8. Semi-Public Organizations

Social Triangle
Example Posters: Advanced

[8] State-Market

At the state-market interface, we find public organizations that are (partly) government-owned, for-profit oriented and that produce a (semi) public good such as infrastructure. We find most public-private partnerships in this category, as well as majority-controlled state-owned enterprises (SOE) with either a systems or public utility function, like banking, electricity, water, rail, internet or postal services.

Agency Challenges

  • Level of transparency requested in tendering processes (information-asymmetries; information that is competition-sensitive);
  • Setting appropriate performance criteria related to risk-sharing/risk-bearing;
  • Exit option of government (taxpayer) is very limited, as it concerns public goods/services);
  • Handling contingent liabilities (fault finding / attribution);
  • Under-reporting by contractor of liabilities/unforeseen circumstances, risks;
  • Information-asymmetry in (technical, expert) knowledge between government officials and private party / contractor.

Typical Strengths

  • Increased efficiency / operational performance / quicker realization;
  • Lower marginal costs of public goods, while pursuing social welfare objectives;
  • Risk sharing; investment in activities/ projects that either the public authority or the private sector would be unable or unwilling to complete alone;
  • Performance-based payment;
  • Contractual stipulation of risk-bearing/ responsibilities / performance standard;
  • Access to innovative solutions/techniques/methods (tendering selection process, market competition);
  • Leveraging private ļ¬nance with public funding.

Typical Weaknesses

  • Political interference may distort the public mission and commercial orientation;
  • Risk aversion /shirking in case of joint responsibilities or delegated (contracted) responsibilities;
  • Risk bearing comes at a price: private party will ask for surplus, which may make a PPP costly;
  • Public party often still 'responsible' for realization (public goods provision), so considerable expense may be involved for a public authority where a project has gone wrong; or
  • Risk transferred from taxpayer to private company to bear residual/unforeseen costs/contingent liabilities.
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