interviewed for the study said that the creation of the initiative led them to spend more time soliciting donations from their corporate partners and parents, which reduced their participation in center governance and policy. Yet there were also clear benefits from the partnership. The board members from the corporate world were thought by other members to add value through their critical thinking skills, orientation to innovation, and a strong valuation of efficiency that improved management and decision making at the centers (Patterson 2004).
In most cases (at least in the United States) public financing is less expensive than private financing; therefore, the advantages to a proposed PPP must include cost savings and other efficiencies of operations that offset the return on investment required by private partners. Public managers need to be certain that such cost savings do not come at the expense of providing high-quality public services. Public managers also need to look at life cycle costs of the project. Initial yearly payments (whether based on use or availability) may seem low compared to large capital outlays for an infrastructure payment. However, if total costs over the length of the project are not clearly outlined to decision makers, policymakers could opt for a PPP because of the lesser short-term costs without a recognition of the long-term nature of this fiscal obligation.
Social and Political Impact
The social and political impacts of cross-sector partnerships should be considered to help anticipate political or public resistance that can inhibit the objectives of the partnership. In assessing impacts, issues of social equity, such as the differential effects of a project on different communities, should be considered. The final benefit to the citizens is the primary standard of success that deserves attention in any government endeavor. Evaluating the interests of key stakeholder groups, including specific citizen groups, is central to that process. If services do not meet the expectations of the public, political consequences may include civic disengagement and weakened chances of reelection for partnership backers.
Part of the process of calculating social and political involvement involves citizen engagement and public involvement strategies. Citizen engagement strategies can include activities that range from town hall meetings and public hearings (Nabatchi 2012b), to web-based forums where members of the community can express their views and rank service delivery options (Brabham 2009, 2010). Key to any stakeholder engagement activity, however, is the importance of not only communicating the goals of the intended program to be delivered through a partnership, but also allowing outside groups to weigh in and influence the terms of the project (Nabatchi 2012a; Whitaker 1980).
Expertise
The government’s ability to serve the public in cross-sector partnerships is only as good as its internal capacity for developing and monitoring these relationships. The challenge is particularly relevant in government offices that are unaccustomed to engaging nonprofit and for-profit organizations in more collaborative agreements. A key question in assessing public sector potential for managing effective partnerships therefore is whether they have decided to dedicate some of their administrative staff to work on cross-sector partnerships. The US State Department’s Global Partnership Initiative involves a separate office that generates support from the private sector to cultivate partnerships related to US diplomatic efforts overseas. Many state departments of transportation have created stand-alone offices for developing and overseeing organizational partnerships.1
The dedication of public sector staff for partnerships also assists the public sector in learning how to work more effectively on these projects. Much of the knowledge and expertise that the public sector develops for working on cross-sector partnerships originates from direct experience, so the development of ongoing learning systems, such as best practice documentation, is critical for improving public sector capacity (Boyer 2012). Building government capacity is discussed in chapter 11.
Partnership Collaboration
The relational nature of cross-sector partnerships depends on effective governance of partnership relations, including a focus on the critical interpersonal dimensions of public-private or public-nonprofit relations (Gazley 2008; Zaheer and Venkatraman 1995). Trust among partners is extremely important in cross-sector partnerships. The cultivation of trust takes time; it flourishes as members of the involved organizations get to know one another better. Open and candid communication and transparency with the internal and external stakeholders is essential for engendering trust. “The way the two organizations regard each other is crucial, and above all else there must be mutual trust or the relationship may break down” (Office of Government Commerce 2003, 4). However, as one PPP manager stated, this type of partnership is “not a marriage, but a business relationship” (Kee and Newcomer 2008, 88). Some level of trust is required, but mechanisms are also needed for verifying one another’s contributions.
Measuring Performance
Program evaluation refers to the “application of systemic methods to address questions about program operations and results” and monitoring, and performance measurement refers to the ongoing collection of data about programs such as workload or services delivered (Wholey, Hatry, and Newcomer 2010, 5). Information collected during evaluations can indicate how well cross-sector partnerships are achieving desired results and inform decisions that can improve their performance.
