PPP in defence not without its challenges

1757

Public-Private Partnerships (PPPs) can supply prime mission equipment to improve defence capabilities through value-for-money solutions.

PPPs have proven benefits offering the advantage of transferring risk from the public sector to the private sector. This eases the government’s financial burden, while improving on-time project completion, providing quality projects, allowing for freedom of innovation, and establishment of long-term relationships.

There are known downsides to the PPP approach, however. A PPP generalisation is that it results in more expensive infrastructure or services, as repayment terms include payments plus interest and private companies charge higher prices to generate profit.

PPPs can pose challenges through distribution of fiscal risks, accountability challenges, complexity, and higher transaction costs due to complexity of procurement. PPP complexity reduces the number of potential private sector partners.

PPPs can increase the risk of corruption, especially in countries with weak governance structures. This is attributed to lack of transparency and lengthy processes in securing contracts for delivering projects. Controversy can be exacerbated if PPP is allocated to teams that lack experience in complex system architectures.

The negative elements can be addressed if output-based and easy-to-monitor performance requirements are clearly set out in contracts. Independent public oversight is crucial in ensuring transparency and accountability. Independent public oversight can promote better outcomes for a country while promoting innovation. This implies that a stringent set of rules are required.

The National Treasury of South Africa has extensive experience in implementing and operating PPPs. The PPP manual provides a structured guide for implementing PPP within the national goals. The guidelines are focused on addressing risk allocation and solid contract performance oversight. Risk is heightened if there is institutional weakness. This is the reason that Treasury prefers to manage the PPP in-house. There are options for sector PPP Project Offices, for example the electricity supply IPP Office.

PPP in Defence

PPP in the defence sector, to come under the spotlight at an inaugural conference on the subject next month, does provide a different environment to other public services. PPPs in the defence sector are different because of the unique nature of the military’s responsibilities, assets, and regulations. Uniqueness of the defence sector translates into unique defence PPP potential risks, including:

  1. National Security Risks: The military sector is unique in that it is responsible for national security. PPPs in the military sector must be carefully designed to ensure that national security is not compromised. The private sector may not have the same level of security clearance as the military, which could lead to the exposure of sensitive information.
  2. Lack of Control: The military has unique assets, such as soldiers, weapons, and equipment, that are not found in other sectors. PPPs in the military sector aim to leverage the assets to achieve mutually agreed goals. The military may lose control over certain functions or assets when working with the private sector. This could lead to a loss of accountability and transparency, which could have negative consequences for the military.
  3. Legal Risks: The military sector is subject to unique regulations and laws that are not found in other sectors. PPPs in the military sector must comply with these unique regulations and laws. Failure to comply with these regulations and laws could lead to legal risks for both the military and the private sector.
  4. Lack of Flexibility: PPPs in the military sector may be less flexible than traditional procurement methods. The private sector may be less willing to adapt to changing military needs, which could limit the military’s ability to respond to new threats or challenges.

These risks must be carefully considered and managed to ensure that PPPs in Defence are effective and efficient. The contracting entity can take several steps to ensure accountability in PPP in the defence sector, including:

  1. Establish clear goals and measures for PPPs in the military sector to ensure that they are effective and efficient. This will help to ensure that the private sector is held accountable for achieving these goals and measures.
  2. Conduct a business case analysis for each PPP to ensure that it is cost-effective and provides value to the military. This will help to ensure that the private sector is held accountable for providing value to the military.
  3. The contracting entity should monitor and evaluate each PPP to ensure that it is achieving its goals and measures. This will help to ensure that the private sector is held accountable for achieving these goals and measures.
  4. The government should ensure that PPPs in defence are transparent, and that information is readily available to the public. This will help to ensure that the private sector is held accountable for its actions.
  5. The government should ensure that PPPs in the military sector comply with all regulations and laws. This will help to ensure that the private sector is held accountable for complying with these regulations and laws.

PPP in general, and PPP in defence, is not unique. South Africa can leverage international lessons. For example, a focused Defence PPP Office is required, potentially within Armscor.

The PPP option provides an element in the tool kit for the SA National Defence Force to realise the Journey to Greatness through acquiring the next generation of main equipment in partnership with the private defence industry.

Written by James Kerr, Orion Consulting CC, which provides Market Entry Strategy and Bid & Proposal services to the Aerospace & Defence related industry and assists international SME mission system product suppliers to gain traction in South Africa.

Kerr will be a keynote speaker at the inaugural Public-Private Partnership (PPP) for Defence and Security event that is scheduled for Wednesday 16 August at the Council for Scientific and Industrial Research (CSIR) in Pretoria. It is being organised by defenceWeb and the Aerospace, Maritime and Defence Industries Association (AMD) of SA. This event will explore public-private partnership (PPP) opportunities and strategies to strengthen the country’s defence capabilities.

For more information, registration details, and sponsorship opportunities, please contact Robert Mace: [email protected]

Or visit the conference portal here.