Integration of Multiple Stakeholders’ Interests: Singapore Case Study

A significant case where integration of the program management team and the systems engineering team resulted in positive outcomes involved the issue of water supply in Singapore. The Singapore water supply is managed in totality. Collecting rainwater, purchasing water, purifying water utilizing reverse osmosis, and desalination were all considered. Approaches included even incentivizing consumers to change their habits by making drains and canals recreational areas to encourage the public not to dispose of waste in their drains. By managing sewage and drainage together with water, environmental as well. By carefully adjusting organizational boundaries, Singapore has managed to reduce silo thinking and parochial interests. The relationships between the industry innovators, government, suppliers and users, and technology innovators create opportunities for Singapore’s water management. This demonstrates how multiple stakeholder interests can be combined and integrated to create a viable water management solution.

Continuous improvements through the use of technology and elimination of waste, such as reducing water that is not accounted for in the system, help to assure the sustainability of an adequate supply of water for a growing Singapore population. The importance of relationships between the stakeholders is also recognized. Industry innovators, political leadership, suppliers, and consumers are all involved; the program has been able to incentivize this diverse group to work together for a common goal, i.e., assuring the sustainability of an adequate supply of water for Singapore into the future (Chia 2008).

Through the years, Singapore has embarked on an integrated, effective and cost‐efficient way to meet the nation’s water needs with investments in research and technology to treat, recycle, and supply water. Singapore believes that everyone in the country has a stake in water – as a necessary resource, an economic asset, and an environmental treasure.

Utilizing systems engineering and taking into consideration the systemic structures and culture helped Singapore achieve its first milestone of supplying its own water resources. Singapore has been able to overcome the shortfall that would have come about with the expiry in 2011 of the first water agreement with Malaysia (Chia 2008). By 2060 when Singapore’s second water agreement expires with Malaysia, Singapore plans to expand the current water capacity to meet 55% of Singapore’s future water demand (Singapore PUB (2022).

Characteristics of Successful Program Integration: The Systems Perspective

Systems integration techniques originally were developed to manage and integrate complex weapons and space exploration projects (Hughes 2004; Morris 2000) but are now used in all types of projects including infrastructure, transport, agriculture, sports, and energy. Systems integration may be undertaken by the project organization or a prime contractor or can be implemented on a public project by the public sponsor(s) or an external company specializing in systems management.

Systems Integration on the Battlefield

Retired Navy Captain, Eugene Razzetti (2020) describes the relationship between systems integration and program management this way:

System Integration is an indispensable subset of Program Management. Programs become products, and products find their way to the Battlespace. They must perform as required (and sustainably) in the Battlespace; U.S. lives and missions may depend on it. If that product, be it a weapons system, platform, or a piece of communication equipment, fails – someone may not make it home alive.

Moreover, as described by Razzetti (2020), if a weapon system or platform has reached the Battlespace, it had better reflect the absolute best doctrines and efforts of proactive DoD program management. “Fight with what you have,” the unfortunate cliché in the briefing room remains the unhappy battle cry at the front. Program managers and contractors must recognize and support what warfighters already know all too well, that:

• Weapon systems or platforms have vital end uses in support of mission commitments.
• Successful end use requires urgency of arrival in‐theater, and sustainability of operations in‐theater.
• U.S. lives and U.S. missions depend on those weapons systems and platforms.

Systems Integration in Interorganizational Projects

Systems integration refers to the work undertaken across organizational boundaries in interorganizational projects to integrate the systems that these projects deliver. As the world’s first dedicated systems integrator firm, for example, Ramo‐Wooldridge Corporation, in California, USA, worked across organizational boundaries on the Atlas missile defense project (following World War II) with the responsibility for coordinating “the work of hundreds of contractors and development of thousands of sub‐systems” (Mahnken 2008, p. 38). Yet separating responsibilities for systems integration from those of project management has not been successful on later projects (Hughes 1998). Systems integration, and the associated practices of interface management, are a natural locus for project management (Morris 2000).

Despite numerous failures, the literature also describes successful programs resulting from good systems governance and integration such as the Øresund Bridge linking Denmark and Sweden (INCOSE 2015, pp. 40–42); the NASA MARS Pathfinder program (Nicholas and Steyn 2008) and the I‐15 Reconstruction Program in Salt Lake City (FHWA 2011).

Miller and Lessard (2001) in their study of 60 large civil engineering programs (LEPs) describe the organizational structure of these programs, the shaping of a program, the program’s institutional framework, and the capacity of self‐regulation and governance. The up‐front effort involved in shaping the program so it can survive turbulence improves the chances of success, but this requires leadership and systems thinking (Miller and Lessard 2001). Müller (2009) discusses governance at the program and organizational level linking program and strategic management. As noted by Locatelli et al. (2014), for programs delivered in complex environments, the governance needs to be transformed from a corporate/program perspective to a “systems perspective.” As the authors describe, system governance increases the likelihood of program success.

