11.2.1 Public-Private Partnerships Within the Myriad Ways of Providing Public Services
Once a public service
has to be provided, public
authorities can choose between a large number of modes
of provision. To distinguish between these possibilities, it is useful to divide the life cycle of a project or an infrastructure into four main tasks: designing, building, financing and operating or maintaining. The allocation of these tasks between one and several agents (public and/or private) determines the mode
of provision. The most frequent modes of provision are presented in Table
11.1.
Table 11.1
Overview of the possible modes of provision of public services
Traditional procurement | Public | Private | Public | Public | Public |
Private financing | Public (possibly with private) | Private | Private (possibly with public) | Public | Public |
Service contract (lease/management contracts) | Public | Private | Public | Private (≠ building) | Public |
PPP | Private (possibly with public) | Private | Private (possibly with public) | Private | Public |
The same private provider is involved in all stages |
Regulated market | Private | Private | Private | Private | Private |
Under traditional procurement
, the public
authorities remain in charge of all four stages, except for building, which is often contracted to a private firm through a procurement contract. This means
that the public authority keeps control over the infrastructure and the service provided, and that it also bears all the risks except for construction risks. The public authority may give some autonomy
to the public provider of the service by creating specific public entities. These entities can be either autonomous public entities (e.g., the Geneva Airport) or state-owned limited companies under public law (e.g., the Swiss Federal Railways and the Swiss Post) or under private law (e.g., the air navigation service provider Skyguide)
. The relationship between the authority and the autonomous entity can either be based on a law or on a contract (as in FORS, the Swiss national centre of expertise in the social sciences; see Athias
2013 for details). All these arrangements correspond to a public provision of a public service.
Another way to provide a public service, quite specific to Switzerland,
1 is when a private operator builds and finances all or part of a public infrastructure in exchange
for the opportunity to exploit the premises for commercial purposes unrelated to the public service (e.g., shopping malls or office
buildings). This is made possible by granting
a distinct and permanent leasehold right,
2 whose duration is typically between 30 and 100 years. This gives the private partner the right to build and own a distinct asset on ground whose ownership remains in the hands of the public authority. An example is the Tissot Arena, the new sport complex inaugurated in 2015 in Biel, which encompasses football, ice-hockey and curling fields, as well as a shopping mall. While these arrangements are often considered as PPPs due to the private
financing of the public infrastructure, they are not PPPs as there is no involvement of the (same) private partner in the service
provision.
When the provision of a public service does not require physical assets or when the public authority owns an infrastructure but wants to delegate only its operation to a private entity, the private party involvement is mostly based on service contracts, such as for child day-care centres or for services provided to migrants. Within such contracts, we can distinguish between lease contracts, where the private firm is paid by the users of the service, and management contracts, where the private operator receives a fixed-price payment from the public authority.
The provision of the public service can also be outsourced
through PPPs. PPPs can be defined as long-term arrangements between a public authority and a private partner, chosen after a competitive tendering, in order to design, build, finance and operate an infrastructure that is used to provide the public service.
3 This infrastructure can be either a new one or an already existing that needs to be renovated. The peculiarity of PPPs lies in the bundling of building and operation stages. As highlighted by HM Treasury
,
“Private sector expertise and experience has always been used in public sector procurement, but, where in traditional procurement, private companies built and then walked away, PPP seeks to ensure that the private sector takes responsibility for the quality of design and construction it undertakes, and for long term maintenance on an asset, so that value-for-money is achieved” (HM Treasury
2003).
PPPs can be either
contractual or
institutionalized. In the first case, the public authority concludes a contract with the project company (which can be a consortium) without being part of it. By contrast, in institutionalized
PPPs, the public authority is a (minority or majority) shareholder of the project company. Boxes
11.1 and
11.2 below provide Swiss examples of both types of PPPs. Among PPPs, we can further distinguish
availability and
concession schemes. Whereas both are fixed-price, long-term arrangements to design, build, finance and operate a public infrastructure, the main difference relies in the sharing of risks between the public and private partners. In availability schemes, the public authority pays a fixed price to the project company according to performance
criteria
(demand risk is hence borne by the public
sector). By contrast, in a concession scheme, the project company is remunerated according to the demand for the service (either directly by the users or indirectly by the public authority via shadow tolls) and hence bears the demand risk. In Switzerland, the term concession is used to describe the right to pursue economic activities that are regulated by the state, mainly because of the monopolistic nature of the market (e.g., local public transportation) or because this activity needs an access to a limited public resource
(e.g., water, as in the case of dams or run-of-river facilities, or radio frequencies) or the use of the public domain (e.g., to build and operate a gas network) or due to the sensitive nature of the regulated activity (e.g., casinos) or to increased risks (e.g., airports or the storage of dangerous substances). Swiss “concessions” must then be distinguished from PPP concessions as they can be awarded to public or private service providers, and under all kinds of governance
structures. For instance, the Federal Office of Civil Aviation (FOCA) can award concessions to operate airports to public
authorities or to private firms. Although no such example curently exists in Switzerland, it would also be possible to award an airport concession to a PPP.
Finally, a public service can be provided through a regulated market. In this case, an authorization to provide the service is required, subject to compliance with some minimum requirements to ensure the quality of the service provided. Unlike PPPs, which are dedicated to specific projects, the requirements in regulated markets apply to all the firms in a sector; they are based either on federal, cantonal or municipal legislation
, or on specific guidelines issued by a public authority. This is, for example, the case for nursing homes, which are more or less strictly regulated by the cantons
(Athias and Wicht
2018a). This regulation
can, in some cases, be the counterpart of public
subsidies.