French Court of Auditors’ annual report reiterates failure of public-private partnerships
In its recent annual report, the French Court of Auditors pinpoints cases of failed public-private partnerships (PPPs) once again.
The report provides a well-researched analysis of two projects implemented at subnational level: a local transportation case on the Island of La Martinique and a tourist infrastructure project in Biarritz, south of France. The two cases demonstrate a number of problems inherent to PPPs, including cost overruns, delays in implementation, overestimation of demand and a contract design shifting the risks to the public partner. They provide new, compelling evidence of why local governments should stay clear of PPPs.
Two out of many cases of failed PPPs in France
This is not the first time public budget auditors and institutions warn against the problems associated with PPPs. In its 2014 Annual report, the French Court of Auditors devoted a whole chapter to the 2007 hospital plans and underlined poorly controlled procedures, tendency to oversize, unsuccessful rationalisation of activities and insufficient care of patients. The same year, a Senate report heavily criticised the PPP scheme. In 2017 again, after analysing the Ministry of Justice’s PPPs, the Court recommended that “the Ministry of Justice eschewed PPPs in favour of public sector design-build contracts.” The 2018 European court of Auditors’ analysis of French Highways’ PPPs stressed inefficiencies and costly delays. And so did a recent OECD report on local PPPs in Paris and Caen, which underlined difficulties to apply contract penalties in case of late delivery; wrong time and costs estimates and problems of risk sharing leading to huge cost increases for the public authorities. The OECD report also stated “the capabilities required to manage PPPs are much more difficult to acquire for subnational governments than traditional procurement capabilities”.
Despite this body of evidence and a slowdown of PPPs in France since 2012, local and regional authorities are still considering engaging in risky PPPs to deliver infrastructure and social services, such as an airport in the Paris region and the renovation and maintenance of schools in Marseille. Several projects have resulted in citizens’ opposition, the most recent example being the coalition of citizens mobilising against the education PPP in Marseille.
A transportation PPP on the Island of La Martinique
This 20-year partnership agreement for public transportation, signed in 2013 by the Martinique Region and the Vinci multinational Group, would provide 14 buses, connecting on tracks reserved for this purpose, three poles of exchange across 18 stations spread over a 14 km course. The contract consisted of the financing, design and construction of the bus stations, its maintenance centre as well as their overall maintenance, but also the financing, design and manufacturing of buses. The project received funds from the European Regional Development Fund contributed (€81.7 million) and from the French Development Agency (€39 million), among others. According to the Court of Auditors’ report “using a local public company to monitor the completion of the contract by the private partner proved to be complex, costly, risky and lacked transparency”. The Court of Auditors raises the following points:
- The PPP was too complex. The public authority handling the contract had limited resources and therefore no sufficient capacity to manage the project.
- The PPP was too expensive, and this was largely due to the renegotiation of the contract causing further delays and payment increases. As for the contract to build the roads, the renegotiation resulted in further delays and a 73 per cent costs increase. Underestimated acquisition operations resulted in a financial correction of €1.54 million by the European Union. Renegotiations lead to project delays and rising costs. The project was supposed to be completed by the end of 2015 but when the service finally started in August 2018, the one-year bus guarantees had already expired, leading to unsolved poor bus conditions and subsequent strikes. As for the operating contract (management of the infrastructure), an addendum to the contract increased the community contribution by 33 per cent due to additional financial requirements, heavily contested by the region. These unexpected costs drove the initially foreseen costs of €200 million up to a total of €378 million, of which €283 million were borne by the public authority management.
A tourist infrastructure project in the south of France
This project refers to the construction and maintenance of a new digital museum called “City of the Ocean”. In 2008, the city of Biarritz signed a PPP contract with the SNC Biarritz Océan company, a subsidiary of the French Multinational Vincy.
The business model of this project was under heavy criticism. The new touristic infrastructure would be operated through a separate contract, by another private partner (SEM company), under a “user-pays” model, i.e. the private company would collect entrance fees. However, the average number of visitors between 2011 and 2015 only reached 328,265 per year, instead of the expected 450,000. The demand was clearly overestimated as was the forecast revenue of €5.6 million. As a result, additional costs have resulted in a net loss of €39.2 million for the public entity, according to regional audit court calculations.
On 30 July 2014, the French administrative supreme court decided to cancel the decision of the city council to authorise the PPP contract. However, by that time, the private partner had sold the Museum to Dexia Bank. So, despite the contract cancellation, the municipal authorities are obliged to cover the yearly bank payments until 2040, bearing the consequences of a failed project.
PPPs are a risky business for the public purse
These PPP cases provide new evidence for the numerous risks related to this modality of public service and infrastructure provision. The cost escalation, as a result of common renegotiations, made them very expensive and the overestimated demand by the private partner, made the profit calculations unrealistic.
These cases are adding to the growing body of evidence of failed PPPs globally including the 2018 report “History RePPPeated - How public private partnerships are failing”, cases in South-East Europe, and the recent case of Renace in Guatemala. Given citizens’ heightened concerns about the risks of PPPs, it is critical to take them seriously. The inherent risks and complexity of PPP contracts demonstrate that PPPs are not the right model to deliver public services in the public interest.