10) Public-Private Partnership - MB

Question 1

define contracting out

Answer 1

a situation in which the public sector places activities in the hands of a private firm and pays for the provision

Question 2

define competitive tendering

Answer 2

a process by which the public sector calls for private firms to bid for a contract for provision of a good or service

Question 3

define public- private partnership

Answer 3

an arrangement by which a government service or private business venture is funded and operated through a partnership of government and the private sector

Question 4

define private finance initiative (PFI,later PF2)

Answer 4

a funding arrangement by which the private sector designs,builds,finances, and operates an asset and associated services for the public sector in return for an annual payment linked to its performance in delivering the service

Question 5

how can the private sector be used by the government?

Answer 5

to provide services

Question 6

what are the services the government can provide (from least to most complex)

Answer 6

• contacting out
• competitive tendering
• public-private partnership

Question 7

what are PFI (and PF2)?

Answer 7

the UK’s public-private partnerships

Question 8

when did the PFI projects start?

Answer 8

between 1992 and 2018

Question 9

how do the public and private sector link together?

Answer 9

• the public sector specifies service needed and invites bids from the private sector to design, build, finance and operate it
• risk is shared between the private and public sector

Question 10

how long do PFI projects usually run for?

Answer 10

usually run for 25 to 30 years

Question 11

how are the PFI projects funded?

Answer 11

the government pays monthly for the operating if the PFI project over its lifetime

Question 12

when will all PFI projects end ?

Answer 12

by 2050

Question 13

what happens to PFI projects at the end of their contract?

Answer 13

will pass into public ownership

Question 14

why is there public-private partnership?

Answer 14

the government may not have the expertise to run a design,build or operate a service, or the expertise available in the private sector may be better

Question 15

why can PFI projects be delivered at lower costs than by government alone

Answer 15

• due to the lack on profit as an incentive, there is less pressure in the public sector to keep costs low.
• together this means that the competitive tendering of PFI projects, and risk shared between public and private sectors means that such projects could be delivered at lower costs than by the government alone

Question 16

what are the advantages of public-private partnership? (2 things)

Answer 16

1) competition lowers costs
2) risk shared by private and public sector

Question 17

what are the disadvantages of public-private partnership? (2 things)

Answer 17

1) health and safety issues
2) borrowing costs higher in private sector

Question 18

how does competition lower costs?

Answer 18

a fixed payment incentivises the private sector operators to keep costs low and provides certainty for the government

Question 19

how is there risk shared by private and public sector?

Answer 19

failure of a project to operate leads to losses by the private sector as well as inconvenience for the public sector, so incentives are aligned

Question 20

how does public-private partnership cause health and safety issues?

Answer 20

the private sector may be less inclined to prioritise safety or service standards, than the government, to increase profits

Question 21

what aspects of PFI is always more expensive?

Answer 21

borrowing costs are higher in the private sector, as the safest borrower, the government can always borrow at lower cost than the private sector (so this aspect of PFI is always more expensive)

Question 22

Judgements: Why does public-private partnership compare unfavourably…for large PFI contracts?

Answer 22

For large PFI contracts, few firms could deal with the complexity, so that was little competition, and therefore benefit, during the process. And once Carillion collapsed in 2018, there were even fewer firms available

Question 23

Judgement: Why does Private Public Partnership compared unfavourably to…PF2?

Answer 23

PF2 has ended, and has not been replaced, suggesting that in reality the drawbacks outweighed the advantages

Question 24

Judgement: Why does private-public partnership compare favourably to… competition?

Answer 24

Competition in tendering can lower costs, and is unavailable during other methods of provision (potential/hypothetical)

Question 25

Judgement: Why does private-public partnership compare favourably to… private sector enterprise?

Answer 25

Private sector enterprise could lead to lower costs and improved quality than if organised by government (potential/hypothetical)

Question 26

Name a few examples of public-private partnerships:

Answer 26

• Future Strategic Tanker Aircraft (FSTA) (£2687.6m)
• Worcester Library and History Centre (£40.3m)
• Herefordshire and Worcestershire Waste Management Service Contact (£175.6m)