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1
The presumed relationships between accountability processes and
performance in the UK’s private finance initiative (PFI)
Good Governance – Contributing to Better Performance, IPA/CIPFA, Croke Park Conference Centre
10 December 2006
Copyright I. Demirag Dec2007
Professor Istemi Demirag,Management School
Queen’s University Belfast
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Purpose of the Paper
To explore and theorize the nature of the ‘problematic’ relationship between accountability and performance
To identify some of the mechanisms that may link accountability and performance in the case of Private Finance Initiative (PFI) in the UK
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Conceptual Frameworks for Accountability
Accountability A complex, abstract and elusive concept
‘the giving and demanding of reasons for conduct‘
Management of Expectations
Internal (relating to organisational hierarchy) or external (relating to diverse interest groups)
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Conceptual Frameworks for Accountability
Formal forms of accountability:
Discursive or communitarian accountability
Traditional or contractual accountability
Managerial accountability
Parliamentary accountability
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M.Dubnick’s Cultures of Accountability
Answerability cultures reflect hierarchical and other forms of structured social settings where individuals perceive themselves as responsible for reporting, justifying or explaining their actions to others.
Liability cultures represent settings where the individuals regard themselves as subject to a system of rules and laws that carry the potential for sanctions (positive or negative).
Blameworthiness cultures stress the sense of responsibility within a moral community where expectations are generalized rather than specific to individuals or their roles in society.
Attributability cultures focus attention on the roles that individuals play and the expectations associated with those roles.
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Hypothesized Relationships
Given these variations in accountability cultures, it is hypothesized that an effort to impact on the performance of an individual or any group of individuals would be most effective if the appropriate amounts and forms of accountability mechanisms were applied to that individual or group.
It follows that inappropriate amounts and a misfit of accountability mechanisms and accountability cultures will result in less success in achieving improved performance through accountability or, worse still, what O’Neill terms “counterproductive” performance.
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*AT
*
1BT *
2BT
B
A
Accountability0
A
1B
2BContrasting Views on the Benefits of Accountability
Performance
Pessimist
Optimist
Super-Optimist
Note: The following two charts are adapted from David Heald (Transparency, The key to better Governance 2007) Figure 1 assumes that transparency is mono-dimensional or, if it is multidimensional, it can be
measured by a well behaved index
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1t Time0t
Nominal versus Effective AccountabilityAccountability
Accountability
Illusion
2t 3t
NT3
NE TT 00 ,
ET3
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Conceptual framework for Performance
NPM reforms Assume that these will improve performance of public services
(See critiques by, Hood 1991, 1995). Inculcate new performance measurement based accountability
systems in an attempt to improve the quality of public services.
Performance is a problematic concept because it is hard to,
Define performance. Set performance standards Measure performance (i.e. output and outcomes) of a
programme (Humphrey, Miller, Scapens, (1993)
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Operationalising performance in PPP/PFI contracts
Performance is considered to be a concept synonymous to value for money (VFM) and has been broadly defined in terms of the 3Es, economy, efficiency and effectiveness (Glynn, 1985; Glynn and Murphy, 1996).
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PFI
Private Finance Initiative (PFI) is a form of PPP where the needs for projects and objectives can be identified and related to a single project with identifiable cash inflows and outflows and expected responsibilities – usually 25-30 years.
Thus accountability is either non-existent or in the future
(Accountability after lifetime!).
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Characteristics of PPPs? A new phenomena?
Reducing public sector entity - Public sector responsible for services but not delivery - Relationships managed at relatively low level within public
sector entity
Six stages of PPPs, proposal, negotiation, contract, construction, operation and termination
- Very long term contracts and few sanctions, unequal power relations
Multiple private sector partners which may change over time with different interests
- Subcontracting – costs and output measures diffused thru supply chain
information deficit due to commercial sensitivity
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The scale of PFI/PPP in UK (End of 2006)
794 signed deals
Capital value £55bn
£204 bn payments from 1994-5 until 2033-34
£185 bn payments from 2006 until 2033-34
Average £7 bn p a
Largest sectors (in terms of capital value): transport, health, defence, education
Largest sectors (in terms of annual payments > £1bn pa): transport, defence and health in 2010;
Source: Treasury and PUK
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PFI Contract Structure Unitary Services Payment Subordinated Senior Debt Equity & Debt Construction Contract
Principal and Dividends,
Interest Principal & Interest Subordinated Operating Dividends, Equity & Debt Contract Principal & Interest
Sub-contracting
Government Customer
Banks
Special Purpose Company
(SPC)
Asset Provider
(e.g. Own 50% shares in
SPC)
Service Company
(e.g. Own 50% shares in SPC)
Sub-contractors for Catering, Security, Maintenance etc.
