GBPG Group Chairman Malcolm De Silva interviews Global PPP Expert David Baxter on why People First PPPs are the future, how they tie in with Environmental, Social, and Governance objectives and how Procurement and Procurement Staff can make all the difference to their success. Malcolm uses his 25-plus years of experience in legal, contracting and procurement as a staff member within EU, UN and International Development Finance Institutions, to extract David’s key perspective insights and wide-ranging experiences in this vibrant exchange on cornerstone subjects.
GBPG: Global Best Practice Group is delighted to welcome Mr. David Baxter. David is a titan of public private partnerships (PPPs) and a global influencer on People First PPPs, so we are so honoured to have him on our inaugural GBPG interview. Just to set the scene further, David has an illustrious career. Not only has he worked for Tetra Tech, DAI and Booz Allen he is also now the Senior Vice President of the International Resilience Center in Arlington and New Orleans. So, in today’s interview, we are going to discuss the essentials of PPP’s, David’s experience in PPPs, and not only that, the latest trends within PPP’s. David, how are you?
David Baxter: Fine, thank you. Good morning or good afternoon for Europe.
GBPG: David, are you sitting in South Africa at the moment or in America?
David Baxter: I’m in Washington DC at the moment.
GBPG: I guess as you hail from South Africa, I’d like to ask you about your initial working career. Was that in South Africa and did that involve PPPs?
David Baxter: So, my initial working career in South Africa started, and this gives you an indication maybe how old and ancient I am, in the beginning of the 1990s when Apartheid was at the height of its chaos. It was a very interesting world that I was working in. Coming from the privileged white class in South Africa, I had grown up with a big strong social conscience, and I decided at that time to go and teach at a historically black university in South Africa, one of the segregated universities, which was the University of the North, which is now called the University of Limpopo. I taught Development Economics there and I got involved in my first, initiatory, if you can call it that, interactions on things that were leading towards PPP’s. While I was there, I became an advisor to the World Health Organization’s “Global Social Change Transformation Initiative “ and started working with rural communities and looking at what they needed when it came to social infrastructure and just typical hardcore infrastructure, water, electricity and that in rural areas.
I then moved on to the Human Sciences Research Council, which was and is still the premier research institution in South Africa. It is the equivalent of the American National Sciences Foundation. There I led a program called the Human Needs, Resources and Environment where I worked very closely on issues pertaining to people and getting people involved as stakeholders in infrastructure development. So, it was sort of the beginning steps to what is now known as, Public Private Partnerships, bringing the public and the private sector together. Two years later I moved to the United States, where I got more involved with typical concessionary type work as a consultant at Booz Allen, as a consultant to the Department of the Interior. I then consulted with the Millennium Challenge Cooperation in eight countries to help them develop infrastructure projects. So, every step led me to becoming more and more involved with Public Private Partnerships, until I headed up the Institute for Public Private Partnerships in Washington DC.
GBPG: You mentioned people, David, and I think you are very much a “people centric person”. Could you explain what People First PPPs are and then go on to talk about ESG?
David Baxter: Sure. So traditionally Public Private Partnerships have evolved over the years. When they started in the 80s in the UK, they were essentially an alternative procurement platform, another way to procure contracts for public works and services and working closely with the private sector. Mainly it was driven by the fact that under the Thatcher government there was a massive infrastructure funding gap and so the government was looking for alternative ways to bring private finance into projects. This innovative approach spread all over the world because governments thought, you know, wait, this is something that’s good. And so over time, through the good and the bad, because they were good PPP projects and there were also very bad PPP projects, PPP’s have constantly evolved pretty much to this day, where we understand them to be partnerships between the public and private sector through a contract to provide a service or to build a public works and where risk is shared appropriately, hopefully, between appropriate parties. It has a performance period, usually 20 to 30 years, and it has a financial proposition in a concession idea of some sorts behind it.
