Abstract
Public–private partnerships (P3s) have emerged as a leading means of structuring large, complex infrastructure projects in both developed and developing economies alike. However, P3s, due to their unique characteristics, can present opportunities for corruption. The purpose of this article is to promote the development of a nuanced and thorough understanding of P3 corruption risks such that those involved in developing, designing, and implementing P3s can more effectively harness the benefits of P3s while mitigating the corruption risks they introduce. This article also seeks to encourage further research into how infrastructure P3s can be better shaped to decrease the probability of corruption risks materializing. This article unpacks how and why P3s, as a distinct form of public procurement, are at once more and less susceptible to corruption as compared with traditional procurement methods and as such deserve special attention from an anticorruption perspective.
Keywords
Introduction
Public–private partnerships (P3s) have emerged as a leading means of structuring large, complex infrastructure projects in both developed and developing economies alike. The P3, many argue, represents the best of both worlds. On one hand, it harnesses the efficiency and ingenuity of the private sector; on the other hand, it incorporates the stability and good public governance offered by the public sector, which privileges transparency and accountability to the public. But P3s, due to their unique characteristics, can also present opportunities for corruption. For the purposes of this article, “corruption” can be understood broadly as the improper use of public power or resources for private gain. We might ask, “Are P3s somehow more susceptible to corruption than traditional procurement methods? If so, in what ways?”
This article explores how and why P3s, as a distinct form of public procurement, are at once more and less susceptible to corruption as compared with traditional procurement methods, and as such deserve special attention from an anticorruption perspective. Through this analysis, my goal is to promote the development of a nuanced and thorough understanding of P3s such that those involved in developing, designing, and implementing P3s can more effectively harness the benefits of P3s while mitigating the corruption risks they pose. In particular, this article will assist government policy makers, private sector financiers, lawyers, scholars, and other stakeholders to better understand and mitigate corruption risks in the context of infrastructure P3s. This article also seeks to encourage further research into how infrastructure P3s can be better shaped to decrease the probability of corruption risks materializing.
Although academic scholarship on P3s has blossomed in recent years, the connection between corruption and P3 infrastructure projects remains relatively unexplored. This article attempts to fill this lacuna in the literature. Before mapping out the structure of this article, a brief comment is warranted regarding terms, definitions, and the scope of this research.
In addition to improving public administration in developed countries, the discussion to follow can offer significant value in the developing world. I say this for three principal reasons. First, many developing countries today have a heightened need for infrastructure development and maintenance. Second, a number of developing countries lack experience and familiarity with the P3 model and its pitfalls (though the same can be said for many developed countries). Lack of experience with the P3 model in developing countries serves as a key obstacle to the model’s potential efficacy. For example, according to a study conducted by the UN Office on Drugs and Crime (2013) surveying public officials involved in P3 projects in India, a staggering one third of government respondents had not received training in procurement. Third, a number of developing countries experience comparatively high rates of corruption and suffer from an absence of rule-of-law norms and thus the need to put in place structures that protect against corruption is heightened.
In terms of approach, this article is, perhaps unfortunately, primarily theoretical rather than empirical. This is due in part to the paucity of data and research on corruption in P3s, as well as the simple fact that many P3s are still in their infancy, and the model itself is still in its early stages in many countries and communities. It is hoped that the discussion to follow will spur greater interest in performing further research—both empirical and theoretical—into corruption risks in P3s.
This article has a three-section structure. The section “Unpacking P3s and the evolution of the P3 model” identifies the distinguishing features of P3s, as distinct from “conventional” procurement, and highlights the nuanced and complex nature of P3 infrastructure projects. This section also includes a brief examination of the P3 cost–benefit debate (i.e., whether the benefits of P3s outweigh the costs). The next section “The effect of P3 arrangements on corruption risk,” which is divided into two subsections, discusses the distinct effect of P3 arrangements on corruption risk. The subsection “How P3s can increase corruption risk” provides a systematic account of how P3s can increase corruption risk in infrastructure projects as compared with traditional procurement and the subsection “How P3s can decrease corruption risk” then takes the opposite tack and explores how P3s can decrease corruption risk. Finally, the section “Conclusion” provides a brief conclusion. I conclude that the existence of the “increase–decrease” tension discussed in the section “The effect of P3 arrangements on corruption risk,” means that one cannot say up front whether P3s, as compared with conventional procurement, are more or less vulnerable to corruption generally. In each instance, it is a matter of context. Hence, when it comes to corruption risk, P3s are neither inherently good nor inherently bad. The implication is that one must cultivate an understanding of the unique corruption risks posed by P3s and, in response, develop tailored solutions.
Unpacking P3s and the Evolution of the P3 Model
The Distinguishing Features of P3s
The P3 has been hailed as a revolution in public procurement. The term “P3” has become somewhat of a buzzword—a symbol of innovation and superior organizational and operational design. The nature of infrastructure P3s has been canvased in a number of articles (Boase, 2000; Murphy, 2008; Siemiatycki, 2015). Public perceptions of P3s are predominately positive, though concerns have been expressed over, inter alia, the potential lack of transparency in P3s, in large measure due to the fact that essential information about P3s has sometimes been withheld as being “commercial in confidence” (Cole, 2015; Loxley, 2012). P3s have gained ascendency as a preferred (if not the preferred) model of delivering infrastructure goods and services to the public (Murphy, 2008). Remarkably, between 1985 and 2004, a total of 2,096 P3 infrastructure projects were undertaken worldwide, with a combined capital value of nearly US$887 billion (AECOM Consult, Inc., 2005; Kwak, Chih, & Ibbs, 2009). The World Bank estimates that the private sector financed, approximately, 20% of infrastructure investments in developing countries in the 1990s, totaling about US$850 billion (Hammami, Ruhashyankiko, & Yehoue, 2006). These figures illustrate how widespread the P3 model is today, as well as how important that model is to modern public works and to the global community more broadly.
But what exactly is a “P3”? There is no single, universally accepted definition of “P3,” and its constituent elements are often contested by academics, private sector participants, governments, and international organizations. Kwak et al. (2009), in their review of the P3 literature, define a “P3” as “a cooperative arrangement between the public and private sectors that involves the sharing of resources, risks, responsibilities, and rewards with others for the achievement of joint objectives” (p. 52). Garvin and Bosso (2008) define a “P3” as “a long-term contractual arrangement between the public and private sectors where mutual benefits are sought and where ultimately (a) the private sector provides management and operating services and/or (b) puts private finance at risk” (p. 163). Although the precise language varies, a number of common threads can be identified, including the sharing of risk, the continued duration of the relationship, and the allocation of roles and responsibilities in a manner that harnesses the partners’ respective strengths.
