Role of Procurement Professional in Public Private Partnerships (PPPs)

Professor Benon C Basheka, PhDDEAN, SCHOOL OF BUSINESS AND MANAGEMENT

UGANDA TECHNOLOGY AND MANAGEMENT UNIVERSITY

bbasheka@yahoo.co.uk, Mobile: +256782459354

INTRODUCTION• Today, the distinction between the role of

government, and the private sector is blurred• It is quite common to find activities which were

traditionally done by the government (at whatever level) now being done by the private sector

• It is also no longer strange to find governments doing certain activities which are known to be for the non state actors

….• Government departments and agencies also

now want to make profits; which used to be the concern of the private sector

• Governments are called upon to adopt ‘business-like approaches’ in their activities

• There are several alternative service delivery mechanisms like contracting out, outsourcing, PPPs, third-party governance etc

Within this environment:-• The Role of the Procurement professional has

changed and will continue to change• The skills requirements for procurement

professionals become multiple-managerial as opposed to technical

• The competences and strategic role in decision making by procurement professionals also changes

Globally,

• The Procurement profession is one of the

fastest growing professions in the world

• Global standards for procurement

professional practice have been adopted

• Debates on professional practice license

have been made

Important to note that:-• Governments and procurement departments

around the world face real challenges in delivering good quality products and services, including challenges of mounting debt and budget cuts.

• Good practices do exist, but media reports of waste and inefficiency are on the increase.

• Excellent results are being achieved around the world using best practice principles.

Global Efforts• The Institute for Public Procurement (NIGP) and

the United Kingdom's Chartered Institute of Purchasing and Supply (CIPS) have jointly released Ten Global Public Procurement Practices.

• These ten standard practices provide high-level guidance across the following procurement activities: – Strategic Procurement Planning– Performance Measurement– Performance Metrics

–Use of Cooperative Contracts– Transparency–Risk Management– Ethical Procurement–Procurement Policy Manual–Performance Management and –Performance-Based Contracting.

The Chartered Institute of Purchasing and Supply

• Is the world's largest procurement and supply professional organization.

• It is the worldwide center of excellence on purchasing and supply management issues.

• CIPS has more than 65,000 members in 150 different countries, including senior business people, high-ranking civil servants and leading academics.

• The activities of purchasing and supply chain professionals have a major impact on the profitability and efficiency of all types of organization, and CIPS offers corporate solutions packages to improve business profitability.

• The joint global initiative is a significant milestone for the public sector and has the potential to contribute significantly to the public good and global economies.

• Establishing and leading adoption of a set of principles and practical documents, and a common procurement language around the world, is ambitious.

• Support of the initiative throughout the public sector can help to achieve worthwhile and sustainable change.

• Procurement professionals are diverse in terms

of:

– Age

– Gender

– Experience and exposure

– Educational attainment

– Level of Professionalization

– Trust

– Competence and skills

Procurement Involvement• The procurement function, represented by

procurement professionals, does not take a leading role in many government agencies.

• There is often lack of procurement considerations in organizational planning and the setting of organizational strategy.

In Literature,• A significant amount of procurement literature

reflects concern over perceptions of the field as a merely clerical or tactical function.

• One group of authors captured this when they described public procurement as the “Rodney Dangerfield” of governmental activities; that is, it gets no respect due to its routine and mundane features (Gordon, Zemansky & Sekwat, 2000).

• Other authors like (McCue & Gianakis, 2001; Matthews, 2005) argue that, procurement is becoming more strategic.

• Ammer (1974) over 30 years ago, surveyed industry executives to investigate, among other questions, their perceptions of the purchasing (procurement) function.

He found that general managers saw(1) Leadership as an unimportant characteristic for

purchasing managers;

(2) Purchasing as having little interaction with the mainstream of management; and

(3) Little involvement by purchasing in strategic decisions.

McCue and Gianakis (2001),• Concluded from a survey of procurement

professionals that these professionals did not consider planning—an activity aligned with strategy and leadership—a major component of their duties.

