PPP models vary and are often influenced by the parameters of the project including but not limited to the risk tolerance of the partners (Armistead & Pettigrew 2004:574). Such models are numerous and may be limited only by imagination. This view is closely in agreement with Smith (2004:4) when he contended that “there is no model of a standard public-private partnership. Each one is crafted as a stand alone partnership taking into account the parameters of the project, and more importantly, the risk tolerance of partners.” However, for the purposes of this thesis the following models are considered: - Design, Build, Operate and Finance; Design, Build, Finance and Transfer; Design, Build, Finance, Own and Operate; Concession and Joint Venture. To a large extent the names of, amongst other things, the models are self explanatory but there is a need to analyse the implications of each model in terms of, amongst other things, the commitment of each partner.
3.3.5.1 Design, Build, Operate and Finance (DBOF)
As the name suggests, this is a partnership between the public sector and the private sector organisations for the design, construction, operation, and financing of public facilities or infrastructure. In this partnership, “the private sector contractor is responsible for designing, building, operating and financing the facility and recovers its costs solely out of payments from the public sector, which is dependant on their ability to meet the pre-approved output
specifications as part of the performance mechanism” (http://www.ppp. gov.ie/2004) .
The facility is designed by the private partner on the basis of output specifications determined by the public sector (Grimsey & Lewis 2004:94; Smith 2000:129). The private partner is free to be innovative when designing the facility with a view to ensuring that costs at latter stages of the project are minimized. In particular, maintenance costs may be borne in mind when designing and constructing the facility, the intent being to ensure that such costs will be minimum in order to increase returns on investment. The facility can also be designed in such a way that it will serve various purposes so that it can be optimally used to generate more income. As implied above (see section 3.3.4.2), the private partner in this model needs to possess a wide range of expertise in order to complete the project cycle cost-effectively. For example, each of the functions of design, build, operate and finance could be performed by a different company all of which may be grouped together, as a special purpose vehicle, for the purposes of delivering the project. The operation of the facility may include facility management and other ancillary services (Akintoye, Beck & Hardcastle 2003:15). In this PPP model, the private partner assumes risks that are associated with the major functions of the project cycle such as design, build, operate and finance, which risks are briefly explained in section 3.3.7 below.
The partnership is for a specific period, normally 25 to 40 years (or longer), at the end of which the ownership of the facility transfers to the public sector (Coulson 2005:158). This necessitates the definition of the residual value of the facility to be made at the agreement stage.
3.3.5.2 Design, Build, Finance, and Transfer (DBFT)
This is basically a variation of the aforementioned model. In this case, the title transfers to the government when the construction of a facility is completed. The partnership is therefore limited to the construction of the facility; the
actual operation or the delivery of service through the facility is done by the public organisation. However, the link that remains between the contractor and the public organisation could be the recovery of the cost of construction and the contractor being responsible for the maintenance of the facility for the agreed period of time (Smith 2004:5).
The model does not optimally exploit the expertise of the private sector if the management of the facility is left to the public sector. The private sector is normally perceived to surpass the public sector in management practices and therefore letting a private organisation manage a public facility may allow for innovation and responsiveness to the needs of the service recipients (Blake 2004:15; Smith 2000:128). However, it may be justified for a facility to revert to the government if its operation entails the performance of a core function of government that can not be handled adequately by the private organisation for example, military facilities.
3.3.5.3 Design, Build, Finance, Own, and Operate (DBFOO)
This model differs from the other two models above in that “the private sector retains permanent ownership and operates the facility on contract” (http://www.privatisation.org/4/27/2005). In this partnership, the public sector simply purchases the services from the private partner. In other words this is service procurement and not an asset procurement arrangement because the asset will not, in terms of the contract, be transferred to the public sector. It may also be noted that the ownership of the plot on which the facility is built could be another variable to influence some of these models. However, for this particular model it would appear that the facility is better built on the private contractor’s plot so that when the contract is terminated there will not be any government commitment in the facility. If it happens that the facility is on the public organisation’s plot and the contract is terminated the private contractor may be constrained in using the facility for purposes that are against the wishes of the plot owner unless the agreement covers such use (Scharle 2002:232).
If the service to be provided under this arrangement is vital and required in perpetuity and payment assured by the public sector in the form of subvention then this becomes a fixed revenue steam. Both the market and payment are assured for decades and this could lead to some measure of complacency and lack of innovation and responsiveness to the changing needs of the people. However, this model seems to be more attuned to the construction and operation of discrete facilities such as water treatment plants (Coulson 2005:158).