Performance measurement can complement the process of risk assessment and risk allocation by helping the involved organizations understand the extent that shared objectives (interests) are being achieved. Due to the discretionary nature of cross-sector partnerships, performance measurement systems often evaluate more abstract, higher-level partnership outcomes such as traffic congestion or safety standards in the field of transportation. The challenge for public managers is agreeing on the nature of the outcomes that will be evaluated and building in appropriate measures for assessing their achievement.
PUBLIC-PRIVATE PARTNERSHIPS FOR INFRASTRUCTURE
This section reviews a specific type of a cross-sector partnership: a public-private partnership for infrastructure (PPP). PPPs are becoming an increasing reality for governments around the world as public leaders seek out more innovative project solutions and access to private financing for public sector projects (Robinson et al. 2010; Grimsey and Lewis 2007). The rising popularity of PPPs has been described as a “massive” increase in infrastructure procurement (Delmon 2010). Infrastructure specialists highlight a worldwide increase in private investment in infrastructure, rising from less than $10 billion in 2000 to more than $55 billion in 2008, including areas such as telecommunications, energy, transportation, and water provision (Abadie 2008).
Decreases in fiscal resources available to federal, state, and local governments are leading many public officials to seek out alternative sources for financing large-scale infrastructure projects (Rall, Reed, and Farber 2010). Interest in private financing options through governing arrangements such as PPPs is likely to become even more appealing as state governments deal with the most challenging fiscal years since World War II (National Association of State Budget Officers 2011) and as federal agencies continue to experience a constrained budget environment.
The quadrennial Report Card for America’s Infrastructure of the American Society of Civil Engineers has become the accepted authority on quantifying the gap in US infrastructure investments. It examines eleven different public infrastructure sectors and claims the US investment gap will be $1.6 billion dollars by 2020 unless action is taken (based on its 2013 study). The size of the investment gaps has been spurring interest in PPPs and a closer look at how private investors could be attracted to invest in US roads, bridges, airports, water systems and water treatment, levees, and renewable energy (American Society of Civil Engineers 2014).
PPPs attract attention for the potential incentives they create for the private sector to operate them more efficiently than direct-government provision or through the outsourcing of design and construction responsibilities to individual private contractors (Yescombe 2007). PPPs involve collaborative partnerships that are long-term in nature (often extending thirty or forty years or more in length), involve both public and private financing, require private sector involvement in the provision of government services, transfer risks from public to private organizations, and outline the roles and responsibilities of the organizations through complex contracts (Forrer et al. 2010).
Examples of some long-term arrangements in the United States include the Chicago Skyway toll road and the Indiana Toll Road, both deals closed in 2005. The City of Chicago sold the operating rights of the Chicago Skyway to a private consortium for ninety-nine years for $1.83 billion. The total was provided up front to the city to address long-term budget shortfalls in transportation and other areas. The Indiana Toll Road PPP garnered $3.8 billion in up-front payments for the State of Indiana, providing funding for programs statewide.
Despite the initial windfall to governments, these exceedingly long-term arrangements limit the future discretion of political leaders. They may be stuck in a relationship that is difficult or costly to exit from even if future conditions warrant a change. In addition, without adequate controls on fees charged to consumers (or limits on profits of the private sector), these arrangements empower a private party to essentially “tax” citizens for the use of infrastructure that has been publicly paid for, a situation that can lead to a political backlash from the population served.
The Port of Miami Tunnel
When President Obama spoke on the need for investment in US infrastructure in March 2013, he chose an interesting venue to make his claims. His backdrop was one of the largest PPPs in the United States, the Port of Miami Tunnel Project (Goldfarb 2013). The Port of Miami Tunnel (POMT) was designed to create a new direct-access roadway connection from South Florida’s interstate highway network to the Port of Miami. The POMT will direct much of the port-related cargo traffic directly onto nearby interstate highways and around the city’s downtown. The total cost of the project was estimated at $1.4 billion. The private sector partner is responsible for designing, constructing, and financing the entire facility over a five-year period and then operating and maintaining segments of the facility over a thirty-year time frame. The State of Florida, through the Florida Department of Transportation, will repay the concessionaire for the cost of building the facilities through an availability payment, an ongoing transfer of funds linked to project performance standards and contingent on the government’s approval.