• The respondents also found planning to be insignificant compared to other steps in the procurement process.

• A later study by Johnson, Leenders & McCue, 2003) developed similar conclusions, finding that procurement managers and offices have relatively little to do with major organizational activities.

• Taken together, this body of research indicates that procurement is still considered by many both within and outside the field to be a routine function with little relation with organizational strategy and leadership.

Role of Procurement in PPPs• A public–private partnership (PPP) is a

government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.

• PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project.

• In some types of PPP, the cost of using the service is borne exclusively by the users of the service and not by the taxpayer.

• In other types (notably the private finance initiative), capital investment is made by the private sector on the basis of a contract with government to provide agreed services and the cost of providing the service is borne wholly or in part by the government.

• Government contributions to a PPP may also be in kind (notably the transfer of existing assets).

• In projects that are aimed at creating public goods like in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant, so as to make it more attractive to the private investors.

• In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by removing guaranteed annual revenues for a fixed time period.

There are usually two fundamental drivers for PPPs.

– Firstly, PPPs enable the public sector to harness the expertise and efficiencies that the private sector can bring to the delivery of certain facilities and services traditionally procured and delivered by the public sector.

– Secondly, a PPP is structured so that the public sector body seeking to make a capital investment does not incur any borrowing.

How did they emerge• Politics-Administration Dichotomy (1887-1926)• Principles of Administration (1927-1937)• Era of Challenges (1938-1947)• Identify crisis (1948-1970)• From Public Administration to Public

Management (1970s-Late 1990s)

• From Public Management to Governance (late 1990s to 2008)

• Global economic crisis (2008-2010)• From Governance to New Public Governance

(2010) • New Public service Management (2013)

From Public administration to Public Management

• The model was driven by the markets and was championed by public choice theorists and institutional economists– Terms like Management literally replaced Administration– Business Administration/Management Graduates were

favored to work in government than graduates of public administration-whose primary area of operation is government

– Certain public policies shifted and became driven by public management approaches as opposed to public administration approaches

– National development plans in most African Countries, where they existed adopted a Business Approach as opposed to a Public Administration approach

– Public sector was fundamentally reduced through reforms like downsizing and retrenchment; although those retrenched in a number of countries, come back to government through the back door

– Public administrators were replaced by public managers

– Government parastatals in most countries were privatized only to come in a different form as executive autonomous agencies

– Central governments were decentralized through a wave of initiatives

– Public service values have been replaced by business values

– Employment terms which used to be permanent and pensionable basis have been replaced by contract –based employment

– An entrepreneurial spirit has been injected in the running of government which has seen some government entities expected to run on business models as business corporations

– Citizens have been replaced with a more business oriented terminology of customers and clients

– Certain management philosophies and styles borrowed from the private sector have entered the public sector-results-oriented management, benchmarking, right sizing, re-tooling etc

– Alternative modes of service delivery emerged including PPPs and contracting out

– Performance management systems have been introduced

– Institutes of Public Administration had to be re-named to at least add the word management

– That explains why MPA has a course Public Management Theories not Public Administration Theories

– Reforms at a political and economic levels to reduce the role of government become a household name-decentralisation, privatisation etc

On PPPs specifically,• Pressure to change the standard model of public

procurement arose initially from concerns about the level of public debt, which grew rapidly during the macroeconomic dislocation of the 1970s and 1980s.

• Governments sought to encourage private investment in infrastructure, initially on the basis of accounting fallacies arising from the fact that public accounts did not distinguish between recurrent and capital expenditures.

• The idea that private provision of infrastructure represented a way of providing infrastructure at no cost to the public has now been generally abandoned; however, interest in alternatives to the standard model of public procurement persisted.

• In particular, it has been argued that models involving an enhanced role for the private sector, with a single private-sector organization taking responsibility for most aspects of service provisions for a given project, could yield an improved allocation of risk, while maintaining public accountability for essential aspects of service provision.