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Communitarian Accountability Process
General aim of the accountability process
Reaching consensus among stakeholders
Specific objective of the accountability process
Determining general performance standards by consulting all relevant interest groups
Definition of performance in the process
Responding to the expectations and needs of stakeholders
Parties involved in the process
Project BoardProject Team User Assurance Group / public
Mechanisms/ activities linking accountability and performance
Consultation Preparing Outline Business Case, Public Sector ComparatorSelection of Bidders
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Contractual Accountability Process
General aim of the accountability process
Fulfillment of PFI objectives by incorporating them in the contracts
Specific objective of the accountability process
Translating general standards into more specific and binding legal standards
Definition of performance in the process
Level and quality of serviceUnitary Payments and penalty clausesChange order and flexibility built
Parties involved in the process
Project Team (mostly)ContractorsConsultants
Mechanisms/ activities linking accountability and performance
Final Business CaseWriting Contracts
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Managerial Accountability Process
General aim of the accountability process Efficiency and effectiveness in service
provision
Specific objective of the accountability process
Implementing and evaluating achievement of outcome against standards
Definition of performance in the process
Service quality: - Responsiveness- Innovation
Parties involved in the process Project Monitoring Team (Private and Public
sector)
Mechanisms/ activities linking accountability and performance
Internal reporting:- Monthly review meetings- Quarterly review meetings
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Parliamentary Accountability Process
General aim of the accountability process Achievement of policy goals
Specific objective of the accountability process
Reporting to Parliament on the legitimate use of public funds
Definition of performance in the process
EconomyEfficiencyOutcome
Parties involved in the process
Public sector auditorsMinisters (representing public)
Mechanisms/ activities linking accountability and performance
External reporting to Parliament and public
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The Unchallenged Accountability and Performance Assumptions
Warrantability assumption the relationships are based on theoretically and empirically
credible knowledge.
Tractability assumption the factors constituting the relationship are visible, subject to
control, and can be acted upon.
Measurability assumption the behaviour being subjected to account-giving can be
measured.
Feasibility assumption The account-giving actors are capable of delivering.
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The strength of links between Accountability and Performance
Warrantability No empirical evidence exists on the superiority of PFI
as compared to traditional procurement.(Mayston, 1999; Edwards and Shaoul 2003a, 2003b).
Tractability Evaluation of VFM benefits of PFI is subjective and
long term process (Broadbent, Gill and Laughlin,2003; English and Guthrie, 2003).
VFM is a problematic concept.
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Measurability VFM involves the preparation of a Public Sector Comparator to
benchmark the PFI option is a subjective process.
Selection of performance measures and measuring efficiency and effectiveness of PFI programmes are subjective.
Feasibility PFI accountability processes are difficult to implement. Risks may revert back to the public sector when the private
sector fails to deliver (See, Royal Armouries, Channel Tunnel Rail Link, the National Insurance and Passport Office PFIs).
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Conclusions
Accountability is a buzz word but it is difficult concept to define to the satisfaction of all the interested groups.
Accountability is a continuous and dynamic concept often emerging in different forms and may be overlapping and influencing each other at any time.
Information available on value for money is limited.
Risk transfer thus becomes crucial.
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Conclusions Cont… Performance relating to accountability may not
be immediate.
Therefore it may not be warrantable, traceable, measurable and feasible.
Further empirical work is required to ground accountability concepts and theories and their assumed performance relationships.
The best that can be expected is to explain each case on its own merit and try to explain the possible links.