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Strategic governance for modeling institutional framework of public–private partnerships
Cities xxx (2014) xxx–xxx
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Strategic governance for modeling institutional framework of public–private partnerships Jui-Sheng Chou a,⇑, H. Ping Tserng b, Chieh Lin c, Wen-Haw Huang b a
Department of Civil and Construction Engineering, National Taiwan University of Science and Technology, Taipei 106, Taiwan Department of Civil Engineering, National Taiwan University, Taipei 106, Taiwan c Department of Technology, Public Construction Commission, Executive Yuan, Taiwan b
a r t i c l e
i n f o
Article history: Received 26 December 2013 Received in revised form 8 July 2014 Accepted 21 July 2014 Available online xxxx Keywords: Public–private partnership (PPP) Public service and infrastructure Global financial crisis (GFC) Institutional framework (IF) Stakeholder management Knowledge sharing practice
a b s t r a c t After the global financial crisis (GFC) in 2008, government agencies were eager to attract private capital to develop large-scale infrastructures and stimulate national economies. This study investigated the major role public–private partnerships (PPPs) played in stimulus plans and the challenges faced when promoting PPPs in response to the 2008 GFC. In Taiwan, practices for PPP institutional frameworks (IFs) have been established to improve the current strategy that policy makers can follow. This paper proposes specific tools and measures as well as a novel strategic governance model comprising 4 stages in a closed-loop process that is based on experiences in Taiwan and constructed to facilitate stakeholder management. The model can be used to identify key stakeholders and their needs, address key stakeholders’ needs, and evaluate the performance of proposed solutions. The findings of this study can be used by governments that intend to enhance IFs and systematically attract private investment in infrastructure projects; economic downsizing and other adverse consequences of GFCs can thus be avoided. In addition, those who intend to participate in PPP projects in Taiwan can benefit from understanding the PPP strategy introduced in this paper. Ó 2014 Elsevier Ltd. All rights reserved.
Introduction Governments play an essential role in national economic development by managing macroeconomic affairs. However, excessive or deficient demand caused by economic overheating or recession may adversely affect human welfare (Sloman & Sutcliffe, 2004). During recessions similar to the 2008 global financial crisis (GFC), the fiscal policy for investing capital in public works is often applied worldwide to increase jobs. Recently, adopting public–private partnerships (PPP) to counterbalance economy-related problems caused by budgetary deficit and efficiency-related problems attributable to value for money (Chan, Lam, Chan, Cheung, & Ke, 2009; Ke, Wang, Chan, & Lam, 2010) has become a global trend in financing public works (Aldrete, Bujanda, & Valdez, 2012; Anastasopoulos, Islam, Volovski, Powell, & Labi, 2011; Stainback & Donahue, 2005; Tserng, Russell, Hsu, & Lin, 2012). PPPs are crucial to financing infrastructure projects (Yuan, Skibniewski, Li, & Jin, 2010; Yuan, Skibniewski, Li, & Zheng, 2010). For example, the average annual
⇑ Corresponding author. E-mail address: [email protected] (J.-S. Chou).
PPP construction accounts for approximately 10% of the total infrastructure investments in the United Kingdom, Australia, Korea, and Taiwan (Tserng et al., 2012). KPMG (2007) investigated PPPs in the United Kingdom, Australia, and Singapore, and noted that the adoption of PPPs might increase in Southeast Asia and China. However, not all implemented PPP projects are effective. For example, the Bangkok Second Stage Expressway System project and the Bangkok Don Muang toll way in Thailand (Tam, 1999) failed because of unmanageable risks, such as distrust between public and private parties, disagreement regarding toll increments, and policy changes. Numerous PPP projects in Southeast Asia were unfruitful during the 1997 finance crisis (ESCAP., 2012); PPP practice in Southeast Asia accounted for only 40% of the infrastructure investment in the private sector because of inadequate preinvestment research, a lack of feasibility studies and competitive tendering, inaccurate estimates of demand, and inadequate project completion. Because of the importance of PPPs, enhancing the PPP institutional framework (IF) by establishing appropriate capacities, institutional settings, and regulatory frameworks can facilitate using the PPP model and enhancing post crisis benefits. A PPP IF is the structure of a PPP agency or unit. Farrugia, Reynolds, and Orr
http://dx.doi.org/10.1016/j.cities.2014.07.003 0264-2751/Ó 2014 Elsevier Ltd. All rights reserved.
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(2008) explained that a PPP agency is an organization (within or connected to the government) that provides services related exclusively to PPPs and other governmental bodies, including municipalities, counties, line ministries, federal agencies, departments, special districts, and port authorities (Farrugia et al., 2008). Problem statement Strategies or measures adopted by governments to facilitate PPPs are recorded in official reports; however, the formulation process of these strategies and measures has seldom been addressed. Because the policy-making process is poorly documented, information that can enable governments to avoid knowledge management mistakes is not shared among policy makers worldwide. Surveys regarding PPP promotion strategies employed by governments have suggested that policy makers must consider country or state differences when considering how to create an IF that will promote PPP projects (Dutz, Harris, Dhingra, & Shugart, 2006; Farrugia et al., 2008; Tserng et al., 2012; World Bank, 2007). However, no standard practices or governance designs currently exist, except for those tailored to the structures, practices, and objectives of individual governments. Therefore, developing appropriate strategies is a major challenge for new governments because few studies have documented the methodologies used by governments to plan strategic frameworks and effective measures. The 2008 GFC motivated governments to engage in PPPs and enhance existing PPP promotional strategies. However, the credit market crash caused conflict among PPP activities (Izaguirre, 2009; Kappeler & Nemoz, 2010). Two recent studies (Carrillo, Robinson, Foale, Anumba, & Bouchlaghem, 2008; Chan, Lam, Chan, Cheung, & Ke, 2010b) reported that difficulties in obtaining financial partners, which were exacerbated by the 2008 GFC, hinder PPP formation. In addition, the recession severely affected expected revenue; for example, in Spain, traffic levels declined much faster than did the gross domestic product, causing toll highway concessionaires to become bankrupt (Vassallo, Ortega, & de los Ángeles Baeza, 2012). Although policy makers frequently provide for PPPs in stimulus plans to minimize the national budget deficit, they must create an appealing PPP IF to attract private investment in times of economic distress. Thus, knowledge management can be applied at the policy-making level within governments. Governance practices that improve the processes used to formulate PPP IFs should be integrated and disseminated systematically. The percentage of PPP-related publications in construction journals increased from 2.94% in 1998 to 5.18% in 2008 (Ke, Wang, Chan, & Cheung, 2009), indicating a worldwide PPP trend. However, most studies have focused on individual project-level issues, such as risk management, contractual arrangements, procurement, and financial packages (Ke et al., 2009; Ke et al., 2010; Tang, Shen, & Cheng, 2010) For instance, the fuzzy simulation model proposed by Thomas Ng, Xie, Skitmore, and Cheung (2007) can be used to determine an appropriate concession period. Sharma, Cui, Chen, and Lindly (2010) presented a structured approach to determine the equity level required for an effective PPP project. A step-bystep method based on the concept of contingent liabilities and option pricing techniques was proposed by Aldrete et al. (2012) to evaluate public sector revenue risk exposure in transportation PPP projects. Chou, Ping Tserng, Lin, and Yeh (2012) analyzed the critical success factors for high-speed rail PPP projects and the level of risk allocation preferred by the public and private sectors in the Taiwanese context. Hwang, Zhao, and Gay (2013) examined critical success factors, critical risk factors, and preferred risk allocation for PPP projects in Singapore (Hwang et al., 2013). In addition, several scholars have explored the critical success and failure factors of PPP projects by conducting case studies or
