A solution for cash-strapped EU governments

As Internal Market Commissioner Charlie McCreevy prepares to sort out the rules governing public-private partnerships (PPPs). Michael Burnett, public procurement expert and senior lecturer at the European Institute of Public Administration (EIPA), tells EUI why it is so important to develop PPPs in Europe.

INFRA. What are public-private partnerships?
MB. Public-private partnerships are simply a complex form of public procurement, so the simplest thing is to just stick with the fact that whenever someone says ‘PPP’ they’re talking about the same family as public procurement.

INFRA. Why is public procurement important for Europe?
MB. There are three reasons why public procurement matters at EU level. Firstly, you can’t complete the internal market without public procurement, because about one fifth of EU spending is public procurement subject to the directives.

Secondly, there’s a big gap between what should be advertised Europe-wide and what is actually advertised – only about one sixth of what should be advertised Europe-wide is advertised. Now there are reasons why some of these contracts may not have to be advertised, for example when they are low value, but that doesn’t concern 84 percent of them, that’s for sure! So, public procurement is important for the internal market and yet it isn’t being enforced.

Thirdly, a Commission report in 2004 basically showed that, when you use the directives and you implement them correctly, you save a third of the price. Of course that’s a bit crude – it depends on the quality – but the political point was that, if only a part of the savings were replicated across the public sector, every country in the eurozone would meet the Maastricht deficit criteria. So this is politically important.

INFRA. What developments are currently taking place in the EU in the field of public procurement?
MB. There are two important things happening at the moment. Firstly, the Commission has put forward some proposals for remedies directives. These are the directives that govern what happens if someone participates in a process and doesn't like the outcome and wants to complain.

We’re about five months through an estimated 18-month legislative process, which has proven to be quite heated, as could have been predicted. I don’t think they’ll find agreement in 18 months, because the main public-procurement directives, which were finally agreed in 2004 and had to be implemented at the beginning of this year, took four years to conclude, and remedies are every bit as contentious as that.

The second thing is that, in April, the Parliament’s internal market and consumer-protection committee held hearings on the workings of the public-procurement directives a couple of years after they have been passed. It is now in the process of drawing up a report based on those hearings.

INFRA. Why is the development of PPP necessary for the EU in terms of reaching its targets to increase investment in research and foster entrepreneurship and innovation as well as to boost regional cohesion?
MB. Again this is all about European policies – the costs needed to complete some of the projects are huge – the trans-European networks for transport: €600 billion before 2020, the water framework directive: €300 billion. Now, the old member states haven’t got that sort of money – let alone the new ones, and it’s not going to come from structural funds. So, that means huge private sector investment is needed.

With PPPs there’s massive private sector investment going in to deliver European public services, because there’s no other way to deliver them. It’s basically a budgetary pressure. But the good thing is that PPPs can help save money and implement innovative solutions because they are done in a different way.

INFRA. Which countries are already leading in terms of PPP activities?
MB. Overwhelmingly, the UK is the market leader. They have more than 700 signed public-private partnership deals, and that’s a significant proportion of the value Europe-wide.

Other countries that are quite active are Italy, Spain and Portugal – they have quite significant programmes. France is also becoming more active, and Ireland, although it’s quite a small country, is being very active. There are some other countries that are removing legal barriers to PPP, such as Germany, which could become quite a significant country in terms of PPP.

INFRA. What does need to be done to encourage the development of PPPs across Europe?
MB. Well, there’s no evidence of shortage of funds for PPPs across Europe. The private sector is interested, there’s lots of money looking around for investment opportunities. The issue is not actually the private sector’s willingness to invest – I mean if you launch a PPP, you’ll be very likely to get some interest because the profit margins are so much bigger. The real issue is whether the public sector is managing the process to get value for money.

So what is really needed is four things: award procedures for public contracts and concessions need to be standardised; service concessions should be brought within the scope of the Directives; there needs to be a European PPP agency to manage major PPPs at a European level, because the private sector providers in many sectors are consolidated – there’s four in the prison sector, six in the environmental services sector – so you need an agency to manage the 'big-ticket' contracts, to ensure that there is enough competition, and; there needs to be much more prescription in the Remedies Directive, because at the moment, it’s difficult to get a remedy in another member state. I would actually favour a Remedies Regulation – not a Directive – but of course that’s not very likely politically.