Welcome to the toolbox

Even a well prepared public-private partnership needs a tune-up from time to time. So what does the public service manager need in a P3 toolbox to get the arrangement humming again?

John Davis, president of Ottawa-based Partnering and Procurement Inc., has identified several tools that can be useful not only in repairing a troubled relationship but in keeping it from going awry in the first place. Those tools, Davis says, establish a “comfort zone” within which both sides can benefit from a partnership. If you cannot build a comfort zone in a partnership, then drop the idea.

Before delving into the toolbox, Davis points out that the public sector has to realize that private companies come to partnerships with a sophisticated risk management system in place. That means they know what they are getting into and what they expect to get out of a partnership with the public sector.

“They have the systems in place to determine if they wish to participate in the first place,” Davis explains. That means the public sector must prepare itself in a similar manner. “It cannot be completely different from the private sector.”

With that as backdrop, the first item out of the Davis toolbox is agreement among the partners on a common measuring device for what they are doing.

“You have to be able to measure the results from your partnership, and you both have to recognize and accept what the results mean,” Davis says.

Measuring is important to the private partner because, Davis says, it determines the payment it will receive. “You have to understand how the private sector gets a return on its investment.” This understanding is important because some companies will take on a bad deal and then push for renegotiation. “This isn’t good for the public sector.”

A companion tool is a calculator that enables the private partner to determine how its financial return is determined. It can come from the public partner, from the users of the service or through a third party investment. The key, Davis says, is to make sure the money can be fully recovered by the partner. “You need to identify and quantify the cash flow to the partner.”

The next item in the Davis toolbox is a lens that allows the partners to fully understand the complexity of the deal they are considering.

“In a complex deal, you have to see how it all goes together, how all the parts fit together.” The deal may consist of several initiatives; to make the project work, these components have to be divided into manageable chunks that can amount to separate businesses with set end dates and results. A special looking glass is required to enable the partners to envisage the future of their deal.

“If it is fuzzy, then you have got a problem,” Davis says. “Also – make sure the images in the glass aren’t lopsided.”

The glass should also reveal whether the partners have the management skills to handle the deal over the long term and whether the outcomes “will play to the strengths of both parties.”

Of course these tools cannot repair major problems that should have been dealt with at the beginning, Davis notes. That’s why there’s also a requirement for specialized check sheets, flow charts and decision trees that can help public sector managers work through all the factors involved in building a successful partnership.

Davis also says it’s crucial to gain a clear understanding of how to manage a complex deal in stages, so there’s momentum behind it from the start. The public sector shouldn’t build in complications that aren’t crucial to a successful outcome.

When the public sector wants to establish a major deal with the private sector, a limited number of major companies can be expected to bid on the project. In those instances, Davis suggests, the public sector should look at how other countries have structured similar arrangements in terms of governance and reporting requirements.

Whatever the nature of the arrangement, Davis says the public sector has to ensure that it has the budget to pay for what it wants. A partnership that flops will destroy whatever trust has been built up with the private sector. So take advantage of the aid and experience that is available before looking for a private partner.

Alex Binkley is an Ottawa-based freelance journalist.