questionnaire surveys (Abdul-Aziz & Abdul-Rashid, 2006; Chan, Lam, Chan, Cheung, & Ke, 2010a; Gibbons, Mattei, & McGuigan, 2010; Hwang et al., 2013; Mahalingam, 2010; Zhang, 2005). However, analyses of governmental measures designed to reinvigorate PPPs from an IF level in response to the 2008 GFC or similar challenges are rare and typically focus only on project-level evaluation (Burger, Tyson, Karpowicz, & Coelho, 2009; Mahalingam, 2010; Zhao, Zuo, Zillante, & Wang, 2010). A meta-analysis indicated that few systematic analyses of PPP-IF-related public policy concerns have been conducted and that lessons learned have not been compiled; analysis results must be integrated into a strategic framework that can be used by PPP-project stakeholders, particularly during a GFC. Therefore, the current study provided information overlooked by previous studies that can serve as a reference for policy makers. Research objective, method, and value The objective of this study was to develop generic and systematic PPP policy guidelines that policy makers can use to establish and continually improve a PPP IF. During implementation, policy makers can formulate unique PPP-enabling strategies and measures when a GFC arises, tailoring them to the specific context systematically rather than intuitively. The ongoing enhancement of the PPP IF in Taiwan is illustrative for the following reasons. First, the techniques, tools, and processes used by the Taiwanese government to propose measures to reinvigorate PPPs, even those used after the 2008 GFC, are publicly available and well documented (Public Construction Commission [PCC], 2009a, 2009b, 2010a, 2010b, 2011b). Second, the PPP IF has been enhanced because of the strong rebound from the GFC that Taiwan achieved by implementing PPPs. The total value of PPP projects in 2010 was New Taiwan Dollar (NTD) 224.1 billion (PCC, 2010a), a historical high that represents a solid recovery from the low of NTD 16.3 billion during the 2008 GFC. In this study, we first comprehensively reviewed public documents and press releases issued by the Taiwanese government regarding the PPP IF and then conducted face-to-face interviews with the government executives and staff responsible for promoting PPP projects to the public and private sectors. In addition, reviews of international PPP practices were analyzed. Because policy makers must consider country or state differences when drafting strategies or measures that facilitate PPPs, the formulation process adopted by countries that have efficiently implemented PPP strategies and measures are more valuable to governments than the promotion strategies or measures. For governments experienced in PPP participation, the formulation process is valuable because these governments are under pressure to continually improve the PPP IF when contending with adverse economic situations. Research scope and limitation This study focused on the formulation processes used to establish user-friendly PPP IF guidelines. The PPP IF comprises formal and informal rules, policies, regulations, organizations, public awareness, and the socioeconomic context. Effective government institutions can manage and assess risks, establish a solid reputation as a safe business partner, and reduce political and regulatory risk for private partners (Burger et al., 2009). For example, empirical findings (Chan, Yeung, Yu, Wang, & Ke, 2011; Xu et al., 2010) have indicated that a major risk factor for PPP projects in China is government intervention. Lack of governmental support has drawn criticism by contractors in Singapore (Hwang et al., 2013). An improved PPP IF can mitigate such risks. To promote the systematic use of PPPs, many countries (states) have established centralized organizations, national PPP units
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(Tserng et al., 2012), that are responsible for forming and improving the PPP IF. A review (Dutz et al., 2006) of international practices indicated that most PPP units provide governmental departments with information regarding PPPs, guidance for implementation, and advisory support and funding. In addition, some units function as managers, approving PPP projects proposed by line agencies. Research has suggested that the characteristics of PPP implementation vary markedly worldwide; thus, PPP IF development differs. Details on the formulation processes adopted by the Taiwanese government may differ substantially from those adopted by other governments. In summary, constructing a single testable theory that addresses all forms of PPP IF development in different countries is impossible. However, general guidelines can be formulated to establish a conceptual framework and identify basic elements that can be used by governments to continually improve the PPP IF. These guidelines can accommodate most elements underlying PPP IF formulation processes. The remainder of this paper is divided into four sections. First, Section ‘Public–private partnership strategy and global financial crisis’ presents a comprehensive literature survey of PPP developments, the impact of the 2008 GFC on PPPs, and the remedial actions taken by certain countries. Section ‘Case study’ describes the systematically improved PPP IF in Taiwan. This innovative approach is analyzed and stakeholder management is evaluated. In addition, implications for Taiwanese public officials are discussed. Lastly, Section ‘Conclusion’ discusses conclusions and directions for future research. Public–private partnership strategy and global financial crisis Public–private partnerships during a global financial crisis Sanchez-Robles (1998) validated the empirical relationships between infrastructure and economic growth. During the 2008 GFC, numerous governments worldwide implemented infrastructure projects to promote economic growth, creating jobs through infrastructure investment. In addition, industrial reports have suggested that governments have increased the number of PPP projects. An estimated US$40 trillion will be required to address global infrastructure requirements during the next 25 years (Daltorio, 2010). Because of the high costs and the vast quantity of infrastructure that must be built, private sector participation is imperative, particularly in financing (Mahalingam, 2010). PPPs provide new capital sources for public infrastructure construction and repair. Although PPPs were a worldwide practice before the 2008 GFC (Farrugia et al., 2008; Kappeler & Nemoz, 2010; Ke et al., 2009; Stainback & Donahue, 2005; Tang et al., 2010), the adoption of PPPs increased because governments had limited financial reserves after the crisis. Global infrastructure investment data (Table 1) has
indicated that India prioritized infrastructure investment in its Plan XI (2007–2012) and encourages private participation. The projected infrastructure investment in Plan X (2002–2007) was US$227 billion, which increased to US$514 billion in Plan XI; the projected increase in total private investment ranged from 25% (US$56 billion) in Plan X to 36% (US$186 billion) in Plan XI (Roy, 2010). Impact of the 2008 global financial crisis on public–private partnership activities The 2008 GFC generated substantial challenges for financial transactions among all asset classes and sectors engaged in PPP activities (The Canadian Council for Public–Private Partnerships, 2009). Table 2 summarizes the effects described in the literature that the 2008 GFC exerted on PPP activities. The availability of credit from banks or governments decreased substantially after the crisis, and governments experienced difficulty in attracting lenders and sponsors for public services under PPP contracts because of reductions in revenue (Burger et al., 2009). Because economic and financial viability is crucial to investment, reduced cash flows limited private sector participation in PPPs; global PPP activities either slowed or ceased. The value of European Union PPP transactions, €15.8 billion in 2009, decreased by nearly 50% compared with that in 2007 (Kappeler & Nemoz, 2010). Because private investors are highly sensitive to economic uncertainties, during the crisis, increases in financing costs slowed private sector investment in PPP projects. Remedial actions Because PPP activities declined during the 2008 GFC, governments attempted to improve the PPP IF to reinvigorate PPP activities by creating more effective legal frameworks, supporting individual PPP projects, disseminating the benefits of effective projects, announcing policy endorsements, and reforming the structure of organizations promoting PPPs. Table 3, which specifies general goals for a government to develop remedial actions, lists the factors identified in relevant literature that facilitate efficient PPP during a stable economic period and during a GFC. Although the action effectiveness is beyond the scope of this study, readers can refer to the research cited in Table 3 for a comprehensive analysis. Case study Taiwan public–private partnership history and practice In Taiwan, formal institutions are codified in law before implementation. In 2000, the ‘‘Act for the Promotion of Private Participation in Infrastructure Projects’’ (Act for PPP) was implemented,
Table 1 Studies indicating the major role of PPP in infrastructure development. Country (region)
The role of PPPs in infrastructure projects
Source
Canada
The government expects the $1.2 billion PPP Canada Fund to directly leverage $5 billion in PPP infrastructure investment in Canada PPP schemes will facilitate economic recovery efforts and are therefore promotable at the national and international levels PPPs account for 36% (US$186 billion) of infrastructure projects in 2007–2012 PPP investment doubled to ¥10 trillion between 2010 and 2020 PPPs accounted for €17 billion of railway and road projects during 2010–2011 PPPs account for one third (NTD 3.99 trillion) of infrastructure built between 2008 and 2015 Approximately £200 billion worth of investment is planned during 2011–2015 and will be distributed among economic infrastructure sectors (energy, transport, waste, flood, science, water, and telecoms); the majority of this investment will be provided by the private sector California enacted comprehensive PPP-enabling legislation in 2009
Podkul (2010/11)
European Union India Japan Spain Taiwan United Kingdom
United States
EN (2009) Roy (2010) Cabinet-Office (2010) Alves (2010) PCC (2009a) HM-Treasury (2011)
Gibbons et al. (2010)
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Table 2 Studies of the effects that the 2008 GFC exerted on PPP activities.
a
Source
Burger et al. (2009)
PPP Council (2009)a
Higher cost of financing Project delays and cancellation Decrease in the availability of credit Reduction of revenue cash flows Increase in material cost Failure to attract sufficient lenders and sponsors Decline in value of deals Reduced loan maturities period
X
X
X X X
Kappeler and Nemoz (2010)
Izaguirre (2009)
EN (2009)
X
X X
X X
X X
X
X
X X
X X
PPP Council: The Canadian Council for public–private partnerships.
