Page 34 - GS220501

Education

Public-private partnerships :

benefits and challenges

By Michael Leshinsky early completion of projects or by finishing below
Leshinksy Finance LLC budget.
• If a project requires specific expertise, like construct-
public-private partnership, or PPP, is an alli- ing a large-scale dam, there might be few companies
ance between a government agency and a pri- providing the service. This reduces the pool of com-
vate sector company to facilitate development petitors and provides leverage to participating pri-
A of public service projects like parks, public vate entities to set their asking price.
transportation, hospitals, etc. Typically, these are projects
neither party can afford to undertake alone—due to a lack PPP challenges
of expertise and/or resources—and are long-term collabo- PPPs also come with challenges. They involve complex
rations.
relationships without much freedom to make autonomous
PPPs have become increasingly popular in developing decisions, and it's necessary for companies to recognize
and developed countries, as public and private entities where their expertise and resources would be most
effective. Some challenges faced during PPPs are:
realize the benefits of sharing finances, infrastructure,
technology and risk. For payments enterprises interested • While a PPP is symbiotic, most risk tends to be on
in exploring this type of opportunity, there are several the private enterprise, as its remuneration depends
benefits and challenges to consider. on execution and performance. The private entity
must be upfront about how much risk it is willing
PPP benefits to handle and set the price accordingly, otherwise it
risks underperforming.
Following are several benefits private sector companies
can reap through PPPs: • The process of creating partnership bylaws is cum-
• Working on large-scale government projects provides bersome. With involvement of the government, pri-
a major brand-building opportunity for any private vate entity and industry stakeholders, there is sig-
nificant space for disagreements, which can affect a
company. Any service provided by a government is
usually utilized by the majority of the affected popu- project's timeline.
lation. A job well done can build a private company's • Every organization has its own culture, objectives
credibility to new heights and open avenues to sub- and morals by which it operates. These tend to be
sequent projects. quite different between private and public sectors
• Governments move slowly, and they recognize that. and can result in poor cooperation between the two.
A private company can increase a project's opera- It's important to recognize and align the goals of both
parties as much as possible to reduce friction.
tional efficiency, leading to quicker development and
delivery of services. In such cases, a private company • Political instability can create barriers to launching
can highlight its innovative technology and expertise PPPs. In such situations, stakeholders tend to bide
to potential clients, which can help generate business. their time and look out for their agencies' best in-
• It's easier for a PPP to apply for federal grants than for terests, which can lead to postponement of partner-
ships. One such barrier is a poor legal framework,
a wholly private project. In PPPs, the grant applicant
is the government agency, which makes grant alloca- which can discourage PPPs in specific countries or
industries.
tion slightly easier. This becomes an added funding
avenue for projects, which further reduces costs and • Inadequate management of key performance indica-
helps private companies finish projects within bud- tors is one of the biggest reasons PPPs fail. Creating
get. distinct guidelines for a partnership is of no use if
• Government agencies can provide incentives to pri- there isn't proper enforcement of said guidelines.
vate companies that can be exchanged for cash or eq- KPIs need to be defined clearly and in a manner that
uity in projects. Moreover, governments might also is relatively easy to monitor, and regular transparent
give responsibility for operating services to private performance audits must be conducted to ensure the
entities after completion. Thus, private companies project stays on track.
can end up making larger profits during the course Michael Leshinsky is the president of Leshinsky Finance, a boutique
of their partnerships. consulting firm focused on the importance of wise strategic and finan-
• Generally, PPP contracts include extra incentives and cial planning during all phases of the business cycle contemplation to
bonuses, which are paid out on a performance basis maturation and possibly sale of the business. Contact him by email at
to private companies. These could be triggered by info@leshinskyfinanci.com or by phone at 715-529-5661.

34