Jennovation 1.1: Don’t Go it Alone: Why Public-Private Partnerships Make Sense

Welcome to the second posting of my featured Govloop blog series—Jennovation—coming to you every other Monday. This series contains my musings on innovation, Open Government (Open Gov) and Public-Private Partnerships (PPPs).

Let me start by saying, I was rather surprised by the comments on my first posting. While Gov 2.0, Open Gov and innovation have been hot topics recently, the majority of the comments on my first posting (both on
Govloop and Phase One Consulting Group’s blog) focused on PPPs and the potential for partnerships. I am a HUGE PPP nerd/fanatic, so the fact the readers latched onto that topic and are asking for more information on that subject made me very, very excited. So, for the next few postings I’ll focus on PPPs with a pinch of Open Gov and innovation thrown in. Several comments from the community inspired this posting in particular, including the following one made by the International Consortium on Governmental Financial Management (ICGFM):

“There is a lot of concern about the impact of PPPs on government risk. (Notion that the government is on the hook for PPPs should there be failures.) It also tends to move expenditures off the balance sheet to give the illusion of fiscal discipline. And, there is the opportunity for PPPs to be used for short term budget balancing at the expense of future commitments. There have been some disappointing results in the UK. There is no question that the private sector has demonstrated certain efficiencies. These potential advantages must be weighed against risks.”

I couldn’t agree more that no partnership should be entered into without first weighing the benefits, costs, and risks. In my research [1], there are typically eight factors that drive the desire to partner or privatize:

  1. Resources
  2. Information
  3. Productivity
  4. Legitimacy
  5. Cost-reduction
  6. Risk-sharing
  7. Introduction of competition
  8. Accountability

Thus in theory, sharing of risk is one of the reasons partnerships emerge in the first place. Many services may not ever be provided if it weren’t for partnerships—since the risks would be too large for any one party to bear by themselves. In fact, one expertise of the private sector is to calculate how much risk should cost. Risks in large project or service partnerships can include completion risk, performance risk, market risk, economic risk, political risk, equity risks, and force majeure. “By partnering with the private sector, the Government is able to relieve the burden of carrying all those risks and shed some to the private sector who may be able to bear them more effectively. For example, the private sector is often more apt at bearing some forms of performance risk since their profit is directly tied to performance metrics.” [1]

The public sector and the private sector are driven by very different things. A partnership should leverage existing incentive structures to ensure that goals are uniformly pursued by all parties and that conflicting incentives don’t jeopardize results, as pointed out by the ICGFM. Fiscal discipline is often MORE of a motivator for the private sector than the government. “Whereas a private firm generally prospers by satisfying paying customers, a monopolistic public agency can prosper even if the customer remains unsatisfied. When a private company performs poorly, it tends to go out of business; when a public agency performs poorly, it often gets a bigger budget. Paradoxically, the budget can grow even as customer dissatisfaction grows; in this respect a rising crime rate is good for a police department, a housing shortage is good for a housing agency, and an epidemic is good for a health department.” [2]

Bottom line: Partnerships are complex and should not be entered into lightly. This goes for large-scale infrastructure development projects, event focused partnerships, and partnerships that focus on providing a specific service for periods of time.

Open Government and innovation focused partnerships are no different. Apps contests? Prizes to address our grand challenges? Enhanced collaboration to achieve Open Gov objectives? ANY partnership that is entered into by the federal government should be carefully considered. In addition to figuring out the motivators of each partner so the right risk sharing structure can be set up, the following questions are also crucially important for any Government agency to consider. (Beware: if you don’t have a best friend in your legal shop and you’re interested in setting up some partnerships, now’s the time to bake cookies for the 9th floor…)

  1. Will the partnership require any resources (financial or human capital) to operate? If so, who’s contributing the resources? If a non-governmental organization is paying for anything at all (financial or in-kind) agencies will have to pay close attention to their gift authority. Can the agency accept gifts? Under what terms? Consult your legal counsel…
  2. How does the partnership further the agencies mission? Appropriated resources (property, staff, and dollars) must further the mission of the agency.
  3. How will the Government support to partnership from an advertising standpoint? There are VERY strict laws on what agencies and government employees can do with regards to endorsements and advertising. Consult your legal counsel…
  4. What will be produced through the partnership? Who owns it when the partnership is completed? Negotiating intellectual property splits up front is critical to ensure each partner is getting what they expect out of the partnership. Consult your legal counsel…
  5. What is the background of the potential partners? Are there any potential ethical, lobbying, or perception issues with particular partners? Consult your legal counsel…
  6. Did you give other potential partners a chance to join the partnership? “Sole-sourcing” a partnership is often possible, but can jeopardize the legitimacy of the partnership, so allowing the breadth of possible partners to compete for the chance to participate is optimal. This area, in particular, is a space where new Gov 2.0 technologies have allowed partnership opportunities to become more open and have allowed more potential partners to step forward.

Partnerships have the potential to add a TON of value, but they require a decent amount of homework to do right.

Though this posting was a bit more research and background info oriented, in future postings I will highlight some of the really cool PPPs from yesterday and today (per Andrew Krzmarzick’s suggestion). As always, please feel free to reach out to me at jennovation1@gmail.com, at any time during this series to continue to conversation.

Happy almost 4th of July!


Jenn


[1] Gustetic, Jennifer. A Framework for Understanding and Designing Partnerships in Emergency Preparedness and Response. Cambridge, MA: MIT Libraries, 2007.
[2] Savas, E.S. Privatization and Public Private Partnerships. New York, NY: Chatham House
Publishers, 2000.