Table 3 Factors critical to the success of government measures to promote PPP. Source
Zhang (2005)
Mahalingam (2010)
PPP-enabling legislation Sharing of interest rate risk Financial support Coordination of authority Strong governmental support Stable macroeconomic environment Transparent procurement process Sharing of responsibility Stable political and social environments Minimum revenue guarantee Step-in right
X
X
X X
X X
Burger et al. (2009)
Chan et al. (2010a)
Gibbons et al. (2010) X
X X
X X X
X X X X X
X X
X
becoming the foundation of Taiwan’s PPP IF. The Act for PPP, which influences PPP development in Taiwan and guides PPP implementation by relevant parties (Zheng & Tiong, 2010), allowed private organizations to invest in 13 public infrastructure sectors, such as environmental pollution prevention facilities; sewerage, water supply and water conservancy facilities; transportation facilities, sanitation and medical facilities; and social and labor welfare facilities. In the past 10 years, 886 contracts with a total investment of NTD 729.1 billion were signed under the Act for PPP (PCC, 2012). Of these projects, more than 50% remain in operation. On average, PPP projects comprise 15% of the annual infrastructure investment in Taiwan, an increase which is comparable to that in countries that have successful PPP programs (World Bank, 2007); for example, 10–15% of public services in the United Kingdom were provided through PPPs during the same period. The total benefits derived from these contracted projects are expected to save more than NTD 690 billion in government expenditures on labor, operations, and maintenance; to increase government revenues (i.e., taxes, rents, and royalties) by more than NTD 380 billion; and create more than 110,000 jobs during the contractual periods. Thus, the benefits and added value created by PPPs encourage governments to expand applications, particularly during a GFC. Determining public and private project characteristics based on performance can enable project participants to produce more efficient outcomes, ultimately leveraging mutual acceptance of research, innovation, and methods to advance the design construction, procurement, and project delivery of each party (Hwang, Liao, & Leonard, 2011). Moreover, project delivery can be measured according to satisfaction rates. In Taiwan, service quality is typically evaluated by the end users, whose satisfaction rate was 81% (PCC, 2010a). However, during the past decade, various PPP projects have encountered contractual disputes; the dispute rate (number of project disputes/number of total projects) was 16% during 2002–2009 according to the statistical report released by the Taiwan Public Construction Commission (PCC., 2011a). As many as 84% of PPP project disputes are settled through mediation
X
or negotiation within 1–9 months, whereas arbitration or litigation costs more time and money (Chou & Lin, 2013). However, unlike the U.K. government (HM-Treasury, 2012), the Taiwanese government does not have an effective benchmark for construction performance, such as time percentage or budget percentage. The formulation process used to improve public–private partnership institutional frameworks In Taiwan, the number and value of signed PPP projects declined sharply and reached a minimum in 2008 because of the GFC, and new PPP projects did not attract funding from the private sector; firms in the private sector sought to renegotiate the PPP terms for continuing projects in which contracts were already signed. A PPP procurement strategy is necessary in Taiwan; it is not merely a temporary response to budgetary constraints. The National PPP Taskforce in Taiwan (Taskforce), a unit of the Public Construction Commission of the Executive Yuan, was required to determine how PPP activities were affected by the 2008 GFC. In addition, the Taskforce was responsible for revitalizing PPP activities and promoting PPP; its organizational structure was formally restructured (i.e., Preparatory Department of PPP) by 2009. Tserng et al. (2012) detailed the evolving role of the Taskforce. Fig. 1 illustrates the major milestones of the PPP IF reinvigoration process. The government published a white paper on PPP strategy in January 2009 (PCC, 2009b), demonstrating commitment to promoting PPPs and to rebuilding investor confidence. In February 2009, a systematic study of institutional and regulatory PPP IF design deficiencies was published (PCC, 2010a). In Stage 1, systematic literature reviews and expert interviews were conducted to design two questionnaires. The first questionnaire was designed to collect data from agency employees on the institutional weakness of PPP regulation and guidance mechanisms. The second questionnaire was designed to collect data from private companies on the institutional weaknesses of PPP incentive mechanisms.
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Fig. 1. Major milestones when forming the taskforce to reinvigorate PPPs.
In Stage 2, the questionnaire surveys were administered over the Internet. The census survey was used to assess the performance of agencies and private companies currently participating in PPP projects. Responses were collected anonymously over the Internet. The overall return rate was 77.47%, and the reliability of both surveys exceeded 95%. In Stage 3, the questionnaire survey and in-depth interview results were quantitatively analyzed. Accordingly, the Taskforce published the ‘‘Promotion Strategy for PPP’’ in April 2010 (PCC, 2010b), proposing a service platform and related reinvigoration measures to improve the identified institutional weaknesses in the PPP IF. Fig. 2 schematically depicts the stakeholder management approach and the corresponding measures. First, stakeholders were divided into two general groups: the public sector and the private sector. The stakeholders’ concerns regarding promoting or participating in PPP projects were recorded and ranked. In response to their concerns, the Taskforce established a service center for both sectors. Corresponding measures were implemented to enhance the three main functions of the center (guidance and assistance, reputation building, public relations) to counteract the inertia exhibited by certain stakeholders. For example, the top two concerns expressed by agencies implementing PPP projects were ‘‘lack of experience’’ (20.2%) and ‘‘poor professional skills’’ (19.8%). To respond to these shortcomings, the Taskforce provided additional support services related to guidance and assistance; otherwise, officials would have been incapable of planning PPP projects and reluctant to implement projects. The measures taken by the Taskforce included providing an
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on-site consultation service, announcing a PPP standard operation procedure and item checklist, and creating software that calculates financial expenditures. Similarly, other institutional weaknesses identified by the agencies were considered. According to the investor perspective, ‘‘improper risk allocation’’ (27.2%) was the top concern limiting willingness to invest in PPP projects. To construct a solid reputation in response to this criticism, contracts were amended to improve risk allocation. Similarly, various measures were taken to address additional concerns. The role of the Taskforce during difficult economic periods, such as the 2008 GFC, has evolved from regulator to leader of PPP activities in which the government engages. Technical support has changed from passive supervision to an on-site service that directly facilitates project progress, and policy promotion has transformed into a process in which potential investors and project stakeholders are directly accessed through conferences and face-to-face interviews. To evaluate the performance of reinvigoration strategies and corresponding measures after one year of implementation, a second survey, identical to the survey administered following the three stages of the Taskforce process, was administered at the end of 2010. Based on the survey results, the Taskforce adjusted PPP promotion measures. For example, the overall satisfaction rate of the Taskforce personnel regarding the guidance and assistance function in 2010 was 81.9% (PCC, 2011b), and satisfaction toward the on-site consultation service, established to facilitate guidance and assistance, was 88.4%. Because of this positive feedback, the Taskforce expanded the scope of the on-site consultation service provided by local governments and central governmental agencies in 2011 (PCC, 2012). Frontline staff benefited from this advisory service. Furthermore, the Taskforce extended advisory assistance from the pre-contract phase to the post contract phase. A contract performance management system and operations performance evaluation mechanism was applied by the agencies to ensure that private investors could deliver public services that satisfy schedule and quality requirements. In addition, national personnel training, standard PPP operating procedures, and document preparation were included in the Taskforce efforts to improve planning and implementation quality. Moreover, longstanding concerns from stakeholders were gathered from the second survey. For example, two new measures were adopted to expand PPP business opportunities after widespread industry feedback was received. First, new sources of private funds, including insurance funds and foreign capital, were invested in PPP projects, injecting capital into the PPP market. The Taiwanese government relaxed restrictions on investments from mainland China in Taiwanese public construction. On the basis that national security would not be adversely affected, seven infrastructure sectors, including sewerage, transportation, and tourism, were opened to mainland China investment on March 3, 2011 (PCC, 2012). Second, private participation was considered in additional sectors to increase PPP business opportunities. A total of 180 governmentled PPP urban renewal projects were planned. The feasibility of PPPs developed to improve flood control facilities, de-idle national property (land), and establish nursing facilities for the elderly was also considered. Recently, in accordance with advice from potential investors, a private investment business opportunity platform was erected to inform agencies and investors about future opportunities and available services. By compiling and selecting suitable PPP projects, the Taskforce promptly transfers investment information to potential registered investors (PCC, 2012); thus, the Taskforce functions as a proactive intermediary between potential investors and agencies. In addition, the Taskforce has expanded the functions of its website, enabling potential investors to identify tender advertisements, standard model contracts, related regulations, and acts.
