A study of the operationalization of management controls in United Kingdom Private Finance Initiative contracts
| Published date | 01 March 2020 |
| Author | Salman Ahmad,Ciaran Connolly,Istemi Demirag |
| Date | 01 March 2020 |
| DOI | http://doi.org/10.1111/padm.12401 |
SYMPOSIUM ARTICLE
A study of the operationalization of management
controls in United Kingdom Private Finance
Initiative contracts
Salman Ahmad
1
|Ciaran Connolly
2
|Istemi Demirag
3
1
Center for Business Administration, Institute
of Management Sciences, Peshawar, Pakistan
2
Queen's Management School, Queen's
University Belfast, Northern Ireland
3
Keele Management School, Keele University,
Newcastle-under-Lyme, Staffordshire, UK
Correspondence
Salman Ahmad, Center for Business
Administration, Institute of Management
Sciences, 1-A, sector E5, Phase 7, Hayatabad,
Peshawar, KPK 25000, Pakistan.
Email: salman.ahmad@imsciences.edu.pk
Utilizing evidence from a United Kingdom (UK) road case study
Private Finance Initiative (PFI) project, this article considers how
the UK central government's infrastructure strategy is operationa-
lized through accounting-based performance measures and incen-
tive systems, and articulates how the adoption of such systems is
moderated by trust practices. The findings indicate that initial gov-
ernment policy objectives, translated as performance indicators in
the case study, failed to offer adequate incentives for contractors
and created tensions. However, controls were later developed
through inter-party trust practices for managing performance and
relational risk. These findings have important implications for PFI
policy and practice, including that negotiation can: (i) lead to prag-
matic controls being introduced to foster cooperation and trust-
building; and (ii) provide opportunities for adapting the monitoring
and incentive mechanisms. This study also contributes to the pre-
vious literature where PFI control systems were largely regarded
as inadequate for dealing with unforeseen conflicts between
parties.
1|INTRODUCTION
The recent financial crisis encouraged governments globally to introduce policies designed to reduce public spend-
ing (Heald and Steel 2018). Initiatives ranging from outright sale (privatization) to mixed/hybrid models of public ser-
vice delivery can be traced back to the 1980s (Warner and Bel 2008; Alonso et al. 2015). However, it is contended
that mixed/hybrid models have come to the fore recently because privatization is no longer politically viable or
because neither the pure-public nor the pure-private route has emerged as the natural choice (Warner and Bel
2008; Florio 2014). Perhaps the most well-known mixed model variant for public service delivery is PublicPrivate
Partnerships (PPPs) (Sclar 2015). In Europe, there have been more than 1,000 PPP-based (infrastructure) projects,
with their capital value of approximately US$635 billion representing around half of total PPPs worldwide (Public
Works Financing 2011; Lamman et al. 2013). Internationally, the United Kingdom (UK) remains one of the largest
PPP actors in terms of the number and capital value of projects (KPMG 2010; European PPP Expertise Cen-
tre 2013).
DOI: 10.1111/padm.12401
92 © 2018 John Wiley & Sons Ltdwileyonlinelibrary.com/journal/padmPublic Administration. 2020;98:92–108.
Ideologically, private sector involvement in public infrastructure and service delivery was driven by a belief in
the superiority of the sector's management approaches. This phenomenon, labelled New Public Management
(NPM), emphasizes the development of competition (e.g., quasi markets) for public service delivery and the use of
extensive control regimes by the procuring authority to incentivize the service delivering organizations to achieve
targets set by the former (Diefenbach 2009; Florio 2014; Alonso et al. 2015). Thus, NPM places the state in a
supervisory (principal) role vis-à-vis private infrastructure and service delivering organizations (agent) (Sclar 2015).
While a belief in NPM rationalities could be one reason for governments to introduce PPPs (Broadbent and Laughlin
2005), other factors could be politically motivated condemnation of public sector competence and/or constrained
public funds (Sclar 2015). Indeed, PPPs have spawned from a mixture of ideological, financial and political pressures,
with the policy being ‘clothed in different garments’(Greenway et al. 2004).
Regardless of the motivations, PPPs lock the state into long-term contracts, with a fundamental issue facing the
principal (state) being mission misalignment since the private partner's primary interest is investment returns (Sclar
2001). Moreover, PPPs have a contextual and dynamic nature which could necessitate change management and
contract renegotiations over their operational life (English and Baxter 2010). Furthermore, as the contracts are writ-
ten a priori, they are invariably imperfect as it is impossible to incorporate clauses which address allpotential opera-
tional and relational contingencies (Sclar 2015). Thus, compromise and negotiation are essential for contracts to
function operationally. Given the challenges facing the state in governing PPPs, by focusing on a single road case
study PFI project (hereafter ‘RCSP’), this article articulates how project-level accounting-based controls and trust
practices are enacted for governing the operations and inter-party relationships over the operational lifecycle. While
it is difficult to determine the extent to which the findings from this RCSP can be generalized, Nisar (2007) argues
that case study research enables an evaluation of key findings and emerging ideas by providing an opportunity for
the intensive analysis of specific details often overlooked by other methods. Thus, these findings offer substantial
empirical evidence to aid our understanding of the management and governance of PPP contracts, an area that has
experienced limited scholarly enquiry (Steijn et al. 2011; Chung 2016; Caperchione et al. 2017).
In terms of structure, the next section provides the theoretical underpinnings for the empirical analysis. Then,
the background to the RCSP, including the research methods, is described. The subsequent two sections present
the empirical findings and the article's theoretical contributions, policy implications and avenues for further
research.
2|THEORETICAL UNDERPINNINGS
In the UK, the term PFI
1
commonly refers to a PPP, with the transport sector of roads being the lead PFI adopter
when it was officially launched in 1992 (Edwards et al. 2004). However, little attention has been devoted to the
evaluation of operational roads PFI projects (Shaoul et al. 2007). Also, internationally, as this sector is the highest
recipient of private finance (Public Works Financing 2011; Yehoue 2013), it is an important area to research. When
this study was conducted, there were 12 operational PFI contracts under the UK Highways Agency (HA),
2
with a
combined capital value of almost £2.5 billion (Highways Agency 2015).
1
Internationally, PFI-type models are also termed Privately Financed Projects (PFPs) or Public Private Partnerships (PPPs or P3). This
article uses the UK-specific term, PFI. This is a long-term arrangement whereby a government department acquires (through com-
petitive bidding) construction services for public infrastructure (e.g., a road), together with post-construction maintenance and ser-
vices, from the private sector under a single contract in return for unitary payments linked to thelatter's performance under the
contract. PFI procurements are mainly privately financed, with contracts typically for 25–30 years(HerMajesty's Treasury
1995, 2008).
2
In 1994, the UK government established the Highways Agency as an executive agency of the Department for Transport with
responsibility for the construction and maintenance of England's strategic road network. In April 2015, the Highways Agency
became a government company, ‘Highways England’. Existing PFI assets and liabilities (including this RCSP) were transferred to the
newly formed company (Highways England 2016).
AHMAD ET AL.93
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