Factors and "illusions" influencing the choice of PFI-type public private partnerships

Abstract

Purpose The purpose of this paper is to critically assess some of the micro- and macro-economic reasons for using public finance initiative types of public–private partnerships (PPPs) and how a lack of transparency may result in an “illusion” of making optimal, rational decisions related to them. A series of balances that decision makers need to make in order to choose whether or not to use PPPs are set out, as well as 15 potential “illusions” may affect such decisions. Design/methodology/approach This paper synthesizes published evidence and develops a framework for analyzing PPPs. Findings A wide range of factors influence the choice of PPPs, including: budget enlargement; efficiency and value for money; certainty of expenditure and delivery; flexibility; financing costs; risk sharing; procurement process and transaction costs; legacy and public assets; and the wider impacts on the local economy. However, reasons why PPPs can provide improved infrastructure and services may not be realised due to in-built incentives, behavioural biases and implementation shortcomings. Necessary support for PPPs includes strong, robust and transparent regulatory and governance systems, the dissemination of good practice to all partners, consideration of alternative funding models and high-quality advice and training. Research limitations/implications The paper sets out a number of reasons for using PPPs, and also assesses potential drawbacks and identifies areas where greater research is required. A number of potential “illusions” are identified, whereby decisions may be affected by factors not explicitly or transparently considered, hence giving the decision an “illusion” being rational. Practical implications PPPs are significantly influenced by the socio-economic, legal, legislative and financial system they are embedded in. A clear process for approving projects and recognising all the costs and benefits of PPPs is needed, including developing criteria and instruments to measure each phase of a PPP and its overall value added to the economy and society over its lifetime. Full transparency, having suitable support and explicitly taking account of potential “illusions” affecting decisions, could lead to different decisions, including the decision not to progress the project or to use alternative funding and development methods. Social implications Decisions on PPPs should be based on a clear and transparent long-term basis which includes the perspectives of the full range of stakeholders to help improve the appropriate operation and social sustainability of a PPP. Originality/value The paper sets out some key arguments for and against the use of PPPs in different circumstances, including why non-optimal decisions may be made.