Public-private partnerships (PPPs) are a way for local authorities to delegate to private companies the design, financing, construction (or renovation), operation and very often the maintenance of a facility or infrastructure that provides a public service, including buildings, stadiums, roads, bridges, rail lines, airports, etc. For the entire term of the contract, the local authority retains ownership of the facility or infrastructure. Would you like to learn more about how PPPs work in France? You will find our answers to your most frequently asked questions below!
WHAT IS A PPP EXACTLY?
For how long have PPPs existed?
In France, public-private partnerships date back to the Ancien Régime. Implemented in the form of “concessions”, they enabled the country to carry out major public infrastructure projects like the Canal du Midi and, beginning under the Second Empire, to modernise urban infrastructure in Paris, including the French capital’s streets, sewers, public lighting and eventually its metro. This concept was updated in 1993 with the advent of the Sapin law, which introduced the notion of “public service contracts” (délégations de service public) to enhance the legal framework for concessions, followed in 2004 by the introduction of “partnership contracts” (marchés de partenariat), which offer authorities an alternative to concessions or conventional public procurement contracts.
What kinds of contracts fall under the PPP model?
In France, there are two main PPP categories:
• PPublic service contracts or concessions:As is the case for the French motorway network, the public authority engages the services of a private operator to design, finance, build and operate the infrastructure or facility under concession. The private partner thus becomes the concession holder and is remunerated by collecting revenues from the operation of its concession. In the event of a decline in the number of users, the concession holder bears the shortfall.
• Partnership contracts: The missions assigned by the public authority to the private partner are the same as those for concessions, but the private partner is remunerated in a different way. As is the case for the Allianz Riviera stadium in Nice and the dams on the Aisne and Meuse rivers, the public authority pays a lease fee to the private partner. This fee may vary depending on the availability of the structure and the private partner’s compliance with the performance criteria set out in the contract.
What role does the public authority play in a PPP?
Under a PPP, the public authority retains ownership of the facility or infrastructure. It defines the scope of the public service, sets the performance objectives, verifies the effectiveness of the service provided and validates the fees charged for the service, all under the contract entered into with the private partner. The private operator acts under the control of the public authority and is accountable to that authority, to which it submits technical and financial reports on a regular basis, as well as a detailed annual activity report. The private operator incurs penalties if it fails to comply with its contractual obligations.
Why do public authorities use PPPs?
There are several reasons why a public authority may choose a PPP:
• Faster construction of quality public facilities or infrastructure that would not have seen the light of day without a PPP, or only much later, because under this model the private partner finances the project to build the facility or infrastructure.
• Spreading investments over a longer period and better control of costs. Earmarking expenses and scheduling them over time means that these costs can be spread and contained, in an era when the level of public debt leaves public authorities little room for manoeuvre.
• Overall optimisation, with deadlines met, a managed budget known in advance and better integration of sustainable development. When the design, construction, management and operation of a facility or infrastructure are assigned to a single private partner, it is in the latter’s interest to make the right choices from the outset to achieve the best possible performance, particularly in terms of the environment.
• Reaping the benefit of innovation. The private partner’s latest innovations and all its R&D work are put to service for the public authority over the entire term of the contract.
• Risks transferred to the private partner, which is best able to manage them: technical risks associated with construction and operation, financial risks and usage or traffic risks.
What are some examples of PPP projects?
From roads and stadiums to high-speed rail lines and airports, PPP projects are part of everyday life in France! Thanks to the PPP model, the Stade de France was able to host the 1998 FIFA World Cup and UEFA Euro 2016, and Bordeaux is now only two hours by high-speed train from Paris! These are just two of the public service projects that might never have seen the light of day, or only much later.
CHALLENGING PRECONCEIVED NOTIONS ABOUT PPPS
Are PPPs expensive?
Infrastructure construction projects involve high costs. But the latter pale in comparison to the costs that will be incurred to operate and maintain the infrastructure over the long term. To claim that a given PPP is expensive, one would need to be able to compare its price with what the same facility or infrastructure would cost the local authority using public resources for project management and operation, in terms of construction, financing, repair, maintenance and administration costs, and over a period of 10, 20 or 30 years! Unfortunately, this type of comparative exercise is rarely carried out. The clear advantage of PPPs is that these costs are defined in the contract at the start of the project, following a competitive bidding process guaranteeing the best services at the best price.
Do PPPs put pressure on public finances?
The fact that expenditure is earmarked and incurred over time is one of the main advantages of PPPs. This allows costs to be anticipated, spread and contained, in a fully transparent manner. The cost of the project is known at the outset and encompasses not only maintenance and repairs, but also the development of new services and the adaptation of existing ones to meet the constantly evolving needs of users.
Do PPPs pose a threat to SMEs?
Small and medium-sized companies are supported and protected by legal provisions governing concessions and partnership contracts. In the case of partnership contracts, the minimum proportion of the contract that must be awarded to SMEs is among the criteria for the selection of the private operator. For concession contracts, the law allows the public authority to require that bidders award at least 10% of the total estimated contract value to SMEs or other third parties. The proportion reserved for SMEs can in reality be larger, as is the case for the South Europe Atlantic high-speed rail line, for which it amounts to 25%.
Are PPPs governed by a clear legal framework?
The rules governing PPPs are very strict and contracts must be drafted carefully, with detail and legal rigour. The public authority and its private partner are obliged to comply with these rules. Given their precise financing system, PPPs are one of the safest and most transparent types of contract. For example, even before deciding in favour of the partnership contract model, the public authority must prove that this model would be financially the most advantageous one to manage the project at hand, in comparison with other possible approaches. The public authority must therefore carry out a preliminary assessment, spelling out the economic, financial, legal and administrative reasons for choosing this model over any other type of contract.
Are PPPs used in countries other than France?
Yes! The PPP model has been adopted in many other countries around the world, from Canada with the Regina Bypass and Chile with Santiago airport to Peru with the Línea Amarilla expressway in Lima. Furthermore, most international institutions recommend the PPP model because they believe it is a good way to optimise the effectiveness of public procurement. This is true for the International Monetary Fund and the World Bank, for example, with the latter having developed a free online training course to help the general public understand PPPs.
WHY DO PPPS SUFFER FROM A POOR IMAGE?
There are two reasons that may explain the negative perception of PPPs. The first one is the model’s complexity, which can sometimes make it difficult to understand how PPPs work. But secondly, and most importantly, problems experienced on projects in the past have tarnished the image of PPPs, calling the entire model into question. Among the key takeaways are the fact that a PPP must never be seen as a means to have a private partner finance a “bad” project, i.e. one that serves no useful purpose, is not proportionate or is poorly scaled, or does not meet the needs and expectations of the region or users. In addition, the public authority must draw up clear and precise specifications for the project once it is launched. Its choice of contractual model must be based on a prior and detailed socio-economic analysis that clearly identifies the needs to be met. In most cases, PPPs work very well.