P3s infrastructure agreements involve a number of distinguishing features. Three such features are (a) “bundling of construction and operation,” (b) “private but temporary ownership of assets,” and (c) “intertemporal risk sharing with the public sector” (Engel, Fischer, & Galetovic, 2008, p. 1). The P3 constitutes an agreement between a private firm (or consortium) and a public authority (either at a central or local level of government) that provides for the delivery of infrastructure and, typically, infrastructure services, maintenance, and operation (Estache & Saussier, 2014). The agreement is said to be a “global contract” in the sense that it bundles investment and service provision in a single contract (Estache & Saussier, 2014, p. 2). In this single contract, the assets or services to be provided are specified more in terms of outputs rather than inputs. That is, the contract speaks more to what result is required (i.e., the “end”), rather than how that result is to be brought about (i.e., the “means”; The World Bank, Asian Development Bank, & Inter-American Development Bank, 2014).
A further distinguishing feature found in many (if not most) P3s is that the private sector bears considerable (if not complete) responsibility for project financing. This is said to alleviate strains on public budgets and harness the efficiency and depth of private finance markets. It also obviates the need for the government to make a massive front-end investment, which can come with considerable risk and expense, not to mention resistance from taxpayers. This, along with the allocation of responsibilities inherent in P3s that governments set policy while the private sector implements policy, has led some scholars to invoke the metaphor of “governments steering and the private sector rowing” (Boase, 2000, p. 75).
Broadly speaking, the P3 process is comprised of four distinct stages: (a) project identification (i.e., the decision to opt for a P3 rather than an alternative model of procurement and execution), (b) project development (i.e., project preparation, clearance, and approval), (c) procurement (i.e., procuring and awarding a contract to the private sector entity through a bid/auction process), and (d) contract management and monitoring (i.e., project implementation and monitoring over the life of the project; UN Office on Drugs and Crime, 2013). It is essential to understand each stage and how the various stages relate because, as will be discussed below, the nature and extent of corruption risk shifts over time. No single stage is impervious to corruption, and each stage presents unique challenges.
P3s constitute a distinct form of “public procurement,” which is an umbrella term that encompasses any activity involving “the acquisition by a government department or any government-owned institution of goods or services” (Kühn & Sherman, 2014, p. 4; Ferguson, 2015, p. 11). But P3s can be distinguished from the “conventional” or “traditional” procurement model. The World Bank (2010) identifies five key differences between conventional procurement and P3s.
First, conventional procurement contracts for large infrastructure facilities usually last, at most, for only a few years, typically expiring within 5 years. P3s, by contrast, are long-term contracts that can exceed 30 years in duration. This creates an ongoing partnership relationship of interdependency and, accordingly, the selection requirements, expectations, and procedures are very different.
Second, conventional procurement contracts typically have as their object the construction of facilities, and the final product—which is often designed and planned by the public authority—can be tested and accepted at the end of the construction. P3s, as noted above, focus instead on the provision of a service by (or at least with the involvement of) the project proponent. The proponent may have substantial responsibilities for design, financing, and operation. As such, conventional procurement is more input oriented, whereas P3s are more output oriented. However, the claim that P3s focus greater attention on the provision of services is perhaps exaggerated. In the hospital context, for example, the private sector is responsible for building the hospital and may well have considerable financing and maintenance responsibilities, but the private sector will not be tasked with actually providing medical services; that remains a quintessentially public service. Furthermore, generally speaking, the public sector makes “availability payments” to private sector partners as soon as the infrastructure is satisfactorily completed and available. Such compensation is not actually based on “services,” and thus, it may be argued that the claim that P3s place enhanced emphasis on service and outputs is somewhat overstated.
Third, in most P3s, the project proponent creates a Special Purpose Vehicle (SPV) to develop, build, maintain, and operate the asset(s) for the life of the contract. If the government has made up-front investments in the project, it is typically allotted an equity share in the SPV. The SPV itself constitutes a consortium that includes the building contractor, bank lender(s), and other private sector participants. The SPV is the entity that signs the contract with the government, and the SPV subcontracts out its various obligations. Generally, this complex SPV arrangement is foreign to the conventional procurement model.
Fourth, conventional procurement is typically a public sector financed endeavor, meaning the government typically needs to come up with the funds for the project at the front end. For obvious reasons, this can be politically unpopular. P3s, by contrast, are financed over time through user fees, tariffs, direct payments from the public authority, loans, guarantees from lenders, equity contributions from P3 partners, or some combination thereof. Nonetheless, although P3s may appear more palatable because they are financed in these various ways, they are ultimately funded by taxpayers. Hence, in both P3s and conventional procurement, the taxpayer foots the bill.
Fifth, P3s, as compared with conventional procurement, can reduce costs by allocating risks such as project failure or delays to parties best able to manage them, and private sector participants have stronger incentives to reduce costs in P3s. This assumes, however, that the P3 is properly managed such that the theoretical risk-shifting and cost-reducing effects are actually achieved in practice.
Finally, each P3 project sits along a continuum between “purely public” and “purely private” (Kwak et al., 2009, p. 54). For example, an agreement whereby private sector participants build, own, and operate the infrastructure (a “BOO” arrangement) sits closer to the “private” end of this spectrum, whereas an agreement whereby private sector participants merely operate and maintain the infrastructure (an “OM” arrangement) sits closer to the “public” end (Kwak et al., 2009).
The P3 Debate
When they are successful, P3s can offer numerous benefits over conventional procurement. While critics may refute whether these purported benefits are, in fact, achieved in practice, supporters of P3s cite the following:
decreased public sector budgetary expenditures, including reduced up-front costs and operating costs;
decreased risk borne by the public sector;
greater focus on service delivery and a more performance-focused orientation;
heightened competition through competitive auctions;
improved quality of infrastructure and related services;
increased accountability for performance;
lowered costs;
mobilization of additional funding, including for projects that otherwise would not be funded;
more efficient allocation of risk to the party best able to manage it;
more efficient project selection due to the ability to filter out “white elephants” (i.e., projects that appear attractive yet deliver negative social and economic value) and pork barrel spending (i.e., government spending on particular projects that please local constituencies, despite being suboptimal investments) through rigorous scrutiny by private sector financiers and project proponents;
more innovation and creativity;
more “value for money,” efficiency, and reliability;
reduced optimism bias; and
superior project management (Boase, 2000; Engel et al., 2008; Kwak et al., 2009; Loxley, 2012; Murphy, 2008; Siemiatycki, 2015; The World Bank, Asian Development Bank, & Inter-American Development Bank, 2014).