But people then started realizing recently, and I would say this is like in the last maybe five years that here we are doing PPPs in the traditional way, but it’s just really focused on the contractual mechanism. It is now thought that we should leverage PPPs and the sense of moving them more towards serving the purpose of helping countries achieve their development goals and also to help them achieve their Sustainable Development Goals, their SDG’s. So, what happened was that you had a situation where people started thinking: When we are doing PPP’s, we should be doing it because of people, we shouldn’t just be looking at value for money in the project, which was a typical sort of constraint to determine where the projects were bankable, but we should also look at value for people.
So that’s a new concept that’s been interesting. Also, value for the future. In essence, future proofing projects so you know, introducing elements of sustainability and resilience. So as People First has evolved, and this was an initiative led by the United Nations Economic Commission for Europe and their PPP Center of Excellence in Geneva, I got involved with it through WAPPP, the World Association of PPP units and professionals, also ISRC, where I am a PPP advisor. We were very involved in a collaborative way to perfect this People First paradigm with transparent competitive procurements that were focused on people, taking PPPs to be a development tool. And that led essentially where we couldn’t avoid it, to the fact that ESG which is environmental, sustainable and governance focused was then becoming very important in People First, and I don’t think you can really separate the two, because People First PPP’s in essence, is trying to implement ESGs, or to use them. You have the environmental sustainability and governance concerns, which fits everything that “People First” stands for, and it’s basically calling for accountability, transparency and projects that are for people, not just because we want to build a massive bridge, or we just want to build a sports stadium. And I think one of the things that we are shying away from or let’s say not focusing specifically on is what I call vanity projects, projects are being built just because we can or for prestige. No big sports stadiums with some leader’s name on it, which you know is great, but it’s not actually a contributor towards well-being or the good of communities in the broader sense.
GBPG: You mentioned critically ESGs and People First procurements and how People First procurements are improving the quality of life for people. Global Best Practice Group likes to actually think it is the happiness factor which is so strong, which comes out in successful PPP’s and People First PPPs, and also you mentioned environment, social and governance, which is also a nice blend. It’s a mix. There’s a lot of abbreviations. So for the readers and listeners of this blog: what is stopping public sector spending having successful People First PPPs? What are the hurdles affecting the projects?
David Baxter: So, I think there’s a few factors. I think we have to look at it from the public sector side and we have to look at it from the private sector side as well. So, you know the public sector is still coming to terms, I think, with what ESG stands for and what People First stands for because many of the procurement officers are given briefs that are purely focused on procuring the infrastructure. I don’t think they understand the semantics of the words that are used. I don’t think they understand the philosophy behind what People First is about, and so you know when they are writing their procurements, they’re not essentially putting those desired outcomes in the contracts. And so, they’re not always forced or carried forward when they do technical evaluations. People will say, well, we are going to be ESG compliant. We are going to do People focused PPPs or strategies, we’re going to consult with stakeholders and all that. And so, they score high typically on a two bid process, where there’s a technical bid and a financial bid. And so, then they might be chosen as one of the short listed procurement proposals or the preferred bidders. Then it gets to the second phase where they start looking at the financial bid, and you know to do People First projects often it can be more expensive than ones that don’t have that requirement, because when you put in factors for stakeholder consultation, stakeholder involvement. when you’re looking at long terms of sustainability and resilience strategies. When you try to be adaptable, that adaptation adds effort to the contract and that adds cost. Then companies that are very progressive and forward looking then are marked down because of a cost factor and so you know, there’s attempts at greening projects, but I don’t think that it actually occurs. And then there’s also unfortunately unscrupulous organizations often that will do greenwashing and they promise a lot, and then don’t do it. So, on the private sector side obviously it’s tied tangently to corporate social responsibility and do these organizations really have a mission or vision that is pro-people. Are they in there just to get the project built and done?
I think the other thing is that they don’t understand about People First PPPs. With PPPs it is not just being like a design, build project of three or four years and that’s done and you walk away. There are needs of the projects that are going to be long term, so you’re going to have to constantly engage with stakeholders throughout the 20 -30 whatever years of concession or the agreement. You’re going to have to be sustainable, you’re going to have to be adaptable. We don’t know what it’s going to be like at that time. If you just took our world five years ago, we didn’t have the COVID pandemic, and we didn’t have the conflict in Eastern Europe. Climate change was just being touched on. But it wasn’t as evident as it is now. The United States, for example, for the last four years has had catastrophic hurricane seasons in the Gulf. And so, all these factors, you know are new considerations, new things to think about.
