Some PPPs work

Private companies are frequently hired to design and build public facilities such as water and sewage systems, and hospitals and schools.  These arrangements works best when a single company is hired to perform a single function - such as an architect being hired to design a building, and a construction company being hired to build it.

(It is a bit more problematic if a huge company wins all of the contracts associated with a project, because local builders are often not big enough to compete and then the local economy suffers.)

Some don’t

Big troubles arise when a private company is contracted to design, build AND operate a public facility.  This is an important distinction.

These private operating contracts are multi-decade deals that are like liquid gold to corporations, because they represent a long-term, guaranteed cash flow (generated by user fees and other agreements with government). 

In fact, these 30 or 40 year deals are so valuable that they can be sold or refinanced at a considerable profit - profit that ends up in the hands of shareholders, not taxpayers.

After countless hours of research, I have failed to identify one single project where the operational component was privatized that served the public interest.  Across the board, these kinds of public-private-partnership (PPP) projects represent a big win for the private sector, and a huge and long-term loss for the general public.

The reason why these partnerships don’t work is dead simple.  Whenever the profit motive is introduced into an equation, other parts of the equation suffer.   Private companies are motivated to make money, and the main way that a company in the ‘business’ of providing public services (a purposefully not-very-profitable sector) can meet its profit objective is to cut costs and corners. 

Another way that private companies make money on PPP deals is by inflating costs at the front-end, by building in profit cushions and risk transfer fees*.  This doesn’t always happen though. Sometimes private companies low-ball their construction bid in order to secure the operations contract.  The construction bid acts as their ‘loss-leader’ because the long-term operating contract is the real money maker.

Funnily enough, virtually all of the arguments that have been used for decades to justify PPPs have been completely debunked.  The only pro-PPP argument left - and the only one used by Partnership BC - is that the private sector can simply do things more efficiently.  Unfortunately for advocates of PPPs, this argument simply does not hold water**. 

*  This notion of risk transfer is a complete myth.  On paper the private sector may assume risk, but in reality companies find way to transfer all risk back to the government. If they can’t pass the risk along, they often walk away from the project - leaving the community paying a heavy price to pick up the pieces.

** A 2006 Government of Canada discussion paper on PPPs found that “There is no empirical evidence of the relative efficiency of the private sector.”