A number of factors make the POMT an interesting example of a PPP for infrastructure. For one, there is a substantial amount of risk transfer from the public sector to the private sector, with the private concessionaire (the Miami Access Tunnel, a consortium headed by Bouygues of France) bearing substantial risks associated with the design, construction, operations, and maintenance of the project. The private consortium does not receive payments until the facility is open to traffic in mid-2014. The availability payments are distributed monthly to ensure adherence to government-set performance standards for the project. The availability payment offers a unique form of repayment for the facility, in contrast to tolls or user fees.
International Experience with PPPs
When compared to the level of international PPP activity around the world, the United States is a small-time player. Between 1985 and 2011, 377 PPP infrastructure projects were funded in the United States, only 9 percent of all PPPs for infrastructure around the world. Europe leads the infrastructure PPP market, with 46 percent of all PPPs (table 4.3).
Table 4.3 PPPs Worldwide
Source: Istrate and Puentes (2011).
| Europe | 46% |
| Asia and Australia | 24 |
| Mexico, Latin America, and Caribbean | 11 |
| United States | 9 |
| Canada | 6 |
| Africa and Middle East | 4 |
Of course, there are numerous social, economic, and political differences between the United States and other regions and countries that help explain the greater popularity of PPPs in other countries. In particular, many would cite the access that US state and local governments have to the municipal bond market, a major source of public financing of infrastructure that is much less available, and even nonexistent, in many parts of the world. State and local governments in the United States have little incentive to approach the private sector for financing infrastructure when funds can be borrowed through government (tax-exempt) bonds at a lower interest rate.
However, access to public finance does not explain all of the disparity in the use of PPPs for infrastructure. Despite the fiscal struggles that have beset US federal, state, and local governments since 2008, interest in and use of PPPs around the world for infrastructure projects such as rail, airports, and roads eclipses that found in the United States. Countries such as India and subnational governments around the world have been developing institutional structures for the promotion, development, and management of PPPs. No fewer than thirty-one countries currently have a PPP unit at the national or subnational level (Istrate and Puentes 2011).
The International Finance Corporation (2013) of the World Bank actively promotes the PPP model to attract private financing for infrastructure projects in developing economies. It identified forty PPP projects for 2013. A subset of these projects, shown in table 4.4, demonstrates the array of possible PPP projects, each recognized to have demonstrated high levels of innovation, development vision, replicability, and positive social impact.
Table 4.4 Outstanding World Bank PPP Projects
Source: International Finance Corporation (2013).
| Country | Project |
| Benin | Port of Cotonou |
| Bhutan | Bhutan Education City |
| Brazil | São Paulo Metro Line 4 |
| Egypt | New Cairo Wastewater |
| India | CLIFF Community Sanitation |
| India | Punjab Grain Silos |
| Jordan | Queen Alia International Airport |
| Mexico | Atotonilco Wastewater Treatment Plant |
| Peru | IIRSA Amazonas Norte Highway |
| Russian Federation | Pulkovo Airport |
| Rwanda | KivuWatt Power |
| Zambia | Chiansi Irrigation Project |
PPPs will continue to be an invaluable vehicle for attracting private financing to critical public infrastructure in developing countries that lack critical infrastructure.
COLLABORATIVE PRACTICES IN CONTEXT
The elements of cross-sector partnership success (figure 4.1) are actions that public managers can take to achieve the overall goals of their collaboration. They are the primary processes for influencing the partnership formation in a way that advances the public interest. The challenge is that these processes are influenced by external conditions, which may affect partnership-level outcomes and in turn affect operational outcomes. Understanding the link between partnership-level outcomes and operational outcomes is critical to appreciating the difference between judging the success of partnerships based on partnership qualities and the overall objectives achieved through the collaboration.
The model presented in figure 4.2 contextualizes these partnering processes by considering the influence of other factors: operating environment, organizational characteristics, partnership attributes, and operational outcomes. The operating environment includes relevant institutions and the legal, political, and economic conditions where the partnership takes place. The organizational characteristics identify the different interests, experiences, and capacities of each partner. The partnership attributes describe the characteristics that facilitate successful partnerships, and the operational outcomes are the desirable traits of the services provision by the partnership.
