Memo to the President: Getting Public-Private Partnership Right

The label “public-private partnership” has been slapped on everything from contracts to collect solid waste to compacts to end global poverty. To say anything coherent about partnership requires imposing a little discipline on the definition: A public-private partnership features the enlistment of private entities (whether for-profit or non-profit) in the pursuit of public missions on terms of shared discretion. Neither party is fully in control, and neither just does the other’s bidding. Partnership differs from both classic contracting (in which government has—or should have—full control) and from philanthropy (where private parties go their own way.)

There’s nothing new about partnership. Throughout history, many collective activities have been carried out by private players controlled incompletely, or not at all, by government. Partnership’s share of the public agenda ebbs and flows, but it’s on the rise these days. That can be good news.

This is so even though not all missions call for partnership. Some public functions (imposing taxes, negotiating treaties) are best done by government on its own. Other functions (such as paving a road, transporting students, or arming the military) can benefit from private involvement but by means of discretion-free contracting; there is little to gain and much to lose by ceding control to the private sector. Still other public goals can be left to corporations or charities with little governmental involvement at all. But there is a large domain where private discretion is both productive and can harnessed to public purposes. That’s where partnership can pay off.

Public-private partnership can offer big advantages over both direct governmental action and conventional contracting. Private partners with the freedom to deploy their special expertise and knowledge can be more productive—sometimes dramatically so—than contractors grinding away on set specifications. The prospect of a share in control can sometimes motivate private actors to share in the costs of an endeavor, as with the National Park Service’s highly successful partnership program. Yet partnership also carries grave risks. Its characteristic hazards stem from the defining feature of shared discretion. Private parties can use their freedom of action to efficiently create public value. Or they can abuse it to shift payoffs from the public to themselves or impose their own preferences. Both happen.

There are a wealth of examples to illustrate that sometimes partnership makes sense and sometimes it doesn’t. Here are just two from the federal domain.

Rocky Flats Nuclear Cleanup: After several failed attempts to use conventional contracting to remediate nuclear contamination at the shuttered Rocky Flats weapons facility, the Energy Department tried a different tack. Instead of tight specifications, it set broad goals for the massive cleanup effort and allowed Kaiser-Hill, its private partner, broad discretion over how to achieve them. The work was completed decades ahead of schedule and half a billion dollars under budget.

Student Loans: Since 1965, Washington has sought to encourage higher education by providing tuition loans on better terms than students can get from the market. The initial delivery model was classic partnership: Rather than lending itself, the government offered powerful incentives—subsidizing interest rates and assuming default risk—for private banks to lend. By the 1990s, thousands of banks were lending billions of dollars. But the program’s lax rules made it easy for banks to rack up big profits without delivering much value. A small direct lending program cost less than one-fifth as much, per dollar lent, as the partnership with the banks. Legislation in the wake of the financial crisis drove a shift toward the “direct” channel—which, ironically, is not operated by federal workers at all but by private contractors. Partnership is just one way of involving the private sector.

A state-level policy arena simultaneously illustrates both the light and dark side of partnership: charter schools. These publicly funded, privately managed institutions feature the shared discretion that defines partnership. Charters have far more flexibility than conventional public schools—but are far more answerable to government than private schools.

A raucous debate has long raged over charter-school performance. There are respectable studies finding that charters underperform conventional public schools and others showing a performance edge. The one sure thing is that the average difference between charters and regular schools, whichever way it cuts, is pretty small. But the key word here is “average.” Some charters do much better than the public-school benchmark. Others do a lot worse. The best charter schools use their discretion to forge efficiencies, develop curricular innovation and customize pedagogy to serve particular populations. The worst abuse their discretion to enrich managers or owners while short-changing students, or pursue cultural agendas incompatible with public funding. And the quality of charter governance drives the difference.

As the good news-bad news charter story shows, successful partnership usually hinges on smart public management. Management always matters, of course, but it really matters for this high-potential but hazardous approach. Here are some guidelines for making partnership work for the people:

• Recognize the differences among voluntarism, contracting and partnership, and remember that (as with student loans) how to engage private players can be more important than how much.

• Approach partnership as one governance option among many, and shun ideological biases either for or against.

• Appreciate that orchestrating a partnership involves different managerial approaches than controlling a contract.

• Analyze the capabilities and motives of partners to predict where discretion can safely be shared.

• Accept that it is rarely possible to gain all of the benefits of shared discretion with none of the risks. Partnership—like contracting, voluntarism or direct public action—is seldom perfect.

• Celebrate the intrinsic value of widening the circle of people involved in governance. The process of partnership can have benefits independent of the product.

• But be wary of partnership ideas heavily pushed by the private side. Sometimes these are great opportunities for the public. But often they’re not. It’s no surprise that private players will be most enthusiastic about deals where accountability won’t cramp their style.         

This article is part of a series of Memos to the President, highlighting advice from leading academics and practitioners in public administration for the incoming president and his team. The series was developed by the National Academy of Public Administration, the American Society of Public Administration and George Mason University’s Schar School of Policy and Government. Click here for more information and links to the full set of memos.

Image: Flickr user Jayne K