And I’m not against profit at all, as corporations have to make a profit to succeed. If they don’t make profits, especially in PPPS, they go bankrupt or close to it. And so, they are very concerned about all these add-ons which provide long term opportunities, but in the short term it hits their bottom line there, their profit margins and that. So, there’s valid concerns there.
Then again, not to put all the blame on the public sector that they might not understand. I think ESG is also just becoming required, it’s very new to many corporations, and that especially depending what part of the world they from, I think if you’re in Europe, ESG is not a big new thing because it’s being pushed with the European ESG taxonomy. If you are in the United States, it’s not absolutely new either because the United States Security and Exchange Commission is focusing on new desired and accountable outcomes. I was just reading this morning in the New York Times an article which was very interesting, that Deutsche Bank is facing a big challenge because they were talking ESG, and it looks like there was some greenwashing that was taking place. So, in essence, you know, if I just sum up all parties there while is lack of knowledge, goodwill exists, but hesitant. I would say there is a great level of greenwashing that takes place because we say we do it, but we’re not really doing it. Unfortunately, data integrity, is not clearly being required in contracts which further compounds challenges with accountability. So, these practices all culminate in challenges that are not insurmountable, that can be solved very easily, but it’s going to have to result in a mindset change and difference is in practice.
GBPG: That’s awesome. I really appreciate the fact that you’re tying things together in terms of on the one hand the profit element on the other side, there’s a ESG element and People First element. So, it’s a balance. And in the midst of this all David lies procurement obviously managing these procurements of the PPP projects. I understand you have done extensive training in the last couple of years. Do you think the technical officers and the procurement officers have full grasp of what effective ESGs are? Do you think that’s a big gap between ESG reality and theory? Can you relate this to training?
David Baxter: So, I think that is correct. First of all, legal/procurement officers when they’re doing their procurements, are going to follow the rules that are in the handbook, If the handbook doesn’t have ESG compliance requirements then that is something they are not going to be concerned about. Because they work for the government, they are not paid to do anything other than apply the mandated guidelines, the regulations and the policies and practices. So yes, when I’ve done trainings, it’s been wonderful watching procurement officers and their colleagues who might be the environmental, the planning, the financial specialist, seeing the light bulbs going off. And they said no, you know, this idea is not as daunting as it looks and well, you know, it does give protection and future proofing for the future. It helps communities. But you know, I sometimes I’m worried that when they go back to their offices and then they try and introduce these ideas to their bosses, who have not come to the training, or political leaderships, then there is a breakdown, a communication breakdown, intent breakdown in the will to implement , So it’s easy to say it’s the procurement officer’s fault, but you know they are coming to the training, but their bosses aren’t getting infused with the ideas! But new requirements are often not included in laws, the regulations, the policies that drive the enabling environment and so I think this all has to change. If you look at almost every country, they’ve committed to the Sustainable Development Goals, but is it codified in their laws, is it in their guidelines and or their business practices? Is there a statement and this is the one that I think is the most important, that when you do an evaluation of a good that somebody is given, and you do the technical and the financial evaluation are you giving preference to people that include ESG considerations?
GBPG: Do you think in your past experience that enough funding and focus is put on ESG training?
David Baxter: I would say until now maybe not as much as should be, but what is occurring that many donors are now requiring ESG compliance. The European ESG Taxonomy is requiring it, the US Securities and Exchange Commission is requiring it. I think what’s going to happen now is that it’s going to become a hot topic for training because, you know, everyone is beginning to say, what is your ESG policy? What are you doing? What data are you keeping to check that the investors are actually ESG compliant and then how are you holding people accountable? And I don’t think people know this at this stage. They don’t collect that information. The monitoring and evaluation of projects might not even touch on ESG, for example. And so, there is I think a mindset change taking place driven partially because they are concerned about the environment also being driven by the fact that the legal enabling environments of countries are changing and it’s going to become law and it’s going to be required.
GBPG: Can you tell us some of the benefits or hurdles you’ve seen from People-First PPP procurements?
