EACH YEAR, one of the staples of the Auditor General’s report, apart from the by now – unfortunately – routine complaints about the failure of state agencies to supply mandated information, is the focus of a Special Audit highlighting “infelicities” in Government operations.
For 2015, the spotlight is on the relatively new concept to Barbados of Public-Private Partnership (PPP) projects.
And, the report card does not make for palatable reading, with more than a hint from the top Government watchdog that we may have, perhaps in true Bajan fashion, grasped this nettle without a proper understanding of the rationale for and proper functioning of such partnerships.
This is a mechanism that garnered widespread approbation worldwide, particularly after the 2008-2009 economic crisis but which estimates now suggest has seen the number of such deals falling by more than 40 per cent.
According to the World Bank, a PPP is a long-term contract between a private party and a government entity for providing a public asset or service in which the private party bears significant risks and management responsibility, and remuneration is linked to performance.
“The financial crisis of 2008 onwards brought about renewed interest in PPP in both developed and developing countries,” the bank noted. “Facing constraints on public resources and fiscal space, while recognising the importance of investment in infrastructure to help their economies grow, governments are increasingly turning to the private sector as an alternative additional source of funding to meet the funding gap.”
The research shows that from 1990 to 2009, for example, nearly 1400 PPP deals were signed in the European Union, representing a capital value of approximately 260 billion euros.
Understanding the process
But the Audit Office reports that only a few projects have been undertaken here to date, with the estimated construction costs for nine of them selected for review exceeding $600 million, and total payments by the Government entities will be in the region of $1.6 billion.
“Given the large sums involved and the complexity of the arrangements,” the Audit Office advised, “it is necessary that Government agencies understand the PPP process before entering this procurement arrangement.”
The audit was to assess whether procedures that would impact on the achievement of value for money were utilized in work on the Judicial Centre; Eric J. Holder Municipal Complex; HMBS Pelican; Rehabilitation of Roads using Foam Bitumen Technology; HMP Dodds; Solid Waste Management Facility; Barbados Water Authority HQ; Sanitation Service Authority HQ; and the Leachate Treatment Plant.
Significantly, it found that open or restricted invitations to tender were used in seven, but there was an anomaly in the Eric J. Holder facility in that the accepted bid was received after the tender period closed, while in the other two, contracts were awarded to firms which made unsolicited proposals.
It was inevitable that a cash-strapped Government, looking to lower its debt profile, would seek out alternative sources, but unfortunately, as revealed in the document, since 1996 we have failed to develop a policy framework for the implementation of PPPs, the basic tenets of which have been utilized in the absence of a formal policy.
“It is generally accepted that [Government’s] main objectives for employing PPP arrangements are the sourcing of financing/offsetting initial capital outlay and benefiting from highly specialised technical resources,” the Economic Affairs Division said in a comment in response to the Audit Office’s finding that there was no evidence that policies/guidelines had been developed for executing PPPs or determining their suitability for particular projects.
“Cabinet approval is required and there must be appropriate justification and analysis of the proposal; these papers are submitted to the Finance Division and the [Public Investment Unit] PIU for comment, as required, on a case by case basis.”
In typical Bajan fashion, with copious studies and examples of functioning PPPs around the world, we chose to forego establishing policies or guidelines, since, as the Audit Office says, it is important that the PPP process, be evaluated to determine what has worked well and what has not.
“The results of this evaluation, in addition to other research,” it adds, “could form the basis for a policy on how PPPs should be selected and executed in the future. Government entities tasked with executing projects via this procurement method would be greatly assisted if there were such policies/guidelines”.
In response to the comments from the Economic Division, the Audit Office said: “our review has shown, through the lack of cost comparisons with the traditional method and the lack of evidence of risk analysis in all projects, that there is the need for specific guidelines for PPP projects.”
And in typical Bajan understatement: “A requirement that there be a comparison of costs of the PPP and traditional procurement methods would be good practice.”
Albert Brandford is an independent political correspondent. Email: albertbrandford@nationnews.com
