Sharing the profits of PPP: show us the money!
PPP and insurance gains: How to restore public trust?
Decide’s friends at the Partnerships Bulletin raised the flag this week on the lack of clarity and transparency of the gains and savings made by special purpose vehicles (SPVs which operate large complex contractual arrangements to provide infrastructure-based stream of services to public authorities, eg. Public-Private Partnerships - PPPs in health).
Ever since the first wave of Private Finance Initiative contracts which saw a massive programme of investment in privately owned and operated public service facilities in the UK (schools, hospitals or prisons for instance), the question of the sharing of gains rose to prominence.
In essence, public authorities pay their private partners (the SPVs operating the wole infrastructure and related services programme) an annuity based on performance. However, there were no provisions at first in the PPP contracts pertaining to any additional profit resulting from the management of the assets.
Yet private sector partners proved extremely successful at generating additional resources, mainly through:
- refinancing, ie negotiating lower interest rates with the lenders of the project
- insurance deals negotiation, through brokers who would manage commercially more aggressive deals, and
- third-party revenue, i.e. a diverse set of activities revolving around the infrastructure project: shops, gyms, or accommodation for instance.
While at first the public partner would not see a cent of these additional revenues which were not included in the contractual arrangement, later contracts (such as NHS PPP contracts) would always cater for a fairer split of the gains occurring during the contract.
With on average a 50-50% split, private partners remained incentivized to work through securing value for money across the project life cycle while the return on investment would increase for the public partner.
It is now this win-win status quo which seems at stake and the opacity of the insurance reporting in some PFI contracts raise eyebrows…..are private partners deliberately trying to minimize or overlook gains they are supposed to share? Is it worth the risk while private growth relies on these large infrastructure contracts which raise already so much defiance in the public eye?
Your Decide Hub will make sure to keep you posted. In the meantime, to access the Partnerships bulletin article: click here!