But P3s are not without flaw. There is considerable evidence to support a claim that P3s are imperfect not only in theory but also in practice. The deficient aspects of P3 arrangements, as compared with conventional public procurement, may include the following points, many of which directly contradict the purported benefits listed above:
decreased government accountability;
delays and interruptions due to political debates, negotiation and renegotiation, and opposition from the public or from special interest groups such as labor unions;
government abuse of P3s by keeping liabilities off their books;
higher transaction costs such as legal services and consulting fees;
increased financing costs due to the private sector’s inability to borrow capital as cheaply as the public sector can;
increased incentives to slash costs and optimize revenues at the expense of service quality due to the introduction of private sector participants who have the primary goal of profit maximization;
limited competition due to the “filtering-out effect” of the complex nature and high tendering costs of P3 infrastructure projects, which results in higher costs to public users due to oligopolistic conditions;
loss of public sector jobs;
no real gains in quality, efficiency, or cost savings;
no “value for money” advantage;
poor performance on risk transfer to the private sector;
poor track records in certain contexts;
potential cost overruns;
project failures caused by participants’ failure to learn and implement best practices;
projects that cater to the interests of the successful bidder, rather than the interests of the public;
reduced transparency and accountability due to more information being treated as “commercial-in-confidence”; and
vulnerability to corruption (Boase, 2000; Engel et al., 2008; Kwak et al., 2009; Loxley, 2012; Murphy, 2008; Siemiatycki, 2015; The World Bank, Asian Development Bank, & Inter-American Development Bank, 2014).
This article is concerned primarily with potential deficiencies linked to corruption risks.
The skeptics have considerable evidence to support their overriding claim that P3s are no “magic bullet.” In many cases, P3s have failed to meet expectations. This has taken the form of unfortunate contract renegotiations, regulatory takings, cancellations, delays, and blown budgets, to name a few (Engel et al., 2008). Kwak et al. (2009) list the leading causes for P3 failure: wide gaps between public and private sector expectations; lack of clear government objectives and commitment; complex decision making; poorly defined sector policies; inadequate legal/regulatory frameworks; poor risk management; low credibility of government policies; inadequate domestic capital markets; lack of mechanisms to attract long-term finance from private sources at affordable rates; poor transparency; and lack of competition. (p. 51)
While this article focuses primarily on corruption risks in P3s, it is worth pausing to discuss the connection between corruption risks and simple poor management. As noted above, P3s tend to be associated with innovation and creativity. An unfortunate consequence of the ingenuity associated with P3s is that there is often no detailed, standardized approach to achieving desired outcomes, and at times, the wrong decision makers may be involved in making crucial decisions, which ultimately detracts from the ends sought by the project. A P3’s failure to meet expectations is by no means necessarily a result of corruption; in many cases, it will simply be a matter of poor management, miscommunications or miscalculations, or other human error. Accordingly, what may be perceived as corruption may in fact arise due to poor management and suboptimal decision making. As a result, distinguishing what is the result of corruption from what is the result of poor management, and recognizing when it may be a little of each, can be fraught. Nonetheless, poor management can open the door to corruption. A P3 that is devoid of best practices, subject to inadequate oversight from experienced practitioners, and mysterious to both the public at large and the individuals involved in executing the project will surely provide fertile grounds for corrupt or unethical practices.
In many cases, of course, the project simply will not lend itself to a P3 arrangement. Typically, for example, it is theorized that P3s can offer superior value where there is considerable scope for innovation (e.g., the design, construction, and operation of state-of-the-art hospitals). But where the project is of the “run of the mill” variety (e.g., a simple transmission line), conventional procurement may be the better choice. Beyond the scope for innovation, Murphy (2008) argues persuasively that four conditions should be met before a project is determined to be best structured as a P3:
There can be real scope for innovation in design and service delivery;
There is a definable revenue stream attached to a discrete service (and hence a feedback loop from pricing to service);
There is a substantial potential for synergies so that the design, building, operations, and maintenance can be considered together to maximize efficiencies; and
There is real potential for risk transfer to the private sector.
Where one or more of these conditions are absent, the P3 may not provide a superior alternative to conventional procurement.
Beyond these practical critiques, academics have criticized P3s on philosophical grounds. Scholars such as Martha Minow, Dominique Custos, and John Reitz have criticized P3s and the fervor surrounding them because, in their view, P3s fail to sufficiently protect public values and interests (Klitgaard, 2015). At the extreme, the private partner’s pursuit of profit eclipses the public interest. Scholars who espouse this view argue, furthermore, that P3s open up the door to private capture of public decision makers (Klitgaard, 2015). This can be understood as a form of corruption. The close interfacing of private and public actors inherent in P3s creates an enhanced risk of corrupt activity. Thus, as one author puts it, when it comes to P3s, “there is a need for vigilance and some skepticism” (Boase, 2000, p. 77).
The philosophical critique of P3s is a powerful one. We all count on public services to be accountable, transparent, and in the interests of “the public,” however we define that term. We must therefore ask, “Do P3s contribute to, or detract from, these objectives?” There is an argument that increased private sector involvement in the delivery of public goods and services comes at a cost—not only an economic one but also a social one. For example, the Canadian Union of Public Employees (2016), a vocal critic of P3s for what are perhaps obvious reasons, submits that when it comes to P3s, “corporate profits are put ahead of the public interest.” This is a corruption risk to the extent that corruption can be understood as embracing public–private conflicts of interest. The result, it is argued, is that local control over decision making suffers, inequality increases, and the public interest is lost in the fog of corporate profit-seeking and private interests, thereby occasioning harm to public values of openness, transparency, public health and safety, environmental protection, accessibility, and equality. It is common practice, some argue, to withhold information from citizens and prevent public input into decisions related to P3 projects (Loxley, 2012). Such a lack of transparency harms values of democracy, openness, and public participation in decision making. Critics further point to the growing number of municipalities that are bringing services back “in house” and opting for conventional procurement methods over P3s, citing concerns over poor service quality, lack of transparency, and mismanagement by the private sector entity (Canadian Union of Public Employees, 2016), as well as case studies such as the 2011 Abbotsford sewage project in Canada, where a full 75% of voters rejected a P3 water project (Loxley, 2012). In sum, on both practical and philosophical levels, P3s remain the subject of great controversy.
With these competing perspectives in mind, we can now turn to the effect of P3 arrangements on corruption risk.
