Form a Public Sector Comparator (PSC) - Essay Example

To make comparisons on whether private sector bids for the required services or products will offer value for money to the public sector, it is often an obvious practice to form a public sector comparator (PSC). The PSC is responsible for estimating costs of ensuring an equivalent service within the public sector and is used in evaluating the price offered to the public sector by the private sector. Infrastructure development such as the provision of public utilities is an important issue when considering economic development of countries. One way of involving the private sector is through public-private partnership (PPP), meaning the combination of forces of government and one or more companies that provide their services.

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With the increased emphasis on the need to cut government costs, it has become increasingly essential for public sectors to obtain new and more cost effective ways of ensuring the provision of services and still continue with the required projects. Normally, when the public sector calculates the entire cost of a particular project they forget about some important costs, which include benefits for employees, total administrative costs, and utilities. Consequently, when these costs are omitted, when making a comparison of private sector provisions and public sector provisions, the public sector often look cheap compared to the private sector, which can be as a result of an incomplete calculation of the costs.

A public sector comparator provides calculations of the total costs and risks in case the public sector provides a specific product or service with the help of a particular project. The public cost comparator can, therefore, be used in comparing the public sector and provisions of the private sectors. In case private sector provision is found to be more cost-effective, then the public sectors can choose to engage in a public-private partnership, which shares costs, benefits, risks and costs of the project with the private sector. However, there are various decision factors that need to be understood before calculation of public cost comparator, which includes, the costs, risks, and rate of discounts. The rates of discounts take into consideration the fact that high as well as low-risk factors are in question including their return on investments.

Typically, the rate of discount will reduce for public sector compared to the private sector since they have the ready public utility in place. Involved risks have to be limited to those that increase the total costs project costs. It is essential to engage every potential project. It is also essential to take note of the fact that there are risks that are shared by the partner, while at the same time retaining others through individual partnership. Public cost compotator components are such as the raw public cost comparator, transferred risks, competitive neutrality and retained risks. Through including all the mentioned components, the public sector will be in a position to calculate the entire cost of a particular project and will in return be more efficient in their fund use.

The Context

There is an increasing investment demand to make improvements on the quality of public services. Governments worldwide and associated public sectors expect significant challenges as public resources are usually insufficient to meet the demands for increasingly new public utility projects in order to sustain and facilitate economic growth. Due to this, there has been an intense discourse on the roles of private as well as public services. Various developed countries such as the United Kingdom, United States, Europe, Canada, Australia, and New Zealand among other developing as well as middle-income countries from Latin America, Asia and the Caribbean, Middle East, Eastern Europe and Africa have acknowledged the significance of private sector in delivering traditional public services.

This is due to various reasons. First, there are essential constraints within public sector investments that affect the quality, quantity and public utility renewal of stocks required for stocks necessary in making improvements in the public delivery of services and enhancing development economically. Second, evidence of poor performances in delivery and execution of traditional public projects have been identified including over-design, risk management, and inadequacy in projects, which results in time overrun and costs. The outcomes are high maintenance and operational costs related to poor design and build quality.

The traditional procurement approach of providing funds for public sector projects additionally result in a massive backlog of maintenance which leads to deterioration of the performance of public utility assets. In traditional procurement, the issues involved is exacerbated by a culture of separating responsibilities form design on capital investment often differentiated through operating expenses essentially for effective maintenance and operations of public assets. Third, an increased political awareness is currently in place of the need to make changes through shifting the emphasis in public service delivery to results of a performance-based approach.

It is, however, recognized widely that an effective public-private partnership policy and strategic framework is necessary where public sector can identify particular development needs and accompany private sectors in addressing them using their technology, innovative skill, finance, knowledge, technology and necessary technical skills. Accordingly, the creation of public sector comparator is a way of quantifying the costs risks in case the government retains a project. Acting in place of a comparison bid, a public cost comparator can be used in making decisions for public organizations when choosing if or not to partner with private companies to ensure the provision of public utility.