3.3.5.4 Concession
A concession, in the PPP nexus, is similar to the DBOF model. The main difference is that in a concession, the service provider recoups the costs through direct user charges or a combination of user charging and government subvention (www.ppp.gov/2004). A concession is therefore more appropriate in projects which entail the sale of output directly to the consumers such as telecommunication facilities. The service provider in this arrangement retains the ownership of the facility while providing the requisite service. Under a concession, the service provider can be given the exclusive right to operate a facility and deliver the attendant service during the term of the contract but pays the public sector for that exclusive right. The service provider is normally obligated to invest in the improvement of the facility with the provision to pass the costs to the consumers. In some cases the tariffs charged by the concessionaires need to be regulated by the public sector so that the public is not exploited. It is also possible, in a concession, that the private organisation can take up an existing facility and renovate/improve and operate it in order to deliver the necessary public service and at the same time maintaining and repairing the facility for the duration of the contract. Concession contracts, just like other PPP contracts, have a long duration of up to 30 years or even longer (Akintoye et al 2003:12).
3.3.5.5 Joint venture
A joint venture is more of a PPP than other models discussed above because this model is an arrangement whereby the government and the private sector assume co-responsibility and co-ownership in an organisation. It entails the pooling of their resources and generating shared returns (Akintoye et al 2003:13; Nisar 2007:148). The returns are shared on the basis of the proportion of the investment each partner has made to the joint venture. The organisation in question is generally managed jointly by the government and the private sector but the day-to-day management is often the primary responsibility of the private partner (Trafford & Proctor 2006:117; Becker & Patterson 2005:126).
It would appear that whereas the kernel of PPPs is the transfer of risks from the public sector to the private sector, in a joint venture most of the risks are shared by the organisations from both sectors. A joint venture is a true partnership.
As stated earlier, there is no standard model of PPPs. However, whatever form partnerships take, they have some common attributes, namely “they are based on shared objectives between the parties concerned; they tend to involve an element of shared risk; and they exist to deliver publicly funded programmes or services” (Kelly 2000:132). To some extent, therefore, partners should have, at some point in the partnership, a common focus and, to some extent, a convergence of purpose.
3.3.5.6 PPP model for delivering secondary education
The model preferred, in this thesis, for the provision of secondary education in Botswana is the DBOF model. It is possible for different models to be applied in the provision of secondary education in different circumstances. As it has been noted above (see section 3.3.5.1) there is no standard model of PPPs and
therefore the emerging model for a particular project may be influenced by, among others, the nature and scope of the public service to be delivered.
Since the Government of Botswana will have to specify the expected educational outcomes, the private sector will be expected to use its expertise to design the facility that will optimally deliver such outcomes (Blake 2004:15). The design and construction functions to be undertaken by the private sector will not be a new development since most of the infrastructure in Botswana was designed and constructed by the private sector, albeit under the auspices of the Government (Botswana Government 2003:138). So a PPP model that has some of its features that are familiar to the public is more likely to be acceptable than the one that is completely new. One of the virtues of the model is that it allows the private sector to operate the facility as well as to maintain it. As it will be shown later (see section 5.3.2.1) in this thesis, the Government of Botswana secondary schools are poorly maintained due to lack of capacity to do regular maintenance and therefore PPPs, as a strategic tool to enhance the capacity of the public sector, should handle this task through the preferred model.
The need to enhance the nature and scope of secondary education in the Gaborone City area through PPPs derives from certain inadequacies in its provision and these inadequacies arise mainly because of budgetary constraints that the Government of Botswana often faces (Gaolatlhe 2001:26). As a result, it makes economic sense to let those who have the wherewithal, the private sector in this context, to finance the secondary education infrastructure services which the model advocates.
The demand for secondary education will always be there, at least in the foreseeable future, and therefore schools should not disappear. The DBOF model culminates in the transfer of infrastructure, school buildings in this case, to the government. The model also allows for the facility management to remain in the hands of the private sector whilst the core public service is delivered by the public sector. This means that once the ownership of the
facility transfers to the government on the expiry of the contract, facility management can still be left to the private sector and facilitated through the tendering process. Another advantage of the model in building and refurbishing schools is the incentive for the private sector to design and build in an innovative way in order to keep operating costs low (Lissauer 2000:144; Grimsey & Lewis 2004:98)
Schools should be maintained particularly those developed under the auspices of the public sector. If schools that have been developed under PPPs remain the property of the private sector, there is no assurance that the infrastructure will continue to be used as schools. Since education is one of the fundamental human rights (Osler 2003:37), it should not be left to whims and fancies of the private markets but rather, it should always be guided by public policy. The significance of this model in the provision of secondary education is that it ensures the continued availability of secondary school places for the posterity.