The Effect of P3 Arrangements on Corruption Risk
The evidence suggests that infrastructure projects are plagued by corruption. According to Transparency International’s (2011) most recent Bribe Payer Index, the public works and construction sector ranked at the top of the list of industries most vulnerable to bribery. This places the infrastructure industry above other industries traditionally associated with a high incidence of bribery, including mining, oil and gas, telecommunications, and others. The 2014 Organisation for Economic Co-operation and Development (OECD) “Foreign Bribery Report” estimates that bribery consumes a staggering 10.9% of the total transaction value of public procurement globally, and Transparency International, in its “Global Corruption Report 2005,” notes that corruption in construction can add as much as 50% to a project’s cost (Transparency International, 2005, p. 14). In short, the statistics are far from encouraging.
There are several reasons why infrastructure projects, in particular, attract corrupt activity. Perhaps the principal reason for the unusually high rate of corruption in this context is that major infrastructure projects invariably involve an almost mind-boggling number of contact points between public and private actors, especially with respect to government approvals, assessments, permitting, payout processes, monitoring of ongoing performance and use, and the like. Simply put, the greater the number of “touch points” and the more intricate the relationship between public and private actors, the greater the likelihood of corruption. This constant interfacing between public and private actors is said to create “friction.” In addition, Transparency International suggests that construction and infrastructure projects are peculiarly prone to corruption due to their large size, high value, and fragmented nature (Ferguson, 2015; Kühn & Sherman, 2014). Because public infrastructure projects are usually “special purpose, one-of-a-kind deals” that are massive in scale, produce high levels of economic rents, present difficulties in establishing benchmarks for cost and quality, and can be challenging to monitor, corruption risks abound (Rose-Ackerman & Truex, 2012, p. 24). The sheer complexity of infrastructure projects can also serve as a smoke screen for fraud and corruption, as it is difficult to track and monitor payments effectively (Ferguson, 2015).
Quite apart from the corruption risks inherent in the public procurement process generally, the P3 structure has a distinct effect on corruption risk in infrastructure projects. Paradoxically, P3s have the capacity to both increase and decrease corruption risk in infrastructure projects. To properly address corruption risks in this context, therefore, we must first understand how this tension plays out and then adopt anticorruption solutions tailored specifically to P3s.
How P3s Can Increase Corruption Risk
General observations on life cycle risks
P3s can increase corruption risk in a number of ways. Broadly speaking, P3s are said to introduce “altered governance” due to the nuanced quality and knotty complexity of partnerships between public and private entities (The World Bank and Department for International Development of the United Kingdom, 2009, p. 35). This altered governance exposes P3s to “pathologies that may not only reduce their positive effects but also open the door to discretional, opportunistic, inefficient and eventually corrupt behaviors, which may ultimately jeopardize public finances and destroy any credibility in PPPs” (The World Bank and Department for International Development of the United Kingdom, 2009, p. 35). In practice, possible sources of a P3’s vulnerability to corruption may include an absence of guidelines governing the P3, weak monitoring provisions, a lack of mechanisms for grievance redressal, insufficient protections (or incentives) for whistleblowers, and a lack of transparency, to name a few.
Throughout the various phases of the P3, corruption may arise in one of many forms: “rigged specifications and procedures; collusive bidding; false claims and statements; failure to meet specifications, including use or supply of substandard or counterfeit materials; co-mingling of contracts; false invoices; duplicate contract payments; contract variation misuse, split purchases and phantom contractors” (UN Office on Drugs and Crime, 2013, p. 30). In addition, corruption may take the form of selection of a predetermined bidder, abuse of function by public agents, misrepresentation by bidders or public authorities, conflicts of interest, collusion between quality inspectors and bidders, excessive consulting fees, embezzlement of property, inflation of contract prices, false or inaccurate financial statements misrepresenting the value of the project, and even outright bribery. Although some forms of corruption in this context may be comparatively benign, we ought not lose sight of the fact that any appearance of corruption in P3s, no matter how small, will tend to lessen the public’s confidence in P3s and the procurement system generally, which may in turn lessen faith in the government and the rule of law.
To take just one example of corruption in P3s, the 2012 allegations of fraud and corruption in relation to the McGill University Health Centre P3 project in Canada has shaken public confidence in P3s and thrown into sharp relief the possibility that P3s may not be corruption-proof after all. This case study involved allegations that SNC-Lavalin officials arranged for payments of CDN$22.5 million to be made to McGill University Health Centre chief executive Arthur Porter and his right-hand man Yanai Elbaz in exchange for ensuring that SNC-Lavalin won the CDN$1.3-billion contract for the project. Strikingly, nobody in government had any inkling that the P3 had been corrupted (Hamilton, 2014). The fiasco was described by one police investigator as “the biggest corruption fraud in the history of Canada” (Hamilton, 2014).
If a P3 that was initially hailed as a groundbreaking and revolutionary project can suddenly become the “the biggest corruption fraud in the history of Canada,” surely there is a pressing need to look more closely at the corruption risks accompanying P3s. Indeed, in the hearings held during the Charbonneau Commission—an inquiry launched in Quebec to investigate corruption and the infiltration of organized crime in Quebec’s construction industry—the former vice president of a major Quebec construction firm, Lino Zambito, testified that P3s can be fertile grounds for collusion and corruption. The Commission concluded that the lack of transparency in the procurement process opened the door for the kickback schemes and corrupt atmosphere that ultimately plagued the project. The message is clear: infrastructure P3s are not immune to corruption.
Once it is acknowledged that corruption may surface in infrastructure P3s, the next question is at what stage. It must be understood that corruption will seek the weakest link in the system, wherever (and whenever) that may be. According to a study conducted by the UN Office on Drugs and Crime (2013) surveying private sector participants involved in P3 projects in India, the two stages of a P3 perceived to be most vulnerable to corruption are (a) the project selection stage and (b) the bid evaluation stage. P3s appear, at least on their face, to be particularly vulnerable to corruption at these stages because they represent the key entry points to the contract itself. They are the stages at which the public authority determines who gets in the door.
One pronounced corruption risk arising in this phase of the P3 life cycle is the potential for unethical conduct during the market testing phase. The public authority may see fit to engage in one-on-one consultations with potential bidders to explore potential partnership solutions for filling a public need, to get a sense for a particular bidder’s expertise and financial and human capacity, and to gauge the potential scope for innovation. This vetting and exploration process may be more prevalent in P3s as compared with conventional procurement because of the size, complexity, and long duration of many P3s. The due diligence performed by the public authority is thus aimed at ensuring a sound, sensible, and sustainable investment is made.
This early stage consultation process may, however, be abused. For example, such interactions present an opportunity for private sector participants to “win over” public sector representatives through improper means, such as bribery. A key step for mitigating such risks is the establishment of detailed, standardized processes and procedures, including ethical codes of conduct governing the process, thereby protecting public values of integrity, openness, and fairness.