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Fig. 2. Taskforce guidelines to address PPP-related needs among stakeholders during the 2008 GFC.
Guidelines for continually improving the public–private partnership institutional framework Fig. 3 illustrates the procedure used in Taiwan to enhance the PPP IF and lists specific tolls and measures performed at each of the four stages of the closed-loop process: identifying key stakeholders, identifying stakeholder needs, addressing stakeholder needs, and evaluating the performance of proposed solutions. Three senior officials in the Taiwan PPP Taskforce assessed whether the guidelines accurately reflected the underlying principles and basic elements of the PPP IF. Each official had more than 10 years of experience in developing Taiwan’s PPP IF and interacting with international government officials responsible for developing PPP IFs for their jurisdictions. The first version of the guidelines was presented to the officials to gather their opinions. All officials agreed that the proposed guidelines characterized and described the PPP IF approach, particularly because stakeholder engagement was at the core. A major suggestion, which was addressed in the revised version, was to listen to feedback from stakeholders to facilitate continual improvement.
Another official suggested that a GFC or other financial crisis should be regarded as an opportunity to promote PPP activities. Although Taiwan PPP activities in 2008 were negatively impacted by the GFC, the severe financial environment motivated the thorough governmental review of the PPP IF and subsequent actions that may not have occurred in a healthy economic environment. The measures adopted in Taiwan, including providing guidance and assistance, branding plans, and improving public relations, were intended to improve the IF for PPPs, and should be applied when necessary. These generalized guidelines provide steps that public officials can apply systematically in their regions. For each step, major implications from experiences in Taiwan and the literature are discussed. (1) Identify key stakeholders This step was applied in Taiwan at the project, legal, and policy levels to create an effective IF for promoting PPP activities. Stakeholder management is essential to minimizing stakeholder
Fig. 3. Suggested strategic governance guidelines for stakeholder management to improve the PPP IF.
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opposition, which can lead to failure of publicly or privately funded infrastructure projects. An increasing number of studies (El-Gohary, Osman, & El-Diraby, 2006; Jing, Geoffrey Qiping, Manfong, Drew, & Chan, 2009; Olander, 2007; PMI., 2004; Yuan, Skibniewski, Li, & Jin, 2010; Yuan, Skibniewski, Li, & Zheng, 2010) has identified factors critical to effective stakeholder management in construction projects. For example, stakeholders in the PPP context have been divided into four role-based groups: the public sector, the private sector, the public, and PPP research group (Yuan, Skibniewski, Li, & Jin, 2010; Yuan, Skibniewski, Li, & Zheng, 2010). Taiwan defined stakeholders as public officials with PPP experience and project managers working for PPP promoters. Benefits accrued by focusing on only two stakeholder groups when contending with a GFC include easing of tight budgets, swift administration of questionnaires, and prompt IF reform; in other words, vital stakeholders’ acceptance of IF reform is a major concern because of time limitations. Key stakeholders can be identified according to their power and likelihood of supporting or opposing a strategy (Johnson & Scholes, 2002). However, the efficacy of strategies implemented to improve institutional weaknesses in promoting PPPs should be evaluated cautiously because the approach employed in Taiwan may not address the needs of all stakeholders. Various counties may apply a broader definition of key stakeholders during the continual improvement phase. For example, the concerns of major domestic and foreign companies that have not participated in PPPs and suggestions from researchers should be welcomed. (2) Identify stakeholder needs Numerous barriers continue to hamper PPP development. Inertia exhibited by certain stakeholders is the main cause of slow PPP adoption. To persuade hesitant stakeholders that predicted PPP benefits are attainable, their needs must be identified at the beginning of PPP development. The Taskforce contracted a research institution to design the questionnaire, administer the survey, and analyze the data obtained. In addition to evaluation by the promotion agency, evaluation of the existing framework by a subjective and credible third party is desirable because (a) respondents can express concerns honestly without fear of negative repercussions and (b) unresolved institutional deficiencies within the promotion agency can be identified. (3) Address stakeholder needs The concerns identified in the previous step can be broadly categorized as policy- or project-level concerns affecting various phases of a PPP project. Conflicts among the needs of stakeholders should be identified to ensure that all needs are addressed systematically. Policy makers must analyze associations between stakeholder needs and the policy objectives before prioritizing needs. In Taiwan, a private company suggested that the Taskforce establish an institutional mechanism to compensate stakeholders for the increased construction costs of PPP projects after material prices inflated in 2007. However, this mechanism was assigned a low priority because the relationship between inflated material prices and the 2008 GFC was weak and the agency objected. Although private companies were unhappy with this decision, PPP use rebounded strongly after the GFC (PCC, 2010a). By enabling transparent policy making, the proposed guidelines can facilitate solving conflicts among stakeholders, whose input should be addressed appropriately and promptly. All stakeholders should be informed about the guideline process and encouraged to offer suggestions for improvements, which can enable representative results to be obtained for use in the next step.
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(4) Evaluate performance The government must periodically evaluate its performance in promoting PPPs. The feedback loop must be complete to ensure effective stakeholder management. Moreover, because of the complex and long-term nature of PPP activities during periods of rapid social and economic change, the PPP IF must be periodically reviewed. Government policy makers should identify trends, simplify procedures, and improve efficiency, enhancing competitiveness in the global PPP market. In addition, quantitative indexes can be used in institutional decision making. For example, the Taiwanese government evaluated the satisfaction indexes of key stakeholders, using the results and the monetary value of PPP activities as key performance indexes. Generally, document management is crucial at every stage of stakeholder management, enabling continual improvement through sharing of accumulated knowledge; the policy making process is traceable, amendable, and duplicable. Winning public support for PPP policies is essential. In Canada in 2010 (PPP Council, 2010), a public survey was administered to address public concerns, and the results indicated that two thirds of Canadians supported the use of PPP to enhance infrastructures and public services.
Conclusion This study revealed that PPPs have become a common governmental strategy for providing public services, even during the 2008 GFC. Several countries have increasingly incorporated PPPs in infrastructure investment plans to minimize deficits and stimulate the economy. This paper summarizes the effect of the 2008 GFC on PPP activities and the remedial actions taken by governments. Because improving existing PPP IFs is critical, this paper proposes practical guidelines to be followed during the policy formulation process by policy makers worldwide. In addition, the continual enhancement of the PPP IF in Taiwan after the negative effect the 2008 GFC exerted on PPP activities was analyzed. Effective stakeholder management requires identifying key stakeholders and their needs, and then adequately addressing these needs. A feedback loop must be established by evaluating the performance of reinvigoration strategies and measures to develop subsequent strategies and measures. The proposed guideline framework, which was reviewed and approved by local experts, enables continual improvement through accumulation of experience and knowledge. The findings of this study serve as a reference for governments that intend to enhance IF systematically to attract private investment in infrastructure projects. Investors who intend to participate in PPP projects in Taiwan can benefit from understanding the PPP strategy introduced in this paper. Although the proposed guidelines are general to maximize generalizability, a major limitation of this study is that it was based on an empirical analysis of an occurrence in Taiwan. Policy makers who use these guidelines to develop or improve their PPP policy, strategy, or measures must consider this limitation and first deliberate practical implications and unique national characteristics. Future research can empirically examine the proposed guidelines according to the experiences of other governments. References Abdul-Aziz & Abdul-Rashid (2006). Privatisation of fixed-rail transit systems: A case study of Malaysia’s STAR and PUTRA. Canadian Journal of Civil Engineering, 33, 846–853. Aldrete, R., Bujanda, A., & Valdez, G. (2012). Valuing public-sector revenue risk exposure in transportation public–private partnerships. Transportation Research Record: Journal of the Transportation Research Board, 2297, 88–96.