• Initially, most public–private partnerships were negotiated individually, as one-off deals, and much of this activity began in the early 1990s.

• PPPs are organized along a continuum between public and private nodes and needs as they integrate normative, albeit separate and distinct, functions of society—the market and the commons.

• A common challenge for PPPs is allowing for these fluxuations and reinforcing the intended partnership without diminishing either sector.

• Multisectoral, or collaborative, partnering is experienced on a continuum of private to public in varying degrees of implementation according to the need, time restraints, and the issue at hand.

• Even though these partnerships are now common, it is normal for both private and public sectors to be critical of the other’s approach and methods.

• It is at the merger of these sectors that we see how a unified partnership has immediate impact in the development of communities and the provision of public services.

Centralised PPP units?• The World Bank (2007) states that governments

tend to create Centralised PPP Units as a response to weaknesses in the central government’s ability to effectively manage PPP programmes.

• Different governments suffer from different institutional failures in the PPP procurement process, hence these Centralised PPP units need to address these different issues by shaping their functions to suit the individual government needs.

• The function, location (within government) and jurisdiction (i.e. who controls it) of dedicated PPP Units may differ amongst countries, but generally these include:– Policy guidance and advice on the content of national

legislation. Guidance also includes defining which sectors are eligible for PPPs as well as which PPP methods and schemes can be carried out.

– Approving or Rejecting proposed PPP projects i.e. playing a gatekeeper role that can occur at any stage of the process i.e. at the initial planning stage or at the final approval stage.

–Providing technical support to government organisations at the project identification, evaluation, procurement or contract management phase.–Capacity building i.e. training of public sector

officials that are involved in PPP programmes or are interested in the PPP process.–Promote PPPs within the private sector i.e.

PPP market development.

• A 2013 review which targeted research based on the value of centralised PPP Units found-– No quantitative evidence: There is very little

quantitative evidence of the value of centralised PPP coordination units against ministries or government agencies individually procuring PPP projects.

– Limited Authority: The majority of the PPP Units reviewed in the literature do not play a particularly important role in approving or rejecting PPP programmes or projects. Whilst their advice is used in the decision making process by other government bodies, the majority do not actually have any executive power to make such decisions themselves.

– PPP Units differ by country and sector: Government failures, in regards to PPP units, vary by government. The requirements for PPPs also vary by country and sector and so do the risks involved (i.e. financial, social etc.) for the country government. • Hence PPP Units need to be tailored to solve these

failures, properly assess risks and be located in the correct government departments where it can command the most power. • PPP Units can play a number of important roles in the

PPP process, however not all PPP Units will play the same role as their functions have been tailored to individual country needs. In some cases, limits to their authority have curtailed their effectiveness.

– Implicit value: The lack of rigorous evidence does not prove that PPP Units are not an important contributor to the success of a country’s PPP programme. The literature review does show that whilst there is no quantitative data, there are widespread perceptions on the importance of a well-functioning PPP unit for the success of a country’s PPP programme.

Can Procurement professionals then play a key role in their PDUs to guide

the procurement of PPPs

What Role Will Procurement Professionals play?

• Policy guidance and advice on the content of national legislation. Guidance also includes defining which sectors are eligible for PPPs as well as which PPP methods and schemes can be carried out.

• Approving or Rejecting proposed PPP projects i.e. playing a gatekeeper role that can occur at any stage of the process i.e. at the initial planning stage or at the final approval stage.

• Providing technical support to government organisations at the project identification, evaluation, procurement or contract management phase.

• Capacity building i.e. training of public sector officials that are involved in PPP programmes or are interested in the PPP process.

• Promote PPPs within the private sector i.e. PPP market development.

– Set up standardised procurement and contract documents which help ministries to independently develop the majority of PPP transactions, whilst other agencies (such as the South African PPP Unit) provide advice on best practices for PPP procurement.