Some commentators have suggested that P3s may be linked to another form of corruption arising well before any contracts are signed: questionable political campaign contributions. It has been suggested that a quid pro quo relationship may exist in the following form: Private firms make political campaign contributions and are “paid back” in the form of policies mandating that certain government contracts (e.g., all contracts exceeding a certain value threshold) be preferentially considered as taking the form of a P3, or in the form of the allocation of public funds to projects serving private interests. Given the oligopolistic nature of the P3 industry, the rents to be extracted from such arrangements are potentially huge. Some critics have pointed out that a number of leading companies in the P3 space are major financial contributors to political parties (Loxley, 2012; Travis, 2016). Professor Loxley (2012) cites the fact that promoters of P3s have made considerable contributions to city councilors, as occurred in the case of the Hamilton-Wentworth water and sewage system and the Lansdowne Park development in Ottawa, both Canadian projects. Although not necessarily illegal, such transactions are said to be, at the very least, ethically questionable. Whatever one’s views may be on the topic of campaign finance, it cannot be denied that carefully crafted campaign finance rules, backed by strong codes of ethics and a culture of ethical practice in the business community and the public service, are essential to reducing corruption in this context.
Permitting a culture of corruption to take hold at the very beginning of the P3 agreement—or even before any contact comes into existence—can have profoundly destructive effects. Early-stage corruption sets the tone for the remainder of the project. Considering the lengthy duration of P3 contracts, the stage may be set for decades of corrupt or otherwise unethical activity, following the precedent established early on in the relationship. Perhaps the most hazardous yet difficult to address of all corruption risks is that posed by corrupt business and political cultures that permeate the system of procurement. If, even before a project is contemplated, the prevailing culture among decision makers is that favoritism and personal profit are the standards by which decisions are to be made, there is little hope for a public procurement process that truly serves the public interest. In such an environment, corruption will surely take hold. As an added complication, corrupt systems are not always easy to identify; their downstream effects may go unseen and there may be relatively little overt evidence of outright corruption. How we can mitigate such cultures from developing is a topic worthy of a full and separate analysis and cannot be addressed satisfactorily within the confines of this article.
While the suite of corruption risks arising in the early stages of a P3 may more readily spring to mind than those arising in later stages, Iossa and Martimort (2013) suggest that when corruption surfaces, it is often at the post-tender stage when the attention of various stakeholders has faded. All too often, scholars, international organizations, and other commentators get caught up in the setup of the P3 project, losing sight of the critical period that follows the awarding of the contract. This is a particularly costly error in the P3 context, where contracts can extend well beyond 30 years in duration and where unmet expectations, project hiccups and delays, and contract renegotiations are not uncommon. All of these conditions provide opportunities for corruption to creep into the project during its later years. Hence, while attentiveness to corruption risks is essential at the beginning of the P3, active monitoring and assessment of corruption risks is equally vital throughout the P3 life cycle.
Iossa and Martimort (2013) posit that the danger of post-tender corruption may be mitigated to some extent by employing a financing structure that naturally fosters transparency. The authors contrast the concession model (wherein private parties recoup their investments in part through payments made by users of the service) and the private finance initiative (PFI) model (wherein private parties recoup their investments solely through government payment, as there are no service payments made by users). The concession model, the authors assert, typically receives more monitoring during the operation phase, presumably because users of the service act as de facto watchdogs for cost increases, as such costs increases are felt by consumers directly and immediately. Although the mechanism of detection is imperfect, this incentives-based arrangement may have the effect of flushing out corrupt practices during a project’s operating phase. By contrast, the PFI model may leave greater room for corrupt practices during the project’s operation, as there is no direct passage of costs along to a ratepayer and, consequently, less incentive on the part of the public to scrutinize the P3 rigorously.
Corruption risks may also surface during the final “hand-back” phase of P3s (for a detailed analysis of a range of concerns arising during this stage, see McCann, 2014). For example, the terminal phase of the contract may suffer from the risk that the private sector entity will, in anticipation of the contract’s imminent termination, avoid internalizing the costs of properly maintaining the infrastructure or otherwise deliver suboptimal services. As a simple illustration, a private sector partner involved in maintaining a hospital might, as the contract draws to a close, be inclined to overlook essential investments that would better serve the public and even protect lives, instead retaining the funds to the benefit of the company’s bottom line. This risk arises from the fact that, in the absence of contractual provisions protecting against such a result, the private sector entity has a reduced incentive in the latter phase of the contract to dedicate sufficient or socially optimal resources to the fulfillment of its obligations, as the entity will effectively be “out of the picture” shortly. More generally, from an economics standpoint, the incentive to engage in opportunistic, unethical practices rises as the potential downside risk of such practices falls near the end of the contract life cycle. Although the inclusion of carefully drafted clawback clauses may go some distance to reducing tail end risks in P3s contracts, such risks cannot be wholly eliminated. Further research into potential mechanisms for fostering ethical and socially optimal practices near the end of P3 contracts is needed.
Considering the various issues arising throughout the life cycle of a P3, a key recommendation for reducing corruption risks is to encourage the parties to agree to have the P3 comprehensively and independently assessed and audited on a continual basis, with the results of the audit made public. This audit should not be confined to the typical “value for money” calculations that so often accompany P3s; rather, the audit should embrace economic, social, ethical, environmental, and other measures and key performance indicators. In my view, this comprehensive audit process would enhance the transparency and integrity of P3s while fostering more ethical conduct among project partners in both the private sector and the public sector. A further, complementary recommendation for mitigating corruption risks is to have the partners draw up a comprehensive and enforceable code of ethics to govern the partnership, which can then be made subject to public input and scrutiny.
Beyond the various life cycle considerations canvased above, there are more specific corruption risks that accompany P3s, discussed below.
Length
The considerable length of P3 infrastructure projects presents a unique corruption risk. As one author puts it, “[s]ince it is possible with P3s to obtain a contract for a block of business lasting 20 or 30 years, it is a reasonable assumption that this would increase the amount and thus the attractiveness of the bribes” (Hamel, 2007, p. 90). In addition, there is the risk that the parties’ commitment to ethical practice will become attenuated over time. Although the parties’ commitment to integrity may be at its peak at the onset of the agreement, pressures—be they political, economic, social, and so forth—may over time erode the parties’ commitment to putting ethics first. To mitigate this risk, regular project audits should be performed, and parties should be encouraged to continually review ethical codes of conduct to ensure not only that their terms are being respected but also that those terms continue to provide a robust ethical framework for the P3 in light of developments over time.
