10) Public-Private Partnership - MB Flashcards
define contracting out
a situation in which the public sector places activities in the hands of a private firm and pays for the provision
define competitive tendering
a process by which the public sector calls for private firms to bid for a contract for provision of a good or service
define public- private partnership
an arrangement by which a government service or private business venture is funded and operated through a partnership of government and the private sector
define private finance initiative (PFI,later PF2)
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
how can the private sector be used by the government?
to provide services
what are the services the government can provide (from least to most complex)
- contacting out
- competitive tendering
- public-private partnership
what are PFI (and PF2)?
the UK’s public-private partnerships
when did the PFI projects start?
between 1992 and 2018
how do the public and private sector link together?
- 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
how long do PFI projects usually run for?
usually run for 25 to 30 years
how are the PFI projects funded?
the government pays monthly for the operating if the PFI project over its lifetime
when will all PFI projects end ?
by 2050
what happens to PFI projects at the end of their contract?
will pass into public ownership
why is there public-private partnership?
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
why can PFI projects be delivered at lower costs than by government alone
- 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
what are the advantages of public-private partnership? (2 things)
1) competition lowers costs
2) risk shared by private and public sector
what are the disadvantages of public-private partnership? (2 things)
1) health and safety issues
2) borrowing costs higher in private sector
how does competition lower costs?
a fixed payment incentivises the private sector operators to keep costs low and provides certainty for the government
how is there risk shared by private and public sector?
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
how does public-private partnership cause health and safety issues?
the private sector may be less inclined to prioritise safety or service standards, than the government, to increase profits
what aspects of PFI is always more expensive?
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)
Judgements: Why does public-private partnership compare unfavourably…for large PFI contracts?
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
Judgement: Why does Private Public Partnership compared unfavourably to…PF2?
PF2 has ended, and has not been replaced, suggesting that in reality the drawbacks outweighed the advantages
Judgement: Why does private-public partnership compare favourably to… competition?
Competition in tendering can lower costs, and is unavailable during other methods of provision (potential/hypothetical)
Judgement: Why does private-public partnership compare favourably to… private sector enterprise?
Private sector enterprise could lead to lower costs and improved quality than if organised by government (potential/hypothetical)
Name a few examples of public-private partnerships:
- Future Strategic Tanker Aircraft (FSTA) (£2687.6m)
- Worcester Library and History Centre (£40.3m)
- Herefordshire and Worcestershire Waste Management Service Contact (£175.6m)