While public sector comparator has been used for many years, they are a relatively new concept in some countries. This study acts as a guide and a resource for public sector agencies to use in undertaking public sector comparator. In acting as a guide for public agencies conducting a public cost comparator, it provides resources and offers background information of public sector comparator and the importance as well as necessary steps for executing a successful public sector comparator.

CHAPTER 2:

PUBLIC-PRIVATE PARTNERSHIPS (PPPs)

Introduction

Public-private partnerships (PPPs) have increasingly become popular ways of procuring public services and public utility all over the world. This is mostly because Public-private partnerships allow governments to provide security for the necessary public utility without raising immediate taxes of or having to borrow. Currently, most governments consider Public-private partnerships as a win-win procedure for meeting their needs for investment. These views are particularly based on different underlying principles.

For one, it is usually considered that Public-private partnerships ensure budgetary rooms without discrimination on the sustainability of the financial positions of the government. Secondly, a presumption exists that facial spaces formed through Public-private partnerships boost medium-term development hence generating fiscal revenue in future. Thirdly, normally it is assumed that Public-private partnerships participate in minimizing the risk exposures of government through transferring the risks to private sectors, which can manage to bear management risks. Finally, there is an exception that the engagement of private sector in the financing of a public utility as well as services will increase transparency and accountability, minimize corruption and contribute to the creation of incentives for the prudent and management of public expenses.

Even though it is theoretically assumed that public-private partnerships will bring profits to their host governments, evidence shows that practical implementation of public-private partnerships is not without technical, managerial and even fiscal issues. The issues stem partly from the complex problems inherent in various public-private partnerships projects and the associated increased demand for skills among public-private partnerships members. These issues have effects not only on public sectors clients for which intense collaboration with private sector parties usually are a novelty, but additionally, private sector parties for public-private partnerships have always shown unique and unfamiliar challenges. This research contributes to debates and understanding of public-private partnerships (PPP).

Key Drivers of PPP

Even though the concept of public-private partnerships have existed for many years in the United States, UK, and even Europe as well as other parts of the world, there are various reasons for the importance of re-emergence of projects that involve public-private partnerships. First, there is a central efficiency as well as an economic argument which focuses on the value for money and making improvements on public services in areas of transportation, health, education and different other major sectors.

There are limitations to the level of public expenditure present for public utility investment as a result of the constraints in public sector borrowing requirements as an outcome of Treasury and EU regulations. It was additionally a fundamental notion that the macroeconomic situations necessitated the rigid controls over public spending to restrain inflation and fulfill the conditions necessary to be part of the European Monetary Union.

A major driver, therefore, revolves around facilitating public utility investment without having to impose heavy burdens of public expenditure through the utilization of private funding. There is additionally a relate discussion that the private sector has the ability to achieve even greater efficiency as well as value for money in service delivery as a result of innovation to minimize whole life costs, management of risks and competition levels. The discussion of the off-balance sheet has additionally been cited as a key factor.

In addition, there are the technical as well as environmental arguments that relate to traditional procurement process of ensuring the delivery of public assets. The design fragmentation, formation as well as operations formed a culture of emphasizing too much on minimization of capital costs at the expense of the entire life performance because of public sector activities that separate capital expenses from recurring expenses.

It is often argued that public finance can additionally provide valuable platforms to make improvements on the sustainability of buildings due to its service-focused and whole life approach. Also, it can result in the production of a more efficient design solution as well as a functional public utility that minimizes the costs of operation associated with energy use and maintenance.

There is also a political motivation to improve urgently on the levels of public services which include reducing waiting lists within hospitals, handling crime cases with the help of urban regression and housing and making improvements on school condition as well as transportation systems. Results of votes are influenced strongly by the visibility of infrastructure projects and the public service levels.

The initial expenses requirements are considerably low under public finance. In this case, therefore, public utility projects that involve housing, schools, hospitals, and roads are not in positions to provide the fund with only traditional procurements. The public sector would be able to take care of one or more projects with a lot of impact on the public services which would otherwise have waited l...