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Cities journal homepage: www.elsevier.com/locate/cities
Strategic governance for modeling institutional framework of public–private partnerships Jui-Sheng Chou a,⇑, H. Ping Tserng b, Chieh Lin c, Wen-Haw Huang b a
Department of Civil and Construction Engineering, National Taiwan University of Science and Technology, Taipei 106, Taiwan Department of Civil Engineering, National Taiwan University, Taipei 106, Taiwan c Department of Technology, Public Construction Commission, Executive Yuan, Taiwan b
a r t i c l e
i n f o
Article history: Received 26 December 2013 Received in revised form 8 July 2014 Accepted 21 July 2014 Available online xxxx Keywords: Public–private partnership (PPP) Public service and infrastructure Global financial crisis (GFC) Institutional framework (IF) Stakeholder management Knowledge sharing practice
a b s t r a c t After the global financial crisis (GFC) in 2008, government agencies were eager to attract private capital to develop large-scale infrastructures and stimulate national economies. This study investigated the major role public–private partnerships (PPPs) played in stimulus plans and the challenges faced when promoting PPPs in response to the 2008 GFC. In Taiwan, practices for PPP institutional frameworks (IFs) have been established to improve the current strategy that policy makers can follow. This paper proposes specific tools and measures as well as a novel strategic governance model comprising 4 stages in a closed-loop process that is based on experiences in Taiwan and constructed to facilitate stakeholder management. The model can be used to identify key stakeholders and their needs, address key stakeholders’ needs, and evaluate the performance of proposed solutions. The findings of this study can be used by governments that intend to enhance IFs and systematically attract private investment in infrastructure projects; economic downsizing and other adverse consequences of GFCs can thus be avoided. In addition, those who intend to participate in PPP projects in Taiwan can benefit from understanding the PPP strategy introduced in this paper. Ó 2014 Elsevier Ltd. All rights reserved.
Introduction Governments play an essential role in national economic development by managing macroeconomic affairs. However, excessive or deficient demand caused by economic overheating or recession may adversely affect human welfare (Sloman & Sutcliffe, 2004). During recessions similar to the 2008 global financial crisis (GFC), the fiscal policy for investing capital in public works is often applied worldwide to increase jobs. Recently, adopting public–private partnerships (PPP) to counterbalance economy-related problems caused by budgetary deficit and efficiency-related problems attributable to value for money (Chan, Lam, Chan, Cheung, & Ke, 2009; Ke, Wang, Chan, & Lam, 2010) has become a global trend in financing public works (Aldrete, Bujanda, & Valdez, 2012; Anastasopoulos, Islam, Volovski, Powell, & Labi, 2011; Stainback & Donahue, 2005; Tserng, Russell, Hsu, & Lin, 2012). PPPs are crucial to financing infrastructure projects (Yuan, Skibniewski, Li, & Jin, 2010; Yuan, Skibniewski, Li, & Zheng, 2010). For example, the average annual
⇑ Corresponding author. E-mail address: [email protected] (J.-S. Chou).
PPP construction accounts for approximately 10% of the total infrastructure investments in the United Kingdom, Australia, Korea, and Taiwan (Tserng et al., 2012). KPMG (2007) investigated PPPs in the United Kingdom, Australia, and Singapore, and noted that the adoption of PPPs might increase in Southeast Asia and China. However, not all implemented PPP projects are effective. For example, the Bangkok Second Stage Expressway System project and the Bangkok Don Muang toll way in Thailand (Tam, 1999) failed because of unmanageable risks, such as distrust between public and private parties, disagreement regarding toll increments, and policy changes. Numerous PPP projects in Southeast Asia were unfruitful during the 1997 finance crisis (ESCAP., 2012); PPP practice in Southeast Asia accounted for only 40% of the infrastructure investment in the private sector because of inadequate preinvestment research, a lack of feasibility studies and competitive tendering, inaccurate estimates of demand, and inadequate project completion. Because of the importance of PPPs, enhancing the PPP institutional framework (IF) by establishing appropriate capacities, institutional settings, and regulatory frameworks can facilitate using the PPP model and enhancing post crisis benefits. A PPP IF is the structure of a PPP agency or unit. Farrugia, Reynolds, and Orr
http://dx.doi.org/10.1016/j.cities.2014.07.003 0264-2751/Ó 2014 Elsevier Ltd. All rights reserved.
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(2008) explained that a PPP agency is an organization (within or connected to the government) that provides services related exclusively to PPPs and other governmental bodies, including municipalities, counties, line ministries, federal agencies, departments, special districts, and port authorities (Farrugia et al., 2008). Problem statement Strategies or measures adopted by governments to facilitate PPPs are recorded in official reports; however, the formulation process of these strategies and measures has seldom been addressed. Because the policy-making process is poorly documented, information that can enable governments to avoid knowledge management mistakes is not shared among policy makers worldwide. Surveys regarding PPP promotion strategies employed by governments have suggested that policy makers must consider country or state differences when considering how to create an IF that will promote PPP projects (Dutz, Harris, Dhingra, & Shugart, 2006; Farrugia et al., 2008; Tserng et al., 2012; World Bank, 2007). However, no standard practices or governance designs currently exist, except for those tailored to the structures, practices, and objectives of individual governments. Therefore, developing appropriate strategies is a major challenge for new governments because few studies have documented the methodologies used by governments to plan strategic frameworks and effective measures. The 2008 GFC motivated governments to engage in PPPs and enhance existing PPP promotional strategies. However, the credit market crash caused conflict among PPP activities (Izaguirre, 2009; Kappeler & Nemoz, 2010). Two recent studies (Carrillo, Robinson, Foale, Anumba, & Bouchlaghem, 2008; Chan, Lam, Chan, Cheung, & Ke, 2010b) reported that difficulties in obtaining financial partners, which were exacerbated by the 2008 GFC, hinder PPP formation. In addition, the recession severely affected expected revenue; for example, in Spain, traffic levels declined much faster than did the gross domestic product, causing toll highway concessionaires to become bankrupt (Vassallo, Ortega, & de los Ángeles Baeza, 2012). Although policy makers frequently provide for PPPs in stimulus plans to minimize the national budget deficit, they must create an appealing PPP IF to attract private investment in times of economic distress. Thus, knowledge management can be applied at the policy-making level within governments. Governance practices that improve the processes used to formulate PPP IFs should be integrated and disseminated systematically. The percentage of PPP-related publications in construction journals increased from 2.94% in 1998 to 5.18% in 2008 (Ke, Wang, Chan, & Cheung, 2009), indicating a worldwide PPP trend. However, most studies have focused on individual project-level issues, such as risk management, contractual arrangements, procurement, and financial packages (Ke et al., 2009; Ke et al., 2010; Tang, Shen, & Cheng, 2010) For instance, the fuzzy simulation model proposed by Thomas Ng, Xie, Skitmore, and Cheung (2007) can be used to determine an appropriate concession period. Sharma, Cui, Chen, and Lindly (2010) presented a structured approach to determine the equity level required for an effective PPP project. A step-bystep method based on the concept of contingent liabilities and option pricing techniques was proposed by Aldrete et al. (2012) to evaluate public sector revenue risk exposure in transportation PPP projects. Chou, Ping Tserng, Lin, and Yeh (2012) analyzed the critical success factors for high-speed rail PPP projects and the level of risk allocation preferred by the public and private sectors in the Taiwanese context. Hwang, Zhao, and Gay (2013) examined critical success factors, critical risk factors, and preferred risk allocation for PPP projects in Singapore (Hwang et al., 2013). In addition, several scholars have explored the critical success and failure factors of PPP projects by conducting case studies or
