Interview: Douglas Sutherland

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There’s two sorts of risks that you’ve got to be aware of.
The first one is that you’re going to crowd out other spending priorities, and the second one associated with that is that you may be choosing public-private partnerships for the wrong reasons.
In the long run they may be a more expensive option that traditional forms of procurement.
The second sort of risks that arises is through fiscal shocks.
If you have a contract structure which is ill defined, you as the government may be faced in picking up the pieces of a failed contract and and this can lead to very large increase in public debt if you’re not careful.
So the ways to try and address these sorts of problems, the fiscal risks associated with public private partnerships, is to be involved in all the stages of the contracting, from the very initial decisions of why you should be using a public-private partnership, making sure that you have the appropriate and robust decision-making to select the appropriate projects and the appropriate financing needs. 
And then follow the project through to make sure that as the project is ongoing that there’s no slippage and risks emerging so that you can react quickly to emerging problems.
The key message there is the decision-making process, that you really have to concentrate on this.
Public-private partnerships are typically an expensive option in comparison with traditional procurement and that is necessary.
You need to invest heavily up front to make sure you’re doing the right thing but over the life of the program it will reap returns if you make that initial investment.
More specifically for the budget, you need to make sure that all the costs are as transparent as possible.
There are lots of accounting difficulties associated with bringing a project which is typically multi-annual, or can last up to 30, 40 years in some cases, with an annual budget process.
So the importance here is to make sure you have supplementary documents to the budget to say that these projects are being approved and spelling out the fiscal implications in the short term, medium term and the long term so that you can see transparently what the real costs associated with these projects are, and whether it will make your budget sustainable or unsustainable in the longer term.
That’s a very important framework for putting in place to guard against the associated fiscal risks.
A supplementary issue has to do with the risks of renegotiation.
The contracts are very expensive to set up in the first place and often once the public sector has engaged in the project, the private partner may come back and say the conditions have changed and we want to renegotiate the terms of the agreement.
Again, this is a risk the government should recognize exists so when it’s looking at the longer term fiscal consequences you can already start say that we know there is a risk of renegotiation which will change the terms of the project — have various scenarios to show what would happen given the different sorts of risks whether they materialize or not. 
I think finally, also, on that subject, the final thing is to recognize that there are going to be problems for renegotiation so build them into the beginning of your contract.
Try to specify the terms that you will allow renegotiation to occur so that it can only be on certain defined topics that you and the private sector both agree in advance. And that will help the government manage some of these sorts of risk associated with PPPs.