Public private partnerships drive innovation

Public private partnerships drive innovation

The most innovative construction techniques and materials might appear to cost more upfront, but their quality can bring greater value over the whole life of an asset thanks to lower maintenance costs and less disruption to users. Public private partnerships are among the best ways to drive this innovation.

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By Andy Garbutt, KPMG in the US

A lack of investment in infrastructure creates a huge drag on a city’s economy. The most innovative construction techniques and materials might appear to cost more upfront, but their quality can bring greater value over the whole life of an asset thanks to lower maintenance costs and less disruption to users. Public private partnerships are among the best ways to drive this innovation.

Most cities around the world have a lot of crumbling infrastructure, while those experiencing population growth require new public assets. This all translates to huge costs to economies from congestion, pollution and loss of productivity. The US is facing a $4.8 trillion loss to GDP due to underinvestment in transport and energy networks1 and is dropping down global competitiveness tables as a result.2

Despite a steady global recovery, public money is still in short supply when it comes to funding major projects. City leaders need to fund the investment and get the taxpayers to start paying the economic price for infrastructure – which is a challenge in itself. Public private partnerships mean that it is at least possible to solve the first part of the equation.

I strongly believe that bringing the best partners in to deliver infrastructure can also create energy efficiency and lower costs over the whole lifetime of an asset. The traditional procurement model invites decision-making based on upfront costs. Shifting to a model that calculates the entire costs and then spreads them over the lifetime of an asset is a great way to drive sustainability, because it allows for much more innovation in the delivery of infrastructure projects.

However, there can be resistance to collaborating with private companies to design, build, finance, maintain and in some cases operate new assets because of the fear of a loss of control. There is no right or wrong answer about whether a city needs to own its assets. However, a sense of ‘selling off the family silver’ can stall progress if the terms of the partnership require handing over the development and management of what have been municipal assets.

I think the answer to worries about control is education and transparency about the reasons for the partnership. The public need to know why politicians are looking to sell or monetize their municipal assets – is it to help plug a pension deficit or generate money to invest in new infrastructure? Australia leads the world in the recycling of assets, where existing infrastructure generates income and the proceeds are recycled into the creation of new or repair of existing infrastructure.

Additionally, if it is clear that a partnership will likely bring innovation and technological advantage, as well as long-term value for money, then it should be more palatable to the public taxpayers of a city.

All the evidence shows that public private partnerships are more effective than traditional models at delivering infrastructure assets on time and on budget, because any penalties for failure transfer to the private company. Recent examples in the US are the LBJ Express and North Tarrant Express toll roads in Texas where the private partner completed these two complex projects, months ahead of schedule and on budget.

Similarly, Infrastructure Ontario’s 2015 Track Record Report that found 44 out of the 45 public private partnership projects reviewed between 2013 and 2015 were completed within budget – powerful evidence of a model that is working and delivering real benefits of infrastructure investment3.

Certainly, city leaders need to be careful before entering a public private partnership arrangement for the first time. They need to be clear about what they are looking to achieve in upgrading their infrastructure, and in which sectors. Additionally, they need to look carefully at the strength and track record of the private sector partner that will be alongside them, potentially for many years. 

Cities should take inspiration from the many success stories, both in the US and globally. With the financial investing community, particularly pension funds, increasingly open to investing over the long-term in infrastructure assets, the opportunities are there to build for the future.

 

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