Agents never become stewards: explaining the lack of innovation in public–private partnerships

Abstract

Design–Build–Finance–Maintain–Operate contracts, as a specific public–private partnership, supposedly provide opportunities for innovation due to the long-term perspective, the use of output specifications and the collaborative environment. The literature suggests that the dynamics between procurers and consortia influence the actual contribution of these conditions to innovative practices. We therefore assess in three cases in the Netherlands and Spain how and to what extent the relationship between procurers and consortia affect these three conditions and therewith the possibilities for realising innovation and for capturing economic and social value. Findings show that the potential of Design–Build–Finance–Maintain–Operate contracts for innovation is hampered because procurers and consortia behave like principals and agents who distrust each other and who let short-term self-interested goals prevail over long-term pro-organisational goals. The cases have shown that the limited realisation of innovation and less-than-expected value generation seem to be due to the absence of a clear scheme that allows for capturing value.

Points for practitioners

• Potential innovation in Design–Build–Finance–Maintain–Operate contracts is restricted to the building of the infrastructure and the early operational phases of the contract because renegotiation clauses are normally too rigid.

•   An adequate system to work out financial risks that create economic value for the contractor are needed to produce social value through innovation.

• The contract needs to work out a ‘binding’ collaboration scheme among the consortium members to reap the benefits of innovation.