In an interconnected world, public sector organizations frequently draw on international private sector expertise and financing to purchase equipment, organize events, or provide technical training. Large-scale projects such as hospitals, utilities, airports or railways are generally procured through Public-Private Partnerships (PPP) involving consortia consisting of international companies.
The equivalence of soft and hard skills in areas such as communication, negotiation or leadership is hardly disputed: the way you get your message across is equally important, if not more so, than the message itself; diplomatic skills encompass both soft and hard skills. A skilled diplomat can influence the outcome of negotiations even if the balance of power is tilted toward the opposite side; and leadership or the ability to motivate others to give their best is about nothing but soft skills. Yet, there is one domain in which ‘hard’ skills appear to trump soft skills: international public procurement, and in particular PPP. This is presumably due to the fact that goods and services procured are typically highly technical in nature, and ‘hard’ technical knowledge and skills are needed to design, evaluate and monitor the standards by which goods or services are expected to be delivered by the private partner.
There is an abundance of PPP resources readily available to public institutions. Organizations such as UNDP, UNECE or the World Bank have set the bar high in terms of the breadth, depth, and quality of data and information. UNITAR has also adopted a course ‘Building Successful Public-Private Partnerships’ to its training programmes, run by Philippe Aubert. However, despite the wealth of technical, legal and procedural information, not all PPP projects are successful, resulting in financial losses and/or shortfalls in service levels for public parties. Why is that?
The outcomes of public procurement depend as much on soft skills as on hard skills. Six critical soft factors and related skills have a strong influence on negotiations between public and private parties.
1. Organizational culture
The most salient difference between the public and the private sector is that the former provides a service to the common good while the latter is profit-oriented.
The public sector operates on the basis of a stewardship model (ensuring the best use of taxpayer contributions), while private organizations operating in largely free markets implement a competition-based model. Competition and collaboration are, however, mutually exclusive, which has implications for public-private sector collaboration, and in particular PPP.
The cost of participation in large-scale PPP tenders might serve as a case in point: conducting detailed technical, financial, legal, regulatory, environmental or operational due diligence, essential for the conception of a realistic, bankable business plan, requires the involvement of specialized external advisers, with the bill culminating to over $1 million for any large-scale PPP. Even in sizable corporations the pressure on PPP managers not to lose out on a PPP tender increases proportionally to the number of previous tenders lost to competitors. Accordingly, the temptation to revert to illicit bidding tactics can be substantial for certain organizations. Such tactics, while not necessarily illegal, constitute a violation of the principle of fair competition and prevent public parties from gaining the best value for money. Private actors (note: public parties, e.g., government-owned airport operators, may also bid for PPP tenders) prone to such tactics may submit bids which they know will only be profitable if the public partner ultimately agrees with a contract renegotiation, typically months into contract implementation. At that stage, terminating a PPP agreement is often operationally complex and politically costly.
2. Risk and profitability
Public sector negotiators must balance the need to secure value for money with the need to protect the public interest. This requires a deep understanding of the motivations and priorities of private sector partners, as well as a clear articulation of the public sector’s objectives.
Risk allocation is a core feature of PPP agreements. Each of the partners, as the guiding principle of risk allocation goes, will assume the risks it is best positioned to manage or mitigate. If the private sector is comfortable with embracing risks while the public sector isn’t, the history of PPP negotiations and their outcome doesn’t necessarily reflect this. The balance of project risks of a technical, legal, financial, political, environmental, economical (demand shortfall) or force majeure nature (e.g., natural disasters) have often been found tilting unduly towards the public partner.
This is not least due to the fact that private sector partners often have more experience in negotiating contracts and may be better equipped to advocate for their interests. Private parties, when negotiating the allocation of risks between the partners, have often argued that their business plan (i.e., the calculated profitability) and hence the offer they submit imperatively require the allocation of more risks to the public side than the standard risk allocation guideline would suggest. To assess the validity of such arguments, public negotiators often lack an understanding of business planning, of the availability and costs of insurance for private parties to cover certain risks, or of average rates of industry-specific returns on investment to confidently negotiate risk allocation with private partners.
3. Communication
Communication is fundamental to many disciplines, including diplomacy, administration, or management. It is also an area of significant differences between public and private sector organizations. In the public sector, communication tends to be formal, hierarchical, and often slow due to the need for transparency, accountability, and adherence to protocols. Decisions may require multiple levels of approval, and there is often a strong emphasis on documentation and record-keeping.
In contrast, private sector organizations are used to quick and efficient communication. Inexperienced bid managers often brand public officials as unresponsive or slow, frustrated by their perceived reluctance to communicate with their public counterparts. Used to open and informal communication channels, they lack an understanding of the necessity to ensure a level playing field among bidders, which could be compromised by transmitting privileged information. To bridge this gap, clear communication protocols need to be established at the outset of any collaboration. Regular meetings, clear reporting lines, and agreed-upon timelines for decision-making can help align expectations and a productive collaboration, particularly in the phases up to contract award.
4. Hierarchies and decision-making
The different structure of organizations is another variable in public-private collaboration. While public sector organizations are typically characterized by complex, multilayered hierarchies with decision-making spread across various departments and agencies, private sector organizations maintain comparatively flatter hierarchies. Decision-making power is also concentrated in a smaller group of executives, resulting in quicker response times. For international civil servants, understanding these differences is crucial when designing tender processes, including timelines.
5. Governance
Governance structures in the public and private sectors are fundamentally different. Public sector governance, in keeping with the stewardship model, is characterized by a focus on accountability, transparency, and the public interest. Decisions are made within a framework of laws, regulations, and policies designed to protect the public good. There is a strong emphasis on public consultation, stakeholder engagement, and adherence to ethical standards.
Corporate governance is, in principle, focused on the interests of shareholders. Within the limits of laws and regulations, it provides the framework for the generation of profits. Different systems of corporate governance are, however, implemented globally, all of which are reflections of national cultures and values. The primacy of profitability over other corporate objectives in its pure form only applies to the Anglo-American ‘outsider’ system of governance, in contrast to other stakeholder-focused or relationship-based systems in continental Europe or in most Asian countries. Some industry conglomerates can resemble public administrations
more than they resemble typical corporations. Public procurement officials managing international tenders need to be prepared for very different objectives, modi operandi, and business cultures depending on specific governance systems.
6. Building trusted relationships
Cross-sectoral collaboration exists in a wealth of areas beyond procurement: joint task forces, social enterprises, funding of sustainable businesses through social impact bonds and, not least, public health crises. Understanding the differences in orientation, communication styles, organizational structures, and governance frameworks between public and private sector organizations is essential.
While the financial, legal or technical aspects of public-private collaboration are central, soft factors – such as organizational culture, frequency and style of communication, or governance structures – also influence the ultimate success of these partnerships. The current emphasis on technical and administrative skills in PPP induction training for civil servants needs rebalancing to give justice to the importance of soft skills and competencies.
By recognizing and addressing these differences, public sector partners can build more effective collaborations and shield themselves and their stakeholders from unpleasant surprises. Training is key, and it needs to equip civil servants with the entirety of skills and knowledge needed to protect taxpayer money.
Trust is the bedrock of all successful collaboration. Since it is a subliminal phenomenon, it cannot be trained, but it will emerge with mutual respect, understanding, and cultural sensitivity.