This presentation by Elisabetta Iossa was made during a session on Competition in Public-Private Partnerships held at the 57th meeting of the Working Party 2 of the Competition Committee on 16 June 2014. Find out more at http://www.oecd.org/daf/competition/competition-public-private-partnerships.htm

1. Competition Issues in Public-Private
Partnerships
Elisabetta Iossa
University of Rome “Tor Vergata”,
Center of Research in Procurement and Supply Chain, Proxenter
CEIS, CMPO, CEPR, and IEFE-Bocconi.
Elisabetta.iossa@uniroma2.it
www.proxenter.it
OECD Hearing on PPPs, 16 June 2014, Paris.

2. 2
1. Bundling of project phases (BOT, DBFO..)
2. Private finance
3. Long term contract (typically 25-30 years)
4. Higher risk transfer to private sector
(construction; demand/availability risks; etc.)
PPP MAIN CHARACTERISTICS

3. TYPES OF PPP PROJECTS
• Financially free standing (concession-type)_
- users fees
(highways, roads, bridges)
• Public sector as client (PFI-type)
- shadow prices; availability & performance fees
(Schools, Hospitals, Prisons)
• (Joint ventures companies)

4. Sectors
Water All phases of water treatment and distribution
Waste water and sewerage
Trasport
Environment
Leisure centres
Museums
Others
Roads– Motorways– Bridges and Tunnels – Aereoports–
Ports– Interports – Local public transports
Reciclying
Swimming pools, sport centres etc..
Congress centre- renovation public buildings– Libraries
Hospitals– Prisons– Schools– Public Building, Mililtary
accomodation– Parking

5. RATIONALE FOR PPP
(i) Private sector more
efficient?
Megginson Netter
(2001): not always
No; risk premium(ii) Private finance
cheaper?
(iii) Build infrastructures
Off balance?
No accounting tricks:
Eurostat (2004,08)

6. SO WHY PPP?
..this can
potentially yield
better and cheaper
infrastructures
Thus, inducing contractor
to take into account how
its investment/choices at
design and building stage
will impact on operational
costs/demand
Because bundling of
design, building,
finance and
management in a long
term contract..
..creates a single point of
responsibility, which
makes risk transfer more
effective on incentives.

7. One
facet
of
PPP:
efficiency
gains
(UK
NAO
03;
07;
HMT
06)
COMPLETION
TIME:
76%
PPP
on
(me
30%
non-­‐PPP
RISK
TRANSFER:
22%
PPP
price
renego(a(on
73%
non-­‐PPP
MANAGEMENT
STAGE
(survey,
PUK,
06)
96%
of
PS
sample
were
“sa(sfied”
or
“more
than
sa(sfied”
66
%:
“good”
o
“very
good.

8.
The
other
facet
of
PPP:
compeNNon
issues
•
The
same
factors
that
provide
the
ra(onale
for
PPP
may
cause
compe((on
concerns
•
ISSUE
1,
2.
LIMITED
COMPETITION-­‐
SMEs
PARTICIPATION
•
Bundling
of
project
phases,
risk
transfer
and
long
term
contrac(ng,
make
PPP
contracts
rather
complex
•
high
bidding
costs
(sunk
costs)
5%
of
project
value
•
long
tendering
periods:
: 34 months average;
• Limited
par(cipa(on
(especially
of
SMEs)
•
High
risk
of
collusion

9. PARTICIPATION
IN
PPP
TENDERS:
which
quesNons
• Which
and
How
many
firms
in
the
PPP
tender?
• New
entrants?
• SMEs?
• foreign
firms?
• Is
there
an
incumbent
advantage?

10. ISSUE 3. MARKET FORECLOSURE: UNDUE
BUNDLING AND LONG TERM CONTRACTING
• Bundling + long term contracting creates a long-term
monopoly condition
• 20 years long contracts, 30 years…and more!
• Of core service (clinical services, transport services)
• Difficult to justify it for ancillary services (restoration,
parking services)

11. MARKET
FORECLOSURE:
UNDUE
BUNDLING
AND
CONTRACT
DURATION
• Are
both
core
and
ancillary
services
included
in
the
contract?
• Could
some
services
be
unbundle
without
creaNng
efficiency
losses?
• Is
the
contract
duraNon
appropriate?

12. ISSUE 4. (UN)FAIR ADVANTAGE IN
UNSOLICITED PROPOSALS PROCEDURES
• Unsolicited proposals are not requested by a government
but instead originate within the private sector.
• In a number of countries, national laws encourage the
private sector to come forward with potentially beneficial
project concepts. Common systems are the “bonus
system,” the “Swiss challenge system,” and the “best and
final offer system.”
• Trade-off incentives competition/transparency

13. THE
ADVANTAGE
OF
ORIGINAL
PROPONENT
• How
to
deal
with
unsolicited
proposals?
• In
countries
where
the
original
proponent
has
an
advantage,
do
we
observe
adequate
parNcipaNon
to
second
period
tenders?
• And
how
o_en
does
the
original
proponent
obtain
the
contract?

14. LEGAL
UNCERTAINTY
• Is
there
a
harmonized
PPP
legislaNon?
• What
is
the
extent
of
cross-­‐boarder
parNcipaNon?
•
Are
there
naNonal
champion
advantages?
ISSUE 5 HIDDEN BARRIERS FROM LEGAL
UNCERTAINTY
Lack of harmonization causes legal uncertainty that may
prevent cross boarder participation

15. ISSUE 6. MISALLOCATION OF CONTRACTS
DUE TO MISALLOCATION OF RISKS
• Inefficient risk allocation in practice (Iossa, Spagnolo and
Vellez, 2014). Governments unable to commit
• Undue Renegotiation (Guasch, 2004; Bajari, Houghton
and Tadelis, 2013)
• Excessive use of Revenue guarantees
MISUSE
OF
CONTRACTS
• Are
contracts
accessible
to
the
general
public?
• Are
there
standardized
contracts?

16. Empirical evidence
• In UK, output specifications changed during contract negotiations
for 33% Central Government Departments PFI projects in 2004 –
2006
• NAO (2003): 55% of contracts changed after being signed
• Changes for £4m per project; 17% project value (NAO, 2007)
• PPP unsuitable for fast-moving sectors (IT services, HMT 08)
• LAC sample 1,000 concessions 1985-2000, Guasch (2004): 30 %
renegotiated 26 % by PS

17. Conclusions
• Identify Red flags and collect data
• Look at contract design and implementation in
practice: the tricks are there. Use standardized
contracts.
• Collect and allow access to data: get universities to
analyse them.
• Share information /experience across countries