– In terms of PPP project implementation, most PPP Units take a hands-off approach once the procurement process is finished. A good PPP Unit can positively contribute to a country’s PPP programme, as was the case for the Republic of Korea’s Public and Private Infrastructure Investment Management Center (PIMAC).

• PIMAC and its predecessor agency (the Private Infrastructure Investment Centre) have helped to substantially increase the number of PPI projects in Korea, between 1998 and 2005, the value of PPI investments in the country rose from US$ 500 million to US$ 2.8 billion, whilst the government’s share of investment in infrastructure fell from 95% to 86%. The unit had shown value in its capacity to assist PPP tender preparations, evaluate the feasibility of projects and negotiate contracts (Farruggia et al. 2008).

–Professionals can also carry out PPP Market development activities, which are aimed at improving the climate for PPP transactions that are under an agency’s jurisdiction, most agencies do carry out such a role, but it is those agencies that operate at greater “arm’s length” from the government that play a greater role i.e. Partnership UK.

• PPP market development activities fall under a number of different categories: – Fostering business and policy environments aimed at

enhancing PPP success

– Providing information for potential bidders on PPPs

– Assist the development of PPP markets in other jurisdictions

– Work with service agencies to develop internal knowledge on PPPs

– Collect and disseminate PPP best practices from previous projects

• Professionals can also play a role in the quality control of PPPs. – They can act as a first reviewer of potential PPP

project proposals.

– Quality issues can arise if ministries or ministry line agencies promote PPP projects and do not take into account the full fiscal impacts on the government’s budget.

– South Africa’s Treasury PPP Unit was specifically created to prevent ministries from following PPP projects that would violate national budgetary guidelines.

• Another quality control role that is to verify whether PPP project proposals submitted by the private sector can fulfill the criteria that the PPP was aiming fulfill. Portugal’s Parpublica carries out such technical assessments at the approval phase of a PPP project and provides any technical recommendations, for changes to the proposal, to the country’s ministry of finance

Requirements • If the professionals are to play a key role, they

need to have:

• Attitudinal change

• Change of behavior

• New skills set

• Competence –based professional development

• Constant research

Opportunities are in Vision 2040• Identifies core Projects that need to be started; all

of which require an excellent procurement system

• The vision identifies the following projects:– A Hi-tech ICT city and associated ICT infrastructure– Large irrigation schemes in different parts of the

country– Phosphate industry in Tororo– Iron ore industry in Muko-Kabale– Five regional cities (Gulu, Mbale, Kampala, mbarara

and Arua)

• Five strategic cities (Hoima, Nakasongola, Fort portal, Moroto and Jinja)

• Four International Airports• A standard gauge railway network with high

speed trains• Oil refinery and associated pipeline

infrastructure• Multi-lane paved national road network linking

major towns, cities and other strategic locations

• Globally competitive skills development centres• Nuclear power and hydro-power plants (Ayago,

Isimba, Karuma and Murchison Bay)• Science and Technology parks in each regional

city• International and national referral hospitals in

each regional centers– What about regional universities of science and

technology?

Most of these huge projects will be implemented through PPPs and

Professionals must strategize and prepare if they are to be useful in this

transformation

CONCLUSION • The function of PPP units can change over time,

as a country’s PPP programme changes, its role can shift from an initial focus on policy guidance and regulatory changes to increased focus on ensuring value for money or developing more sophisticated project evaluation methodologies or maintaining political support for the PPP programme (Farrugia et al. 2008).

• Responsibilities for PPP processes can be divided between different units and this is where procurement professionals will be useful.

• When responsibilities are divided between different organisations, it is important to clearly define each unit’s roles and make these roles clear to both private and public partners and professionals must assert themselves.

Specific cases• In India, public-private partnerships have been

extremely successful in developing infrastructure, particularly road assets under the National Highways Authority of India and Midday Meal Scheme with Akshaya Patra Foundation

• In South Africa, significant projects have been completed under PPPs

• In Botswana, successes in PPP implementation have been reported and these examples suggest that if well managed, PPP can be good

THANK YOU