PPPs: ‘A solution for cash-strapped EU governments’

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As Internal Market Commissioner Charlie McCreevy prepares to sort out the rules governing public-private partnerships (PPPs), Michael Burnett, public procurement expert and senior lecturer at the European Institute of Public Administration (EIPA), tells EURACTIV why it is so important to develop PPPs in Europe.

  • What are public-private partnerships? 

Public-private partnerships are simply a complex form of public procurement, so the simplest thing is to just stick with the fact that whenever someone says ‘PPP’ they’re talking about the same family as public procurement. 

  • Why is public procurement important for Europe? 

There are three reasons why public procurement matters at EU level. 

Firstly, you can’t complete the internal market without public procurement, because about one fifth of EU spending is public procurement subject to the directives. 

Secondly, there’s a big gap between what should be advertised Europe-wide and what is actually advertised – only about one sixth of what should be advertised Europe-wide is advertised. Now there are reasons why some of these contracts may not have to be advertised, for example when they are low value, but that doesn’t concern 84% of them, that’s for sure! 

So, public procurement is important for the internal market and yet it isn’t being enforced. 

Thirdly, a Commission report in 2004 basically showed that, when you use the directives and you implement them correctly, you save a third of the price. Of course that’s a bit crude – it depends on the quality – but the political point was that, if only a part of the savings were replicated across the public sector, every country in the eurozone would meet the Maastricht deficit criteria. So this is politically important. 

  • What developments are currently taking place in the EU in the field of public procurement? 

There are two important things happening at the moment. 

Firstly, the Commission has put forward some proposals for remedies directives. These are the directives that govern what happens if someone participates in a process and doesn’t like the outcome and wants to complain. 

We’re about five months through an estimated 18-month legislative process, which has proven to be quite heated, as could have been predicted. I don’t think they’ll find agreement in 18 months, because the main public-procurement directives, which were finally agreed in 2004 and had to be implemented at the beginning of this year, took four years to conclude, and remedies are every bit as contentious as that. 

The second thing is that, in April, the Parliament’s internal market and consumer-protection committee held hearings on the workings of the public-procurement directives a couple of years after they have been passed. It is now in the process of drawing up a report based on those hearings. 

  • Why is the development of PPP necessary for the EU in terms of reaching its targets to increase investment in research and foster entrepreneurship and innovation as well as to boost regional cohesion? 

Again this is all about European policies – the costs needed to complete some of the projects are huge – the trans-European networks for transport: €600 billion before 2020, the water framework directive: €300 billion. Now, the old member states haven’t got that sort of money – let alone the new ones, and it’s not going to come from structural funds. So, that means huge private sector investment is needed. 

With PPPs there’s massive private sector investment going in to deliver European public services, because there’s no other way to deliver them. It’s basically a budgetary pressure. 

But the good thing is that PPPs can help save money and implement innovative solutions because they are done in a different way. 

  • Which countries are already leading in terms of PPP activities? 

Overwhelmingly, the UK is the market leader. They have more than 700 signed public-private partnership deals, and that’s a significant proportion of the value Europe-wide. 

Other countries that are quite active are Italy, Spain and Portugal – they have quite significant programmes. France is also becoming more active, and Ireland, although it’s quite a small country, is being very active. There are some other countries that are removing legal barriers to PPP, such as Germany which could become quite a significant country in terms of PPP. 

But, by and large, the UK has led. Many of these other countries have actually followed the UK model, with some modifications. The UK model covers every sector of public services that you can imagine. I mean the UK government is even considering – rightly or wrongly – using PPPs for the new generation of nuclear power plants. So along with schools and hospitals, roads, office accommodation, leisure facilities and all sorts of other civilian activities, PPPs are pushing the frontiers in the UK. 

  • You say the UK is a leader in terms of PPP, but we also know it is leading as regards liberalisation and privatisation of services, including social services – and this is a big issue for many member states. Is there a link between the development of PPPs and the privatisation of social services? 

The Commission rigorously maintains in all its declarations that PPPs do not breach the fundamental article 295 of the EC Treaty, which is about neutrality in public and private provision. 