David Baxter: It’s always been a mystery to me, especially in emerging economies where you have a situation, for example, that you build a toll road, OK, but you’ve not consulted with the community that is supposed to be using it. So traditionally, the communities would have had access to a road and they could use it and it was free. Now you have a new toll road being built and what happens then is suddenly the road that they always used is now upgraded and it’s supposed to increase access and speed and be safer. But people now have to pay to use it. And suddenly people are in an uproar because you have a situation that they would say, why should I pay for road that I’ve always used? OK, so the people element has been lost. And its sort of the project has been imposed upon them. I know, for example, on the highways in Albania to Kosovo, they built a new toll road as a sort of a PPP concession. And they were only asking €5 for a toll fee, which doesn’t sound like a lot but in a country like Albania, 5 euros is quite a chunk of money and people rioted and they burned down the toll booths. So, there’s a situation of – well maybe we should have talked to the community and given them a heads up. Another classic example when the Football World Cup was held in South Africa, they built the improved toll road between Johannesburg and Pretoria. There was a mistake, I think, that for months before the World Cup happened, people were allowed to use the road free. And so, people that previously used it for free, found after the World Cup that the operator started charging fees for its use. and people who had a great road that halved their commute time between Pretoria and Johannesburg taken away from them in the sense that they felt it was taken away from because now they had to pay to use it. So, you know the people element is important, and this is not a socialist, utopian or outlandish crazy idea. It’s just a common-sense practice that you should talk to the consumers when planning. This is the same with water projects. You have to ask people if they can they even afford the water? If you’re putting in a big new water reservoir and a water treatment plant, can they afford the water? Because if they can’t the government is going to have to step in with some sort of concessions or availability payments for certain communities to supplement fees have to be generated to pay off the PPP. So, People First PPPs are not calling for PPP’s that are free, they’re calling for PPSP that are commercially viable. That means people could use them therefore making them economically viable.
GBPG: David, have you seen any aspects of citizens monitoring or citizens participation in the evaluation of PPP proposals or further along when the PPP’s in action? Have you seen any elements evaluation criteria with the citizens involved apart from burning the toll station down?
David Baxter: HA! So, I don’t think traditionally citizens were involved that much. In the Netherlands, for example, there’s a lot of citizen consultation and there’s a lot of transparency with contracts. I know that in the Netherlands when PPP contracts are awarded they have to be made public so the public can see what the terms of the conditions were. Obviously, information might be sensitive, such as confidential financial information that is kept aside and intellectual property that’s protected, but generally citizens should be able to review what the contract is about, what is expected, and what should be delivered.
But in many other countries there’s a lack of transparency because they’ll say this is a confidential agreement between the public sector and private sector operator. Now, this should not be common knowledge etc. And I think that is dangerous because if we’re going to talk about satisfied users, and people being supportive of the PPP project, this will not happen if they don’t know if they don’t know what the desired outcomes are, their expectations are, or the monitoring what’s supposed to happen. How can they even be aware of if the project is delivering as it should? So, we need to work towards that and that’s very difficult in situations for governments as well as the private sector to accept because they’re not used to that level of oversight, So in the absence of access to information you would have citizen action groups that might become quite militant.
There’s one thing I would caution against that when you talk about formal public private partnerships, that we’re not talking about philanthropy. These are not philanthropic partnerships between the public and the private sector. What we have are partnership that are contractual balancing profit and performance and so one thing I would say it’s really important that when you talk that you don’t confuse contractual partners with user partners who I think should really be called stakeholders because if you call stakeholders partners, that often gives them a false sense that they have rights to the contract, on saying how it operates and who should be doing what, what the tolls and the fees and everything should be, which they don’t. And if that’s not explained, that’s going to cause a lot of problems and challenges. So, you know, understanding what partnerships mean, understanding what stakeholder relations and agreements mean. Is important that they are also transparent.
And then I think the biggest challenge is in many instances if governments are perceived to be hesitant a perception that they’re hiding something could arise. I think the public and the private sector should be really ready to answer questions on whether a project is running according to plan? Is it being monitored? Is it being evaluated properly? Are the deliverables happening?