Value and complexity
The sheer value of P3 infrastructure projects gives rise to increased corruption risks. As discussed in the section “Unpacking P3s and the evolution of the P3 model,” P3 infrastructure projects are often, by their very nature, “mega-projects” requiring the expertise of a consortium of market participants and involving eye-popping dollar figures. As the monetary value of the contemplated project rises, so too does the incentive to resort to graft, bribery, or corruption.
In addition to their often staggering economic value, P3s are highly complex. As such, the negotiated partnership creates a web of rights and obligations—which shifts over time—that can be difficult for the parties, let alone the public, to navigate. Make no mistake, P3s represent a significant departure from the comparatively unadorned procurement models of decades past. Consequently, there is a danger that this complexity, taken together with the massive amounts of capital and resources moving between the various parties, would be used as a smoke screen to shield opportunism and eschew accountability (The World Bank and Department for International Development of the United Kingdom, 2009). Where roles and responsibilities are blurred, the risk of corruption rises, as reduced transparency and unclear lines of responsibility tend to decrease accountability.
Owing to the fact that many P3s are highly complex and resource-intensive, the field of potential private partners is limited (Loxley, 2012). The pool of potential bidders for P3 “mega-projects” is, to be sure, relatively small, at least compared with the pool of potential bidders for “run-of-the-mill” conventional procurement projects. Accordingly, P3s are inherently subject to oligopolistic conditions. The relatively limited number of private firms having the requisite expertise and resources to bid on and deliver P3s brings with it an enhanced risk of fostering relationships that are a bit too close, conflicts of interest, and bid-rigging. This latter risk is particularly concerning, as the potential rents to be gained from bid-rigging among a few major players may be enormous. For this reason, it is essential that those involved in designing the bidding process abide by best practices regarding transparency in procurement and attempt to encourage competition to the greatest extent possible.
Flexibility and open-ended nature
The flexible and open-ended nature of P3s also raises unique corruption risks. Although flexibility is a central tenet of P3 infrastructure projects, allowing for greater ingenuity, innovation, and creativity, this flexibility is also a potential source of corruption risk. P3 contracts cannot provide for all possible states of the world in the future. The contract is necessarily incomplete. Consequently, the level of up-front accountability established by the contract is perhaps less than it would be had the procurement taken a conventional form, as conventional procurement tends to involve a more discrete, predicable set of events, rights, and obligations. As discussed in the section “Unpacking P3s and the evolution of the P3 model,” P3 contracts speak to the desired outcome, not the means by which that outcome is to be reached. Although flexibility and adaptability are no doubt virtues in many cases, their abundance can potentially lead to a paucity of accountability.
Renegotiation
Related to the flexibility and open-ended nature of P3s is the phenomenon of contract renegotiation. A primary feature of P3 infrastructure projects that makes them uniquely predisposed to corruption risks is their remarkably high rate of renegotiation, though this danger may be considerably more pronounced in developing countries than in developed countries. In a study of 307 concession contracts between 1989 and 2000 in Latin America’s transport and water sectors, a striking 53% and 76%, respectively, of concession contracts were renegotiated (Guasch, Laffont, & Straub, 2008; Guasch & Straub, 2009). Moreover, the average time before renegotiation was a mere 3.1 and 1.6 years in those sectors, respectively.
But one might ask, “What is the connection between contract renegotiation and corruption risk?” First of all, almost invariably, contract renegotiations occur behind closed doors. This raises transparency and integrity concerns. Although the long duration of P3 contracts may require that the parties adapt their agreement at some later date to reflect changes in circumstances, renegotiations may nonetheless “be viewed as opportunistic behaviors from contracting parties” (Estache & Saussier, 2014, p. 7). Although some renegotiation can be necessary and proper, such renegotiations may be a sign of collusion or corruption. Guasch and Straub note that “it is often thought that corrupt politicians use renegotiations as a way to realize private benefits, mostly at the expense of users and taxpayers” (2009, p. 185). But it is not only politicians and public officials who may use renegotiations as a means of siphoning off public funds into private pockets. There is also a risk that unscrupulous private sector partners will treat renegotiations instrumentally to exploit their entrenched central position in the P3 to the detriment of the public (Brenck, Beckers, Heinrich, & von Hirschhausen, 2005). In sum, as Guasch et al. (2008) write in the context of developing countries, “high rates of contract renegotiation have raised serious questions about the viability of the concession model” (p. 421; see also Estache & Saussier, 2014, p. 7).
One potential solution for reducing corruption risks linked to renegotiation is to include detailed provisions in the P3 agreement clarifying the conditions under which renegotiations will be permitted, as well as how the process of renegotiation will be carried out in the event they are required. The challenge, of course, is predicting how and when the need for renegotiation may arise and how best to structure that process. Nonetheless, by turning their minds to the issue of renegotiations early in the P3, the parties will save themselves—and the public—time and expense down the road.
“Locking-in” and “holding-up.”
Paradoxically, although P3s can be critiqued for being too flexible, P3s can equally be critiqued for their “locking-in” effect. In the P3 infrastructure context, the firm or consortium that wins this competition will make a considerable up-front investment, all of which represents sunk costs. Once this outlay is made, the firm is essentially “locked in” to the agreement—it has committed. The effect of the successful bidder’s being “locked in” is that unscrupulous government agents can more readily use their leverage to engage in unethical and opportunistic behavior, such as demanding collateral benefits for personal gain. In “winning” a major P3 infrastructure contract, the firm may be gaining a lengthy and lucrative contract, but it is also entering dangerous territory, especially if it has placed all of its eggs in one basket. It is at least conceivable that, in some situations, an imbalance in bargaining power may create the conditions for unethical dealings in which the private partner’s dependency on the contract is taken advantage of.
Yet, we must also consider the other side of the coin. The greater concern may be that the private partner will demand, at the threat of holding up the project, concessions from the government or public officials acting on the government’s behalf (Vining & Boardman, 2006; Guasch et al., 2008). Given the political stock placed in the success of infrastructure mega-projects, the government or public official would be in a weak position to resist such overtures and may give in to the private partner’s demands. The deal is, in a sense, “too big to fail.” The private partner hence wields considerable leverage and maintains a powerful position. Thus, in some situations, the imbalance in bargaining power may in fact be the reverse of the situation described in the paragraph above.
Pressures for performance
Following from the observations above, one feature of P3s that adds to corruption risk is the massive pressure brought to bear on the project proponent. In particular, remuneration schemes for infrastructure P3s are deliberately designed, for better or for worse, to place pressure on proponents to meet performance targets. Where proponents receive remuneration based on availability payments, for example, proponents will be under intense pressure to ensure that the project passes muster and stays afloat. Of course, these sorts of market incentives form part of the very rationale for the P3 structure itself: they are a way of arranging relationships to harness market forces to maximize value and enhance incentives for satisfactory project completion and maintenance. This pressure may, however, encourage parties to cut corners or misrepresent the success or viability of the project.