questionnaire surveys (Abdul-Aziz & Abdul-Rashid, 2006; Chan, Lam, Chan, Cheung, & Ke, 2010a; Gibbons, Mattei, & McGuigan, 2010; Hwang et al., 2013; Mahalingam, 2010; Zhang, 2005). However, analyses of governmental measures designed to reinvigorate PPPs from an IF level in response to the 2008 GFC or similar challenges are rare and typically focus only on project-level evaluation (Burger, Tyson, Karpowicz, & Coelho, 2009; Mahalingam, 2010; Zhao, Zuo, Zillante, & Wang, 2010). A meta-analysis indicated that few systematic analyses of PPP-IF-related public policy concerns have been conducted and that lessons learned have not been compiled; analysis results must be integrated into a strategic framework that can be used by PPP-project stakeholders, particularly during a GFC. Therefore, the current study provided information overlooked by previous studies that can serve as a reference for policy makers. Research objective, method, and value The objective of this study was to develop generic and systematic PPP policy guidelines that policy makers can use to establish and continually improve a PPP IF. During implementation, policy makers can formulate unique PPP-enabling strategies and measures when a GFC arises, tailoring them to the specific context systematically rather than intuitively. The ongoing enhancement of the PPP IF in Taiwan is illustrative for the following reasons. First, the techniques, tools, and processes used by the Taiwanese government to propose measures to reinvigorate PPPs, even those used after the 2008 GFC, are publicly available and well documented (Public Construction Commission [PCC], 2009a, 2009b, 2010a, 2010b, 2011b). Second, the PPP IF has been enhanced because of the strong rebound from the GFC that Taiwan achieved by implementing PPPs. The total value of PPP projects in 2010 was New Taiwan Dollar (NTD) 224.1 billion (PCC, 2010a), a historical high that represents a solid recovery from the low of NTD 16.3 billion during the 2008 GFC. In this study, we first comprehensively reviewed public documents and press releases issued by the Taiwanese government regarding the PPP IF and then conducted face-to-face interviews with the government executives and staff responsible for promoting PPP projects to the public and private sectors. In addition, reviews of international PPP practices were analyzed. Because policy makers must consider country or state differences when drafting strategies or measures that facilitate PPPs, the formulation process adopted by countries that have efficiently implemented PPP strategies and measures are more valuable to governments than the promotion strategies or measures. For governments experienced in PPP participation, the formulation process is valuable because these governments are under pressure to continually improve the PPP IF when contending with adverse economic situations. Research scope and limitation This study focused on the formulation processes used to establish user-friendly PPP IF guidelines. The PPP IF comprises formal and informal rules, policies, regulations, organizations, public awareness, and the socioeconomic context. Effective government institutions can manage and assess risks, establish a solid reputation as a safe business partner, and reduce political and regulatory risk for private partners (Burger et al., 2009). For example, empirical findings (Chan, Yeung, Yu, Wang, & Ke, 2011; Xu et al., 2010) have indicated that a major risk factor for PPP projects in China is government intervention. Lack of governmental support has drawn criticism by contractors in Singapore (Hwang et al., 2013). An improved PPP IF can mitigate such risks. To promote the systematic use of PPPs, many countries (states) have established centralized organizations, national PPP units
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(Tserng et al., 2012), that are responsible for forming and improving the PPP IF. A review (Dutz et al., 2006) of international practices indicated that most PPP units provide governmental departments with information regarding PPPs, guidance for implementation, and advisory support and funding. In addition, some units function as managers, approving PPP projects proposed by line agencies. Research has suggested that the characteristics of PPP implementation vary markedly worldwide; thus, PPP IF development differs. Details on the formulation processes adopted by the Taiwanese government may differ substantially from those adopted by other governments. In summary, constructing a single testable theory that addresses all forms of PPP IF development in different countries is impossible. However, general guidelines can be formulated to establish a conceptual framework and identify basic elements that can be used by governments to continually improve the PPP IF. These guidelines can accommodate most elements underlying PPP IF formulation processes. The remainder of this paper is divided into four sections. First, Section ‘Public–private partnership strategy and global financial crisis’ presents a comprehensive literature survey of PPP developments, the impact of the 2008 GFC on PPPs, and the remedial actions taken by certain countries. Section ‘Case study’ describes the systematically improved PPP IF in Taiwan. This innovative approach is analyzed and stakeholder management is evaluated. In addition, implications for Taiwanese public officials are discussed. Lastly, Section ‘Conclusion’ discusses conclusions and directions for future research. Public–private partnership strategy and global financial crisis Public–private partnerships during a global financial crisis Sanchez-Robles (1998) validated the empirical relationships between infrastructure and economic growth. During the 2008 GFC, numerous governments worldwide implemented infrastructure projects to promote economic growth, creating jobs through infrastructure investment. In addition, industrial reports have suggested that governments have increased the number of PPP projects. An estimated US$40 trillion will be required to address global infrastructure requirements during the next 25 years (Daltorio, 2010). Because of the high costs and the vast quantity of infrastructure that must be built, private sector participation is imperative, particularly in financing (Mahalingam, 2010). PPPs provide new capital sources for public infrastructure construction and repair. Although PPPs were a worldwide practice before the 2008 GFC (Farrugia et al., 2008; Kappeler & Nemoz, 2010; Ke et al., 2009; Stainback & Donahue, 2005; Tang et al., 2010), the adoption of PPPs increased because governments had limited financial reserves after the crisis. Global infrastructure investment data (Table 1) has
indicated that India prioritized infrastructure investment in its Plan XI (2007–2012) and encourages private participation. The projected infrastructure investment in Plan X (2002–2007) was US$227 billion, which increased to US$514 billion in Plan XI; the projected increase in total private investment ranged from 25% (US$56 billion) in Plan X to 36% (US$186 billion) in Plan XI (Roy, 2010). Impact of the 2008 global financial crisis on public–private partnership activities The 2008 GFC generated substantial challenges for financial transactions among all asset classes and sectors engaged in PPP activities (The Canadian Council for Public–Private Partnerships, 2009). Table 2 summarizes the effects described in the literature that the 2008 GFC exerted on PPP activities. The availability of credit from banks or governments decreased substantially after the crisis, and governments experienced difficulty in attracting lenders and sponsors for public services under PPP contracts because of reductions in revenue (Burger et al., 2009). Because economic and financial viability is crucial to investment, reduced cash flows limited private sector participation in PPPs; global PPP activities either slowed or ceased. The value of European Union PPP transactions, €15.8 billion in 2009, decreased by nearly 50% compared with that in 2007 (Kappeler & Nemoz, 2010). Because private investors are highly sensitive to economic uncertainties, during the crisis, increases in financing costs slowed private sector investment in PPP projects. Remedial actions Because PPP activities declined during the 2008 GFC, governments attempted to improve the PPP IF to reinvigorate PPP activities by creating more effective legal frameworks, supporting individual PPP projects, disseminating the benefits of effective projects, announcing policy endorsements, and reforming the structure of organizations promoting PPPs. Table 3, which specifies general goals for a government to develop remedial actions, lists the factors identified in relevant literature that facilitate efficient PPP during a stable economic period and during a GFC. Although the action effectiveness is beyond the scope of this study, readers can refer to the research cited in Table 3 for a comprehensive analysis. Case study Taiwan public–private partnership history and practice In Taiwan, formal institutions are codified in law before implementation. In 2000, the ‘‘Act for the Promotion of Private Participation in Infrastructure Projects’’ (Act for PPP) was implemented,
Table 1 Studies indicating the major role of PPP in infrastructure development. Country (region)
The role of PPPs in infrastructure projects
Source
Canada
The government expects the $1.2 billion PPP Canada Fund to directly leverage $5 billion in PPP infrastructure investment in Canada PPP schemes will facilitate economic recovery efforts and are therefore promotable at the national and international levels PPPs account for 36% (US$186 billion) of infrastructure projects in 2007–2012 PPP investment doubled to ¥10 trillion between 2010 and 2020 PPPs accounted for €17 billion of railway and road projects during 2010–2011 PPPs account for one third (NTD 3.99 trillion) of infrastructure built between 2008 and 2015 Approximately £200 billion worth of investment is planned during 2011–2015 and will be distributed among economic infrastructure sectors (energy, transport, waste, flood, science, water, and telecoms); the majority of this investment will be provided by the private sector California enacted comprehensive PPP-enabling legislation in 2009
Podkul (2010/11)
European Union India Japan Spain Taiwan United Kingdom
United States
EN (2009) Roy (2010) Cabinet-Office (2010) Alves (2010) PCC (2009a) HM-Treasury (2011)
Gibbons et al. (2010)
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Table 2 Studies of the effects that the 2008 GFC exerted on PPP activities.
a
Source
Burger et al. (2009)
PPP Council (2009)a
Higher cost of financing Project delays and cancellation Decrease in the availability of credit Reduction of revenue cash flows Increase in material cost Failure to attract sufficient lenders and sponsors Decline in value of deals Reduced loan maturities period
X
X
X X X
Kappeler and Nemoz (2010)
Izaguirre (2009)
EN (2009)
X
X X
X X
X X
X
X
X X
X X
PPP Council: The Canadian Council for public–private partnerships.