Figure 4.2 Systems Model of Partnership Formation
This systems model describes the importance of the external environment and organizational culture on the partnering processes and the consequences for forming partnerships that deliver on their promise. This same model, with some modifications, might also be considered when implementing a network approach to delivering public services and, to a lesser extent, creating or engaging an independent public-services provider.
Operating Environment
The legal options available to address disputes that can arise during collaboration are a good illustration of how the operating environment influences relationships in partnerships. For example, the greater the confidence in third parties for resolving disputes and in the enforcement mechanisms, the better the prospects organizations from different sectors will have in working with one another (Ostrom 2000; North 1990). The operating environment is particularly influential on public-private partnerships for infrastructure, since state law frames the parameters of project risk transfers to a private sector partner (Garvin 2010; Geddes 2011). In developing nations where the rule of law is not well established, private partners will be hesitant to assume certain types of risks or may demand a large risk premium if they are to participate in PPPs.
Economic conditions, such as a recession or fiscal stress, may place more pressure on governments to develop partnerships in order to attract private funding. Limited availability of alternative service providers (the thinness of the partnership market) can make finding partners difficult. When the United Kingdom began its public-private partnership program, the Private Finance Initiative (PFI), it had to help develop industry consortiums (financing, construction, and operations) that would ensure multiple bidders for PFI projects (Forrer, Kee, and Zhang 2002).
Organizational Characteristics
The skills, resources, and overall organizational culture that each partner brings to partnership formation influences its ability to collaborate. For example, private sector concerns about protecting intellectual property can conflict with public sector priorities of disclosure and transparency (Hodge and Coghill 2007). Different industries have their own practices and cultures that can influence the partnering process. Health care service organizations, for example, are likely to share a common concern with helping people and make them excellent prospective cross-sector partners with government agencies on a variety of health problems.
Prior partnership or networking experience and robust partnering capacity can be a significant factor in the government’s ability to create and manage effective relationships in cross-sector partnerships. Organizations with a strong track record in partnering will be more likely to manage relationships effectively (Boyer 2013). Furthermore, the extent to which partner organizations have worked together in the past can create a foundation for information sharing and trust that can improve the terms of cooperation (Johnston and Romzek 2005; Gazley 2008).
Partnership Attributes
Durable capacities to collaborate and shared interests that have been identified and agreed to by partners are critical partnership attributes. They empower partnerships to take on the difficult yet essential tasks, effectively allocating risk to partners who are in the best position to manage that risk. This includes not only the ability to manage certain risks but ensuring partners are in a position to capture benefits from managing those risks well. These same durable capacities are needed to develop trust among partners. Effective partnership means a reliance on other partners, not only to carry out the actions they have agreed to take responsibility for, but also to have open and authentic discussions. Such arrangements and undertaking must be based on trust. Partnerships should recognize the importance of public outreach and stakeholder engagement. They can generate support from key political and community groups. Regular assessments and evaluations of partnership activities and operations provide an important basis for adjusting partnership decisions and arrangements. As partnerships learn about the relative effectiveness of their actions, adjustments can be made in both the outcomes and the approach to meeting outcomes.
Based on the description above, the interconnectedness of partnership attributes should be clear. Each attribute is not only important for the contribution it makes to effective partnerships, but the attributes are self-reinforcing. Strength in one attribute is a basis for strengthening others. Such interdependencies are a key feature of partnerships and of cross-sector collaborations more generally.
Operational Outcomes
The influence of the operating environment, organizational characteristics, and partnering processes on partnerships’ attributes shapes the ultimate outcomes of collaborations. Understanding how these factors shape the opportunities for and limitations on partnering is helpful in setting reasonable expectations for what a cross-sector partnership might look like and what it could achieve. Areas most sensitive to these influences include the overall cost-effectiveness of the project, improvements in service delivery, and citizen satisfaction.
Those looking to form partnerships would benefit from thinking through the systems model from the bottom up. First, what type of public services do we want provided that meet the tests of cost-effectiveness, best value, improved status quo, and meeting citizen’s expectations? Then ask, What type of partnership do we need to accomplish such outcomes? And next, what type of process should we put in place that will help us create just such a partnership?