Collusion
The fact that a P3 is, of course, fundamentally a partnership suggests that the interests of all parties to the agreement largely align (though arguably there are significant exceptions, such as the tension between the private sector’s profit maximization orientation and the public sector’s public interest orientation). The alignment of interests is said to be advantageous and generally beneficial, as it fosters collaboration and encourages the achievement of mutually held objectives.
However, the alignment of interests is a double-edged sword (Klitgaard, 2012). For example, both the project proponent and the public authority have an incentive to underestimate the costs and overestimate the benefits of a proposed or existing P3. If the public authority is competing with others for public funds or project approval, there is an especially strong incentive to inflate the attractiveness of one’s “own” project (Rose-Ackerman & Truex, 2012). On the private sector side, the project proponent understandably wants to present the proposed P3 and its own bid in their best possible light so as to increase its chances of securing a lucrative contract. This alignment of interests—a core precept of P3s—is essential to a P3’s effectiveness. Yet, it also creates the conditions for collusion. Key measures for reducing this risk include the creation of ethical codes that are open to the public, as well as periodic, independent audits that provide assurance to the public that the P3 is free from collusion.
Unsolicited bids
The emergence of a relatively recent phenomenon has further increased corruption risks in P3 infrastructure projects: unsolicited bids. Public authorities are increasingly considering and accepting project proposals initiated, designed, and submitted by private firms. This flips the conventional procurement model on its head: The idea for the project comes not from the public authority, but from the private sector. To many, this represents a praiseworthy example of private sector innovation that enhances the delivery of services and assets traditionally conceptualized as public in nature. Yet, to others, unsolicited bids represent a dangerous proposition: The private sector is said to be usurping the government’s role in formulating policy and designing public infrastructure to achieve those policies. According to this latter view, the government is seen as abdicating its responsibility of acting in the public interest. The government is no longer doing the “steering.” Instead, the private sector is left to “steer” and “row” as it sees fit. On the contrary, such claims may be overstated, as the government remains the ultimate gatekeeper as to whether any given project goes forward, and in what form.
Hodge and Greve (2008) neatly summarize the concerns raised over unsolicited bids: [Unsolicited bids add] a whole new dimension to project initiation, planning and completion with new powerful interest groups moving in alongside elected governments. Thus, we see today new infrastructure projects being suggested by real estate agents as well as various project financiers and merchant bankers, rather than bureaucrats—whose purpose, one would have thought, would be to do just this, as well as analyzing a range of smaller packages of alternative improvement options. Whilst such government-business deals may well end up meeting the public interest, it would seem more by coincidence than by design. (Hodge & Greve, 2008; The World Bank & Department for International Development of the United Kingdom, 2009, p. 36)
The principal concern over unsolicited bids is that they may be associated with a lack of competition and transparency (Hodges & Dellacha, 2007). In an unsolicited bid, there is one tendering party seeking an exclusive contract for a project that was drawn up by the tendering party itself. As such, the public may legitimately perceive unsolicited bids as serving special interests or perhaps even being tainted by corruption. The lack of transparency that may be associated with unsolicited bids, combined with the fact that the project is being sole-sourced, increases corruption risk. Equally important is the concern that there may be a reasonable perception of corruption or bias, whether or not there is corruption or bias in fact (Hodges & Dellacha, 2007). This can breed distrust in public authorities and may even deter honest firms from dealing with the government.
To mitigate potential corruption risks, unsolicited P3 project proposals should generally be made the subject of strict controls on their receipt, evaluation, and acceptance. To the extent possible, the public authority should organize a public bidding process. As Professor John Loxley (2012) puts it, P3s must be put out for open, public and competitive tendering. This is key to establishing a P3’s lifetime costs, and is a major pillar of the claims that P3s deliver superior efficiency and [value for money]. It is also crucial for the transparency and openness of the [value for money] process, and for reducing the possibility of fraud and corruption. (p. 15)
Hodges and Dellacha (2007) suggest that, where an unsolicited bid is submitted, it may be best for the public authority to nonetheless hold a tendering process to preserve some level of competition and enhance transparency, even if there is only one bidder. This is said to (a) evidence the government’s commitment to transparency and (b) demonstrate that there is in fact only one interested bidder (Hodges and Dellacha, 2007). The effect is to lend the project greater legitimacy in the public eye.
In sum, the foregoing analysis suggests that P3s present corruption risks over and above those inherent in public procurement generally. Yet, we can also examine how P3s can have the opposite effect by decreasing certain corruption risks.
How P3s Can Decrease Corruption Risk
Focus on long-term outcomes
Consider three features that are typically inherent in infrastructure P3s: (a) a “global contract” bundling a number of rights and obligations, (b) payment based on the availability and proper maintenance of the infrastructure, and (c) a long contractual duration with continuing involvement from the proponent. As a result of these three features, the project proponent has little incentive, for example, to offer a bribe to public officials or inspectors to skimp on construction costs by using poor-quality or unauthorized materials, as the proponent would suffer in the long run under its performance obligations during the operation and maintenance phase. Furthermore, penalty clauses, clawback clauses, and, in extreme cases, the right to terminate the contract can be used by the public authority as a discipline on the private sector partner (Murphy, 2008), which creates disincentives against engaging in corrupt or unethical practices. As noted above, P3s essentially “lock in” the project proponent and as such it is responsible for the project’s long-term success. The project proponent is thereby held accountable for meeting performance targets and maintaining the integrity of the P3 as a whole.
By contrast to a P3, when the model of procurement is the standard “one and done” deal for construction, the contractor has a stronger incentive to skimp on quality, as the costs of postconstruction repairs will be borne by the public authority (and, ultimately, the taxpayer). The contractor does not internalize these costs; rather, these costs are borne by the public as a negative externality. P3s, by contrast, force the proponent to internalize such costs. As Murphy (2008) notes, a well-designed P3 obligates the private sector partner to properly maintain the assets. This incentivizes more robust, durable infrastructure, and it removes incentives for unethical practices taking the form of substandard workmanship.
Elimination of principal–agent problems
A vexing problem found in all modes of public procurement—and government dealings more generally—is the principal–agent problem. There are always at least three parties to any dealing between the public and private sectors, whether in a P3 context or a conventional procurement context: (a) the public authority (i.e., the principal), (b) the public official (i.e., the agent), and (c) a private party (which may or may not be represented by an agent). The public official in this scenario often has an incentive to siphon off value for his or her own benefit at the expense of others. This risk arises from the simple fact that the agent plays a crucially important intermediary function and may conceivably exploit this role for his or her own benefit, to the detriment of the public interest.