Table 3 Factors critical to the success of government measures to promote PPP. Source
Zhang (2005)
Mahalingam (2010)
PPP-enabling legislation Sharing of interest rate risk Financial support Coordination of authority Strong governmental support Stable macroeconomic environment Transparent procurement process Sharing of responsibility Stable political and social environments Minimum revenue guarantee Step-in right
X
X
X X
X X
Burger et al. (2009)
Chan et al. (2010a)
Gibbons et al. (2010) X
X X
X X X
X X X X X
X X
X
becoming the foundation of Taiwan’s PPP IF. The Act for PPP, which influences PPP development in Taiwan and guides PPP implementation by relevant parties (Zheng & Tiong, 2010), allowed private organizations to invest in 13 public infrastructure sectors, such as environmental pollution prevention facilities; sewerage, water supply and water conservancy facilities; transportation facilities, sanitation and medical facilities; and social and labor welfare facilities. In the past 10 years, 886 contracts with a total investment of NTD 729.1 billion were signed under the Act for PPP (PCC, 2012). Of these projects, more than 50% remain in operation. On average, PPP projects comprise 15% of the annual infrastructure investment in Taiwan, an increase which is comparable to that in countries that have successful PPP programs (World Bank, 2007); for example, 10–15% of public services in the United Kingdom were provided through PPPs during the same period. The total benefits derived from these contracted projects are expected to save more than NTD 690 billion in government expenditures on labor, operations, and maintenance; to increase government revenues (i.e., taxes, rents, and royalties) by more than NTD 380 billion; and create more than 110,000 jobs during the contractual periods. Thus, the benefits and added value created by PPPs encourage governments to expand applications, particularly during a GFC. Determining public and private project characteristics based on performance can enable project participants to produce more efficient outcomes, ultimately leveraging mutual acceptance of research, innovation, and methods to advance the design construction, procurement, and project delivery of each party (Hwang, Liao, & Leonard, 2011). Moreover, project delivery can be measured according to satisfaction rates. In Taiwan, service quality is typically evaluated by the end users, whose satisfaction rate was 81% (PCC, 2010a). However, during the past decade, various PPP projects have encountered contractual disputes; the dispute rate (number of project disputes/number of total projects) was 16% during 2002–2009 according to the statistical report released by the Taiwan Public Construction Commission (PCC., 2011a). As many as 84% of PPP project disputes are settled through mediation
X
or negotiation within 1–9 months, whereas arbitration or litigation costs more time and money (Chou & Lin, 2013). However, unlike the U.K. government (HM-Treasury, 2012), the Taiwanese government does not have an effective benchmark for construction performance, such as time percentage or budget percentage. The formulation process used to improve public–private partnership institutional frameworks In Taiwan, the number and value of signed PPP projects declined sharply and reached a minimum in 2008 because of the GFC, and new PPP projects did not attract funding from the private sector; firms in the private sector sought to renegotiate the PPP terms for continuing projects in which contracts were already signed. A PPP procurement strategy is necessary in Taiwan; it is not merely a temporary response to budgetary constraints. The National PPP Taskforce in Taiwan (Taskforce), a unit of the Public Construction Commission of the Executive Yuan, was required to determine how PPP activities were affected by the 2008 GFC. In addition, the Taskforce was responsible for revitalizing PPP activities and promoting PPP; its organizational structure was formally restructured (i.e., Preparatory Department of PPP) by 2009. Tserng et al. (2012) detailed the evolving role of the Taskforce. Fig. 1 illustrates the major milestones of the PPP IF reinvigoration process. The government published a white paper on PPP strategy in January 2009 (PCC, 2009b), demonstrating commitment to promoting PPPs and to rebuilding investor confidence. In February 2009, a systematic study of institutional and regulatory PPP IF design deficiencies was published (PCC, 2010a). In Stage 1, systematic literature reviews and expert interviews were conducted to design two questionnaires. The first questionnaire was designed to collect data from agency employees on the institutional weakness of PPP regulation and guidance mechanisms. The second questionnaire was designed to collect data from private companies on the institutional weaknesses of PPP incentive mechanisms.
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Fig. 1. Major milestones when forming the taskforce to reinvigorate PPPs.
In Stage 2, the questionnaire surveys were administered over the Internet. The census survey was used to assess the performance of agencies and private companies currently participating in PPP projects. Responses were collected anonymously over the Internet. The overall return rate was 77.47%, and the reliability of both surveys exceeded 95%. In Stage 3, the questionnaire survey and in-depth interview results were quantitatively analyzed. Accordingly, the Taskforce published the ‘‘Promotion Strategy for PPP’’ in April 2010 (PCC, 2010b), proposing a service platform and related reinvigoration measures to improve the identified institutional weaknesses in the PPP IF. Fig. 2 schematically depicts the stakeholder management approach and the corresponding measures. First, stakeholders were divided into two general groups: the public sector and the private sector. The stakeholders’ concerns regarding promoting or participating in PPP projects were recorded and ranked. In response to their concerns, the Taskforce established a service center for both sectors. Corresponding measures were implemented to enhance the three main functions of the center (guidance and assistance, reputation building, public relations) to counteract the inertia exhibited by certain stakeholders. For example, the top two concerns expressed by agencies implementing PPP projects were ‘‘lack of experience’’ (20.2%) and ‘‘poor professional skills’’ (19.8%). To respond to these shortcomings, the Taskforce provided additional support services related to guidance and assistance; otherwise, officials would have been incapable of planning PPP projects and reluctant to implement projects. The measures taken by the Taskforce included providing an
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on-site consultation service, announcing a PPP standard operation procedure and item checklist, and creating software that calculates financial expenditures. Similarly, other institutional weaknesses identified by the agencies were considered. According to the investor perspective, ‘‘improper risk allocation’’ (27.2%) was the top concern limiting willingness to invest in PPP projects. To construct a solid reputation in response to this criticism, contracts were amended to improve risk allocation. Similarly, various measures were taken to address additional concerns. The role of the Taskforce during difficult economic periods, such as the 2008 GFC, has evolved from regulator to leader of PPP activities in which the government engages. Technical support has changed from passive supervision to an on-site service that directly facilitates project progress, and policy promotion has transformed into a process in which potential investors and project stakeholders are directly accessed through conferences and face-to-face interviews. To evaluate the performance of reinvigoration strategies and corresponding measures after one year of implementation, a second survey, identical to the survey administered following the three stages of the Taskforce process, was administered at the end of 2010. Based on the survey results, the Taskforce adjusted PPP promotion measures. For example, the overall satisfaction rate of the Taskforce personnel regarding the guidance and assistance function in 2010 was 81.9% (PCC, 2011b), and satisfaction toward the on-site consultation service, established to facilitate guidance and assistance, was 88.4%. Because of this positive feedback, the Taskforce expanded the scope of the on-site consultation service provided by local governments and central governmental agencies in 2011 (PCC, 2012). Frontline staff benefited from this advisory service. Furthermore, the Taskforce extended advisory assistance from the pre-contract phase to the post contract phase. A contract performance management system and operations performance evaluation mechanism was applied by the agencies to ensure that private investors could deliver public services that satisfy schedule and quality requirements. In addition, national personnel training, standard PPP operating procedures, and document preparation were included in the Taskforce efforts to improve planning and implementation quality. Moreover, longstanding concerns from stakeholders were gathered from the second survey. For example, two new measures were adopted to expand PPP business opportunities after widespread industry feedback was received. First, new sources of private funds, including insurance funds and foreign capital, were invested in PPP projects, injecting capital into the PPP market. The Taiwanese government relaxed restrictions on investments from mainland China in Taiwanese public construction. On the basis that national security would not be adversely affected, seven infrastructure sectors, including sewerage, transportation, and tourism, were opened to mainland China investment on March 3, 2011 (PCC, 2012). Second, private participation was considered in additional sectors to increase PPP business opportunities. A total of 180 governmentled PPP urban renewal projects were planned. The feasibility of PPPs developed to improve flood control facilities, de-idle national property (land), and establish nursing facilities for the elderly was also considered. Recently, in accordance with advice from potential investors, a private investment business opportunity platform was erected to inform agencies and investors about future opportunities and available services. By compiling and selecting suitable PPP projects, the Taskforce promptly transfers investment information to potential registered investors (PCC, 2012); thus, the Taskforce functions as a proactive intermediary between potential investors and agencies. In addition, the Taskforce has expanded the functions of its website, enabling potential investors to identify tender advertisements, standard model contracts, related regulations, and acts.
