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Monday, Jan. 22, 2007 | I have a few comments on your excellent Jan. 19 article “Under Sanders, Water Could Go Private.”
A private company might put profit over public health? Not in a properly structured Public Private Partnership! Such PPPs have large financial penalties for mal-performance, typically backed by letters of credit or bank guarantees. Failure to meet required performance specifications will result in large financial penalties to the PPPer.
Profit is not an evil word — it’s the carrot and stick used by the public sector to drive performance and alignment of interests.
By the way, Canada has had three drinking water scandals in the last two decades, one resulting in 7 dead and 2300 ill. All were run by the public sector.
Professor Sclar says that the private sectors’ interests aren’t the same as the city’s. He is right, but with a proper PPP deal, their interests are aligned. That is all you need.
The professor also said “You essentially have to add another layer of management to the system because you have to manage the managers of the enterprise.” In our view, he is wrong. A good PPP has a set of measurable deliverables, in the case of potable water the volume, quality parameters, etc. These can be checked by the city or by an independent lab, in addition to the PPPer. You do not manage the managers; you just check, or spot check, results. If the PPPer fails to meet specifications, you hit them with contractual penalties, or in the ultimate, contract cancellation with the PPPer liable for transition costs to another party.
PPPs are not a panacea, and are inappropriate for some projects and some governments, but properly structured, can be and often are winners.
The professor and other interested parties are welcome to attend one my PPP workshops.