Conceivably, however, P3s may mitigate the agency risk inherent in government dealings when compared with conventional procurement. Whereas conventional procurement typically has a short life cycle, with many deals being one-off transactions that do not contemplate ongoing operation and maintenance on the part of private entity, P3s are longer in duration and more complex in nature. As such, throughout the life cycle of the project, there will be a number of agents and those agents will be dispersed and will change over time. Where a government agent or bureaucrat stays in place for the entire length of an agreement, the risk that corrupt relationships will develop increases (Rose-Ackerman & Truex, 2012). State regimes from ancient Chinese dynasties to modern German federal governments have employed staff rotation systems as a precaution designed to prevent such corrupt relationships from proliferating (Rose-Ackerman & Truex, 2012). P3s may offer a natural analogue: In many cases, no single government agent will remain in his or her post over the entire life cycle of the P3. By contrast, in the conventional procurement context, a greater degree of power, discretion, and authority is vested in a single public agent. Moreover, given that P3s will require approvals from a number of government departments, there are more opportunities for corrupt or unethical practices to be flagged and extinguished. Theoretically, then, the comparatively dispersed allocation of decision-making power inherent in P3s may make it more difficult for unscrupulous parties to orchestrate fraud or corruption.
Enhanced scrutiny and transparency
P3s offer important safeguards against corruption and other unethical conduct by virtue of the fact that they include private sector financiers and other third-party participants such as auditors within their ambit. If such participants are fully integrated into the decision-making framework of P3, the overall integrity of the agreement is subject to greater scrutiny and vetting. Orchestrating a corrupt scheme becomes increasingly difficult as more stakeholders are negotiating, probing, and testing the agreement. Involving financiers and auditors also has the welcome effect of introducing potential whistleblowers into the P3. Financiers and project auditors conducting due diligence will continuously analyze and scrutinize the financial performance and major developments in the project (Loxley, 2012). They are well positioned, therefore, to detect corrupt activity and blow the whistle when something seems suspicious. In fact, project financiers have every incentive to do so, as they stand to lose their return on investment should the deal be tainted by corruption. Furthermore, to the extent that Multilateral Development Banks such as the World Bank—or other organizations such as nongovernmental organizations (NGOs)—are involved in the financing or some other aspect of the P3, the project becomes subject to even greater scrutiny. This strengthens the conclusion that P3s can reduce corruption risk.
In addition, a well-designed P3 will involve oversight by an independent fairness monitor. Because of the early suspicion of, and pushback against, P3s from various stakeholder groups as the model emerged in the infrastructure context, P3s have built-in mechanisms for enhanced scrutiny and transparency. For example, Partnerships BC, a government-owned company responsible for facilitating the development of P3 infrastructure projects in British Columbia, Canada, scrutinizes bidders and the bidding process through relationship review committees and due diligence committees (Leong, 2012). This provides compelling support for the argument that P3s may in some cases be more resistant to corruption than conventional procurement models.
Conclusion
Across the globe, P3s are being embraced as a viable means of carrying out massive, complex infrastructure projects. P3s, despite their considerable benefits, are not perfect, nor are they immune from corruption and unethical conduct. P3s are no magic bullet, nor are they a cure for weak governance and poor existing public procurement practices. On one hand, P3s can increase corruption risk. On the other hand, some aspects of P3s have the opposite effect. The existence of the “increase–decrease” tension analyzed above means that one cannot say up front whether P3s, as compared with conventional procurement, are more or less vulnerable to corruption generally. In each instance, it is a matter of context. The implication is that one must cultivate an understanding of the unique corruption risks posed by P3s and, in response, develop tailored solutions.
The next question is this, “Where do we go from here?” Moving forward, governments, NGOs, private firms, and other stakeholders should dedicate greater resources to studying the effects of the P3 structure on corruption risks, and collaborative efforts to better understand how corruption can infiltrate P3s—and how to stop that from occurring—should be encouraged. This should include systematic efforts to develop and refine oversight and monitoring mechanisms aimed at ensuring P3 infrastructure projects have robust protections against corruption.
An integral step in achieving these objectives is for governments to develop expertise in infrastructure P3s. The literature suggests that P3s will tend to provide value for money where governments have the requisite expertise and sophistication to properly allocate and manage risks (Murphy, 2008). The potential of P3s to deliver enhanced value for money applies equally when it comes to expertise regarding corruption risks. Of course, a P3 is a two-sided coin: Private partners too must cultivate their own expertise in understanding and mitigating corruption risks.
Part of the solution to mitigating corruption risks in infrastructure P3s is to encourage the development and refinement of standardized procedures and best practices, which will in turn assist in making infrastructure P3s more resistant to corruption. Establishing standardized procedures and best practices requires a deep commitment to collaboration and knowledge sharing among governments, project financiers, project proponents, fairness monitors, specialized P3 agencies, and the broader public. As existing P3s progress further along their life cycles toward the end of their initial concession periods, new evidence will emerge regarding the extent to which corruption risks materialize (or do not materialize) over time. This evidence must be examined and considered closely, with a view to establishing best practices for mitigating corruption risks.
Understanding and mitigating corruption risks in infrastructure P3s is important in light of the potential damage wrought by the unraveling of project due to corruption. A P3’s collapse can breed distrust in the government and the rule of law; cynicism among private firms; a lack of critical infrastructure, with corresponding threats to economic, social, and environmental well-being; and, of course, “[g]etting P3s wrong is unlikely to be cheap” (Estache & Saussier, 2014, p. 9). Without greater efforts to fight corruption in P3 infrastructure projects, investments will be diverted toward wasteful or faulty projects, inefficient project selection will result, local economies will stagnate due to a lack of functioning infrastructure, socially optimal investments will be overlooked, and society will suffer overall. As Klitgaard (2012) rightly puts it, “if public-private collaboration is to live up to its promise, issues of corruption will take center stage” (p. 17). All partnerships involve compromises, but ethics should not be one of them.
Finally, and most importantly, a deeper understanding of how corruption may arise in P3 infrastructure projects is only one piece of the puzzle. To truly ward off corruption, there must a deeper cultural shift: a more universal recognition that corruption in P3 infrastructure projects serves nobody’s best interests, and that integrity is essential to a fully functioning society. Furthermore, beyond this recognition, governments must develop appropriate legislative frameworks tailored specifically to P3s; delineate clear lines of responsibility; and implement a fair, open, consistent, transparent, and accountable process throughout the project life cycle. Only when these conditions are met will the public reap the full rewards of P3s.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.