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Fig. 2. Taskforce guidelines to address PPP-related needs among stakeholders during the 2008 GFC.
Guidelines for continually improving the public–private partnership institutional framework Fig. 3 illustrates the procedure used in Taiwan to enhance the PPP IF and lists specific tolls and measures performed at each of the four stages of the closed-loop process: identifying key stakeholders, identifying stakeholder needs, addressing stakeholder needs, and evaluating the performance of proposed solutions. Three senior officials in the Taiwan PPP Taskforce assessed whether the guidelines accurately reflected the underlying principles and basic elements of the PPP IF. Each official had more than 10 years of experience in developing Taiwan’s PPP IF and interacting with international government officials responsible for developing PPP IFs for their jurisdictions. The first version of the guidelines was presented to the officials to gather their opinions. All officials agreed that the proposed guidelines characterized and described the PPP IF approach, particularly because stakeholder engagement was at the core. A major suggestion, which was addressed in the revised version, was to listen to feedback from stakeholders to facilitate continual improvement.
Another official suggested that a GFC or other financial crisis should be regarded as an opportunity to promote PPP activities. Although Taiwan PPP activities in 2008 were negatively impacted by the GFC, the severe financial environment motivated the thorough governmental review of the PPP IF and subsequent actions that may not have occurred in a healthy economic environment. The measures adopted in Taiwan, including providing guidance and assistance, branding plans, and improving public relations, were intended to improve the IF for PPPs, and should be applied when necessary. These generalized guidelines provide steps that public officials can apply systematically in their regions. For each step, major implications from experiences in Taiwan and the literature are discussed. (1) Identify key stakeholders This step was applied in Taiwan at the project, legal, and policy levels to create an effective IF for promoting PPP activities. Stakeholder management is essential to minimizing stakeholder
Fig. 3. Suggested strategic governance guidelines for stakeholder management to improve the PPP IF.
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opposition, which can lead to failure of publicly or privately funded infrastructure projects. An increasing number of studies (El-Gohary, Osman, & El-Diraby, 2006; Jing, Geoffrey Qiping, Manfong, Drew, & Chan, 2009; Olander, 2007; PMI., 2004; Yuan, Skibniewski, Li, & Jin, 2010; Yuan, Skibniewski, Li, & Zheng, 2010) has identified factors critical to effective stakeholder management in construction projects. For example, stakeholders in the PPP context have been divided into four role-based groups: the public sector, the private sector, the public, and PPP research group (Yuan, Skibniewski, Li, & Jin, 2010; Yuan, Skibniewski, Li, & Zheng, 2010). Taiwan defined stakeholders as public officials with PPP experience and project managers working for PPP promoters. Benefits accrued by focusing on only two stakeholder groups when contending with a GFC include easing of tight budgets, swift administration of questionnaires, and prompt IF reform; in other words, vital stakeholders’ acceptance of IF reform is a major concern because of time limitations. Key stakeholders can be identified according to their power and likelihood of supporting or opposing a strategy (Johnson & Scholes, 2002). However, the efficacy of strategies implemented to improve institutional weaknesses in promoting PPPs should be evaluated cautiously because the approach employed in Taiwan may not address the needs of all stakeholders. Various counties may apply a broader definition of key stakeholders during the continual improvement phase. For example, the concerns of major domestic and foreign companies that have not participated in PPPs and suggestions from researchers should be welcomed. (2) Identify stakeholder needs Numerous barriers continue to hamper PPP development. Inertia exhibited by certain stakeholders is the main cause of slow PPP adoption. To persuade hesitant stakeholders that predicted PPP benefits are attainable, their needs must be identified at the beginning of PPP development. The Taskforce contracted a research institution to design the questionnaire, administer the survey, and analyze the data obtained. In addition to evaluation by the promotion agency, evaluation of the existing framework by a subjective and credible third party is desirable because (a) respondents can express concerns honestly without fear of negative repercussions and (b) unresolved institutional deficiencies within the promotion agency can be identified. (3) Address stakeholder needs The concerns identified in the previous step can be broadly categorized as policy- or project-level concerns affecting various phases of a PPP project. Conflicts among the needs of stakeholders should be identified to ensure that all needs are addressed systematically. Policy makers must analyze associations between stakeholder needs and the policy objectives before prioritizing needs. In Taiwan, a private company suggested that the Taskforce establish an institutional mechanism to compensate stakeholders for the increased construction costs of PPP projects after material prices inflated in 2007. However, this mechanism was assigned a low priority because the relationship between inflated material prices and the 2008 GFC was weak and the agency objected. Although private companies were unhappy with this decision, PPP use rebounded strongly after the GFC (PCC, 2010a). By enabling transparent policy making, the proposed guidelines can facilitate solving conflicts among stakeholders, whose input should be addressed appropriately and promptly. All stakeholders should be informed about the guideline process and encouraged to offer suggestions for improvements, which can enable representative results to be obtained for use in the next step.
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(4) Evaluate performance The government must periodically evaluate its performance in promoting PPPs. The feedback loop must be complete to ensure effective stakeholder management. Moreover, because of the complex and long-term nature of PPP activities during periods of rapid social and economic change, the PPP IF must be periodically reviewed. Government policy makers should identify trends, simplify procedures, and improve efficiency, enhancing competitiveness in the global PPP market. In addition, quantitative indexes can be used in institutional decision making. For example, the Taiwanese government evaluated the satisfaction indexes of key stakeholders, using the results and the monetary value of PPP activities as key performance indexes. Generally, document management is crucial at every stage of stakeholder management, enabling continual improvement through sharing of accumulated knowledge; the policy making process is traceable, amendable, and duplicable. Winning public support for PPP policies is essential. In Canada in 2010 (PPP Council, 2010), a public survey was administered to address public concerns, and the results indicated that two thirds of Canadians supported the use of PPP to enhance infrastructures and public services.
Conclusion This study revealed that PPPs have become a common governmental strategy for providing public services, even during the 2008 GFC. Several countries have increasingly incorporated PPPs in infrastructure investment plans to minimize deficits and stimulate the economy. This paper summarizes the effect of the 2008 GFC on PPP activities and the remedial actions taken by governments. Because improving existing PPP IFs is critical, this paper proposes practical guidelines to be followed during the policy formulation process by policy makers worldwide. In addition, the continual enhancement of the PPP IF in Taiwan after the negative effect the 2008 GFC exerted on PPP activities was analyzed. Effective stakeholder management requires identifying key stakeholders and their needs, and then adequately addressing these needs. A feedback loop must be established by evaluating the performance of reinvigoration strategies and measures to develop subsequent strategies and measures. The proposed guideline framework, which was reviewed and approved by local experts, enables continual improvement through accumulation of experience and knowledge. The findings of this study serve as a reference for governments that intend to enhance IF systematically to attract private investment in infrastructure projects. Investors who intend to participate in PPP projects in Taiwan can benefit from understanding the PPP strategy introduced in this paper. Although the proposed guidelines are general to maximize generalizability, a major limitation of this study is that it was based on an empirical analysis of an occurrence in Taiwan. Policy makers who use these guidelines to develop or improve their PPP policy, strategy, or measures must consider this limitation and first deliberate practical implications and unique national characteristics. Future research can empirically examine the proposed guidelines according to the experiences of other governments. References Abdul-Aziz & Abdul-Rashid (2006). Privatisation of fixed-rail transit systems: A case study of Malaysia’s STAR and PUTRA. Canadian Journal of Civil Engineering, 33, 846–853. Aldrete, R., Bujanda, A., & Valdez, G. (2012). Valuing public-sector revenue risk exposure in transportation public–private partnerships. Transportation Research Record: Journal of the Transportation Research Board, 2297, 88–96.
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