With such aspirations set out, it is useful to ask, What conditions in the operating environment might support our partnering process? How reliable are those conditions, and how can we adapt to changes that may occur? What operating environment conditions could inhibit or derail forming a good partnership? Which firms or nonprofits have the characteristics that will support and facilitate the partnering process? Which partners might be less amenable to partnering? What could be done to improve the interest and participation of some reluctant partners?
The bottom-up approach sets out a clearer picture of the landscape within which partnerships will be formed. Some aspects will be positive and others will be negative. However, using the systems model in this way provides a useful diagnostic tool for anticipating the opportunities and the challenges faced in forming partnerships and achieving the desired operational outcomes.
ASSESSING THE ADVANTAGES AND DISADVANTAGES OF CROSS-SECTOR PARTNERSHIPS
Cross-sector partnerships, prevalent across policy sectors and levels of government administration, offer numerous advantages for government. Aligning with nonprofits and private sector organizations can capitalize on nongovernmental innovations and capacity for service delivery that does not exist within government. In many policy areas, organizations from outside government are the only ones with the potential for carrying out critical public services. Partnering also fosters more integration across sectors than more arm’s-length exchanges, facilitating the cross-pollination of ideas and the creation of administrative solutions that government could not achieve on its own.
Similarly, partnering with organizations outside government can offer unique ways for managing risk in complex projects. PPPs for infrastructure shift significant construction, design, financing, and operational risks to partners, which can yield cost savings and improve innovation for government. The process of shifting risk also challenges the public sector to consider dimensions of project risk that are often not considered in traditional infrastructure projects, adding greater transparency to the costs and implications of project delivery. Transferring those risks to organizations outside government can reduce costs for projects by shifting those obligations to organizations that are better positioned to deal with them. Managing social outcomes in partnerships can also allow private or nongovernmental partners the discretion to develop innovations that the public sector could not have come up with on its own.
The same characteristics that offer potential in cross-sector partnerships can also cause problems for government. Working with organizations outside government to carry out core public service can create a level of independence that reduces public sector influence in collaboration. As risk is transferred to nonprofit or private sector providers, the public sector has fewer direct mechanisms for controlling that risk. Public managers need to pay special attention to the nature and the types of risks being transferred to ensure that the partnerships act in the public interest. For PPPs on infrastructure, this is especially the case. Long-term agreements lock governments into financial obligations that could have serious negative fiscal implications if they were not properly negotiated.
When the private sector is given more discretion for program deliverables, sometimes the public sector lacks the ability to properly monitor its contributions or do so too late, when it is difficult to turn programs around. There also are challenges in adequately developing public sector capacity for working on partnerships, particularly because the skills for partnerships differ from those in traditional forms of contracting. This capacity is particularly challenging in the more complex cross-sector partnerships, where the technical, legal, and financial expertise involved is beyond the capabilities of existing public sector employees.
Thus, as is true in most CSCs, public managers must examine and reconcile a number of competing values. Partnerships offer a promise of innovation, expertise, and additional resources. However, by shifting traditional government activities to the private or nonprofit sector, public managers give up some control, often relinquish direct contact with the citizens being served, and, in the case of long-term PPPs, reduce the discretion available to future political decision makers.
CONCLUSION
The increasing use, adoption, and potential of partnerships require more innovative approaches for public managers to learn how to create and support them. The need for developing a better understanding of partnership governance is particularly important given the potentials for partnerships to distribute risks in ways that can inhibit public interest. The shifting of risks to organizations outside government offers enormous potential for innovation and long-term operations and maintenance savings. Furthermore, the introduction of private financing in some models of infrastructure-based PPPs can fill in the gap of fiscal limitations in the public sector and help to accelerate projects that would otherwise prove impossible. The unique challenges and opportunities inherent in cross-sector partnerships require techniques for public managers to identify, capture, and transfer experiential knowledge related to their design and implementation.
Cross-sector partnerships create opportunities for the public sector to provide public goods and services in more innovative ways. The challenge is achieving an appropriate balance of control and flexibility, allowing partners from outside government the discretion to capitalize on their own comparative advantages while at the same time ensuring that overall outcomes meet the public interest. Considering the outcomes of cross-sector partnerships with respect to a system identifies the institutional, organizational, and environmental influences on partnership relations, as well as the achievement of partnership outcomes. This topic is explored further in the following chapters on other models of cross-sector collaboration.