PUBLIC-PRIVATE PARTNERSHIPS: how private enterprise can support the needs of Public Governments

The National Recovery and Resilience Plan (NRRP) is a formidable macroeconomic call-to-arms, a Plan for coordinating policies of investment in Italy for the next 5 years, as could not have been predicted in the ‘50s, the time of the famous Marshall Plan! But how should we invest this enormous flow of money?

We should bear in mind certain factors:

-firstly, the money that will come from the Next Generation EU programme will be repayable. They will help finance “performance based” projects, and it is the responsibility expressly assumed by Italy to repay them at the end of the five-year period of 2021-2026. This means that the investments made with funds from the NRRP will have to be “profitable”. In other words, they will have to generate money flows that produce sufficient revenues with effect from 1/1/2027 if they are to fulfil the duty of returning the borrowed capital;

-secondly, then, we need to bear in mind that for the loans that will come to “take effect”, it will be obligatory to use the regulations regarding tenders, insofar as the allocation of resources to support individual projects and/or the donation of money directly to economic operators not selected through processes would represent potential “state aid”- expressly prohibited by the EU Treaty.

Therefore, the scenario that presents itself is that of having to invest 222 billion Euros in the next 5 years, to be assigned through tenders and with the goal of undertaking projects that need to generate sufficient revenue to justify further investment. The problem that consequently poses itself urgently to Public Governments is the following: which contractual body should they use to achieve profits and innovation, and how to identify it?

This is the case because- and this is the third element that cannot be overlooked- the funds of the NRRP must be invested to enact structural reforms, to undertake measures that can potentially involve structural changes to the organisation fo the State, of the internal market, and of strategic infrastructures.

No European fund, therefore, can be used to cover previous debts, or even simply for purchases in current expenditure.

Up until now, however, the Government has been accustomed to invest public money solely to satisfy its own needs- without, therefore, planning ahead. This was also because- to be perfectly honest- the scarcity of economic resources at the disposal of successive governments meant that they did not harbour great planning ambitions.

The policy of provisions in Italy has been, for 30 years now, a policy of contraction of public expenditure, reaching its apex in the stage of the so-called “spending review”. On the other hand, the very regulatory system of the Code of tenders of 2016, with the definitive consecration of the centralisation of purchases, certainly did not represent a valid support for a vision of planning and investments on the part of Public Governments.

If, therefore, after decades of “austerity”, one expects civil servants to plan for the future and one awaits from contracting authorities competency in drafting tenders that can generate profits, one will certainly be disappointed!!

The only way to seek innovation and profitability is, therefore, that of turning to private markets to find the necessary ability to draw up projects capable of realising the objectives that lie at the core of the NRRP’s Missions.

However, to tap into all the planning ability of private companies through competitive processes we should not expect “classic” competitions (open, restricted or negotiated as they may be). This is partly because the project WILL NOT be present upon being put up for tender (as the Government will not have it; rather, it is precisely that for which it is searching), and therefore so-called “innovative” processes are necessary that until now have rarely been adopted, even if they are present in the Code of tenders. For example, the competitive dialogue, the competitive procedure with negotiation, partnerships for innovation, and so on.

The most important element that needs to be understood, however, is that it is necessary to change the contractual codification of the relationship between Governments and the private contractors. The relationship can no longer be the “classic” relationship of works contract, of supply/sale of goods, of administration of services. These are all responsibilities in which the operational risk falls under the jurisdiction of the Government, insofar as the private contractor, when they fulfil their own performance, accrue payment rights for the economic performance.

Entirely differently, the objectives of Next Generation EU compel Governments to invest European funds for structural reforms through fielding projects capable of generating profits.

One must, therefore, add to planning ability also- indeed, most importantly- the entrepreneurial ability of the economic operator, whose actions are always aimed at the need to create profits.

It is in this complex and innovative situation that a contractual figure already present in the Code of public contracts has therefore come to light that, however, up until now, due to its particular features, has not had great success. That is, Public-Private Partnerships (PPP).

In reality, PPPs are not a single contractual figure, but rather a variegated category of conventional relationships that can occur between a Government and an economic operator that are not included either among tender contracts or among those of concessions.

For clarity, one must remember that while the tender (understood as applying to all three sectors of works, of supply and of public services) is the kind of contract in which, faced with the performance of a private contractor, the Government delivers a comparable economic performance, a concession is instead an agreement in which the Government delegates the delivery of performances (which fall under the Government’s responsibility) to an economic operator, as a result of payment on the part of a third party who benefits from said performance and saving the presence, in certain cases, of payment of a fee on the part of either the Government to the contractor or viceversa.

These days, PPPs include all the “other” forms of collaboration between Governments and private contractors other than tenders and concessions.

Legislators have moreover identified certain specific categories, such as “project financing”, “finance lease”, the “availability contract”, the “administrative barter”, while others incorporate into PPPs also "In house companies” with the presence of private partners.

The most significant feature of all the figures of PPPs is that they allocate risk obligatorily to the duty of private partners with majority shares- in other words, Governments cannot invest a share larger than 49% in relation to total investment (Art. 180 of Legislative Decree no.50/2016).

This means that the Government, in this particular contractual category, is the “minority” partner and therefore does not “manage” business matters but has the capacity to make them possible and facilitate them. However, the total prohibition of exposing itself to entrepreneurial risk with a majority share remains.

For these reasons PPPs are, as can well be seen, the ideal means of investing the funds of the NRRP, the Government having for its part enormous economic/financial resources but not possessing planning/entrepreneurial abilities, that it must therefore seek in private contractors to whom can be given, among other things, access to the public market of digitisation of the country (Mission 1) or of the restructuring of infrastructure and transport (Mission 3) or of the reorganisation of public health (Mission 6), and so on.

In conclusion, therefore, the Recovery Plan clears from the field for all concerned the alibi of lack of resources and lacking capacity for private contractors to perform better than public ones.

The money is now there, as, too, the means and the possibilities that the private aids the public on how and where to invest funds. We should therefore not lose a truly historic opportunity to change our country.