The European Parliament, in its resolution on PPP, which it passed in October, said that PPP is not the first step towards privatisation, because it’s a contract with an end. Thus, normally the private sector constructs the asset and then runs the service, and then it’s re-tendered and goes to another operator. Effectively, they lease the assets. 

So PPP and privatisation are something different but this argument of the Commission actually wears very thin when you look at the reality of how private finance is indispensable to deliver the public service agenda. 

So in theory there is neutrality but in reality the people in the Parliament and in Council are passing laws that require a lot of services to be provided by public-private partnerships. 

Then, there also comes a point when the private sector has a certain share of a market and, in fact, it becomes very difficult for the public sector to regulate it. There was an example a few years ago in the care-homes sector in the UK when, under Conservatives and Labour, there was a shift from public to private care. After one or two scandals, the government decided to implement new minimum standards for care homes and minimum standards for staff training, but basically they had to back off. The industry said: “We’re not having this”; what would they have done if the rules had been forced on them? They’d have sold the care homes and where would the people have gone? 

So, privatisation is certainly not an overt agenda, but there is a certain point about market control – about the public sector managing the private market to make sure it doesn’t lose control. 

  • Is there a need for additional legislation at European level to specifically govern PPPs? 

There is not. The people who say that PPPs do not fit into European legislation are the people that are trying to avoid the competitive and transparent procurement procedures that the public-procurement directives require. 

A PPP can only be in one of four legal forms, all of which come from the public procurement directives, so PPPs must come under legislation on public procurement. 

However, it is true that there are different procurement procedures for public contracts and for concessions, and it is also true that there are different rules for works and for services. In the new Directive, works concessions are less regulated than public-works contracts and service concessions are completely excluded from the scope of the Directive. 

In this context, it is sometimes complex to figure out whether a PPP should be considered as a public contract or as a concession and therefore to know which award procedure should be applied. 

This diversity of procedures and treatments can lead to a lack of transparency and puts the brakes on competition, thereby preventing public authorities from procuring infrastructure development as quickly as they need to. It also creates a legal uncertainty, and public authorities risk being challenged by the European Court of Justice for using the wrong award procedure. 

All this would have been very easy to correct – the Commission even recognised the problem in the Green Paper on PPP – but then it ducked the solution because political reality kicked in: in the consultation, stakeholders said that they didn’t want the same award procedures for public concessions. 

The answer would really be to change the public-procurement procedure directives to bring service concessions within their scope and to standardise the awards procedures for all four legal forms – it’s not very complicated but there is a political barrier. 

  • Is it true that Charlie Mc Creevy may present a legislative initiative on public procurement in 2007? 

He will, but that will not standardise the awards procedures for public contracts and concessions. What it might do is bring service concessions – which is what many PPP are – within the scope of the directive, because, at the moment, the only rules that cover them are the general principles of the EU treaties. 

That doesn’t give public authorities much guidance about how to do things. Nor does it give disaffected losers the right to get a remedy out of the remedies directive, because if PPPs are out of the public- procurement directive, that also means they are out of the remedies directive. 

  • So, what does need to be done to encourage the development of PPPs across Europe? 

Well, there’s no evidence of shortage of funds for PPPs across Europe. The private sector is interested, there’s lot’s of money looking around for investment opportunities. The issue is not actually the private sector’s willingness to invest – I mean if you launch a PPP, you’ll be very likely to get some interest because the profit margins are so much bigger. The real issue is whether the public sector is managing the process to get value for money. 

So what is really needed is four things: 

  • Award procedures for public contracts and concessions need to be standardised; 
  • service concessions should be brought within the scope of the Directives; 
  • there needs to be a European PPP agency to manage major PPPs at a European level, because the private sector providers in many sectors are consolidated – there’s four in the prison sector, six in the environmental services sector – so you need an agency to manage the ‘big-ticket’ contracts, to ensure that there is enough competition, and;
  • there needs to be much more prescription in the Remedies Directive, because at the moment, it’s difficult to get a remedy in another member state. I would actually favour a Remedies Regulation – not a Directive – but of course that’s not very likely politically. 

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