MIXED COMPANIES AND LOCAL GOVERNANCE: NO MAN CAN SERVE TWO MASTERS
| Author | RUI CUNHA MARQUES,NUNO FERREIRA DA CRUZ |
| Date | 01 September 2012 |
| Published date | 01 September 2012 |
| DOI | http://doi.org/10.1111/j.1467-9299.2011.02020.x |
doi: 10.1111/j.1467-9299.2011.02020.x
MIXED COMPANIES AND LOCAL GOVERNANCE: NO
MAN CAN SERVE TWO MASTERS
NUNO FERREIRA DA CRUZ AND RUI CUNHA MARQUES
This article looks at the use of institutionalized public–private partnership (PPP) arrangements by
local governments for the delivery of different types of infrastructure. It starts by analyzing the
mixed company model from a theoretical point of view, in particular the potential for internal
regulation and the achievement of a relational agreement. Then, after discussing the practicalities of
crafting this type of governance structure, four Portuguese case studies are examined. The empirical
evidence on mixed companies operating in the water, waste, transportation, and education sectors
shows that the extreme complexity involved in the whole life-cycle management of these companies
usually leads to a poor protection of the public interest.
INTRODUCTION
Beyond their multiple advantages (either real or merely budgetary), it is acknowledged
that the use of public–private partnership (PPP) arrangements entails special concerns.
These concerns have been lately addressed in the literature (see, e.g. Hodge and Greve
2010; Marques and Berg 2010; McQuaid and Scherrer 2010). However, among all the types
of PPPs, the mixed company model is surely the least studied and, at the same time,
perhaps the one that presents the biggest challenges for public authorities who decide to
embrace this type of agreement.
This article explores the use of mixed companies (entities co-owned by governments
and private investors) for the delivery of local infrastructure services. We discuss the
theoretical features and the institutional capacity of this specific governance structure,
explaining when mixed companies are expected to have an advantage in the production
of these services. We illustrate our points with the examination of four Portuguese case
studies that have relevance in the European context. The analysis of the tender and
contractual documents allows us to contrast the theoretical expectations with the actual
practice. From this comparison we extract several normative conclusions with relevance
to local decision-makers. Furthermore, we point out that further theoretical work should
be developed regarding the use of this ‘new’ governance model by local governments for
the delivery of social infrastructure. This is indeed a relevant issue both academically and
for practitioners; despite the fact that there are very few studies of mixed companies in
the public administration literature, one can currently observe several of these structures
operating in Europe (European Commission 2004).
Relying on his theoretical model, Moszoro (2010, p. 7) claims that ‘a mixed capital
structure allows to internalize both the cost of capital advantage of the public sector and the
knowledge advantage of the private sector’. In fact, this author states that ‘[a]n optimum
investment in public infrastructure requires mixed public and private ownership and
governance of the project and knowledge transfer’ (p. 26). Referring to Italian utilities,
Marra (2007) argues that mixed companies, as an alternative to the traditional public
production and to the delegation of services to concessionary companies, can undertake
higher investments while attaining lower running costs. The first purpose of our analysis
Nuno Ferreira da Cruz and Rui Cunha Marques are at the Center for Management Studies, Lisbon, Portugal.
Public Administration Vol. 90, No. 3, 2012 (737–758)
©2012 Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden,
MA 02148, USA.
738 NUNO FERREIRA DA CRUZ AND RUI CUNHA MARQUES
is to determine whether the theoretical features of the mixed company model are always
translated into practice. Second, we want to learn what are the ‘real-world’ problems
involved in the crafting of a mixed company and how they can be ameliorated. Finally,
we intend to determine when this governance structure is expected to arise and when
it may actually be good for the public interest (taking into account the institutional and
organizational theory as well as the empirical evidence gathered).
In our analysis, we find that there is a disconnection between theory and practice. Instead
of using the mixed company model to devise a relational agreement that allows coping
with unforeseen or unexpected circumstances without the need for costly renegotiation
(Spiller 2008), local practitioners may use mixed companies to circumvent budgetary
constraints (a practice that might have direct negative consequences for the users of
public services). Steijn et al. (2011) claim that ‘management’ is more important than
‘organizational form’ in PPPs. We do not disagree with this claim. Nevertheless, as we
will see in the next sections, these specific governance models entail several ‘traps’ that
constrain the potentially positive outcomes to the public interest.
The remainder of this article is organized as follows. In the second section we carefully
describe the mixed company model and its relationship with other governance structures
available to local governments for the delivery of social infrastructure. Also in this section,
we discuss the particular features of different infrastructure sectors and the relevant
aspects of the Portuguese framework. The third section provides the analysis of the four
case studies. A comparison of the cases is presented in the fourth section in which several
normative points are drawn regarding the process of structuring a mixed company. The
final section comprises the main conclusions and the policy implications that arise from
the empirical evidence.
DELIVERING LOCAL INFRASTRUCTURE
The particular case of mixed companies
Mixed (public–private) companies are framed in the so-called institutionalized PPPs (or
iPPPs); they consist of joint ventures between public sector entities and private investors.
Unlike what happens with purely contractual PPPs (or cPPPs – e.g. concession, aff´
ermage,
and management contracts), where the private partner is solely responsible for producing
the services and its rights and duties are (in)completely established in a written contract
(transactional relationship), with mixed companies, the public and private partners gather
to jointly manage and deliver the services (Weber and Alfen 2010). Nowadays, mixed capi-
tal companies are used by local governments all over the world, although with special inci-
dence in Europe (mainly in Italy, Spain, France, Germany, and Portugal; Verdier et al. 2004)
and South America (especially in Colombia, but also in Cuba and Mexico; Marin 2009).
Purely contractual PPPs are said to be ‘transactional’ because they ‘are rigid by origin’
(Spiller 2008, p. 21). Indeed they usually fail to cope with adaptations to shocks without
triggering formal contractual revisions (see, e.g. Guasch 2004). This serious problem
even led to the reconsideration of high-powered incentives to the detriment of less
theoretically efficient contracts that are more likely to promote continuity (Levy and
Spiller 1994). Unlike what happens in the public sector, private contracting is relational
in nature (Spiller 2008). Concerning public procurement, relational contracting should be
‘closely associated with partnerships and strategic alliances and involves long-term social
exchange between parties, mutual trust, interpersonal attachment, and commitment to
specific partners, altruism and problem solving’ (Reeves 2008, p. 972).
Public Administration Vol. 90, No. 3, 2012 (737–758)
©2012 Blackwell Publishing Ltd.
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