An excellent example of systems governance is the Super Hornet Project developed by the U.S. Military that successfully exceeded cost, schedule, and technical requirements based on the integration of systems engineers and program managers (see Box 6.2).

Up‐Front Planning Stage

The most important stages for developing a “systems perspective” are during the up‐front planning or earliest stages of the program planning (IEEE 2005; Miller and Hobbs 2005). For example, in the planning of the California High Speed Rail, the government has addressed the importance of a statutory oversight authority and a legislatively mandated risk management plan to integrate diverse organizations into one integrated team.

Closely related to systems governance is “systems thinking” – a method developed to understand how systems influence one another within the whole. Systems thinking is what distinguishes systems engineering from other types of engineering, and is the underlying skill required to perform systems engineering (Beasley and Partridge 2011).

Case Study: The International Space Station: A Model in Systems Integration

The International Space Station (ISS) is perhaps the most famous of all systems engineering programs known for its convergence of science, technology, and human innovation. It demonstrates new technologies and makes research breakthroughs not possible on Earth. The space station has been continuously occupied since November 2000 and during that time more than 251 people from 19 countries have visited the space station with 155 from the United States and 52 from Russia (NASA 2021). This program crosses cultural barriers and raises all kinds of issues relevant to the integration of systems engineers and program managers including organizational integration, knowledge sharing, leadership, and team trust. Over the years NASA has had to develop expertise in systems engineering while keeping up with all of the technology issues and challenges faced by this daunting laboratory in space.

In relation to the major cost and schedule issues, the systems engineering challenge on the ISS was equally monumental. NASA had to quickly learn how to adapt its system engineering approaches to include an awareness of those of the international partnership (Stockman et al. 2010). Essentially, NASA had to learn how to operate as a “managing partner” to accommodate its international partners (IPs) including different perspectives on approaches, designs, and operational risk and safety. A major integration effort was involved in developing the partnership agreements, allocating costs and usage rights, and determining operational control. Under the new ISS partnership, NASA was concerned about maintaining schedule and cost on the ISS program because failures would not be tolerated by the U.S. Congress. Initial program strategy was for no IP to be on the critical path, which would allow NASA more control to reduce risk. As it turned out, however, the Russians ended up providing the first two major modules that were at the front of the critical path. NASA was the first IP among equals, with each board chaired by the NASA representative. In cases where consensus could not be reached, the NASA representative technically had the right to decide for the board; however, this right was rarely used in practice.

NASA had to solve many major systems engineering challenges. It had to figure out how to coordinate and integrate all of the IPs and their highly integrated modules. While it was not easy, NASA eventually worked out a process that addressed the concerns of multiple countries with differing cultural and engineering approaches to major program development and execution. NASA’s lessons learned report issued the following recommendations for NASA systems engineers (Stockman et al. 2010):

• “Systems engineering involves communications, critical to international partnerships, so before worrying about technical interfaces, make sure the integrated product teams and communication bandwidth between partners are optimal. This fundamentally includes face‐to‐face meetings, so regular international travel is a large and essential part of the systems engineering cost” (p. 87).
• “In an International Space Station like project where so many different countries and companies contribute hardware and software, the interfaces must be extremely simple” (p. 87).
• “Maintaining a high level of competent and experienced personnel over a two‐decade long program requires strategic level planning and execution of workforce planning …” (p. 87).
• All of the above required not only integrated teams, but an integrated organizational structure as shown in Figure 6.1. Boeing plays a critical role on this team as the lead systems engineer for the program. Currently, the overall program team is managed through an ISS Control Board Structure (Figure 6.1). The ISS team uses top‐level control boards and panels to manage the ISS hardware and software configuration along with any operational products. At the very top of the process is the Space Station Control Board (SSCB) that manages the multilateral control of the configuration. A NASA Space Station Program Control Board exercises control over the several layers of more detailed ISS subsystem control boards associated with the U.S. elements. This process is also integrated with the Space Shuttle control boards. Each partner utilizes a similar control mechanism for their elements.

  

Coordinating the inclusion of the international partners whose system engineering approaches differed significantly was a major challenge of the ISS program. The problem was summed up well in a 1969 speech by Robert Frosch prior to the ISS and prior to becoming NASA Administrator:

I believe that the fundamental difficulty is that we have all become so entranced with technique that we think entirely in terms of procedures, systems, milestone charts, PERT diagrams, reliability systems, configuration management, maintainability groups and the other minor paper tools of the “systems engineer” and manager. We have forgotten that someone must be in control and must exercise personal management, knowledge and understanding to create a system. As a result, we have developments that follow all of the rules, but fail… . Systems, even exceptionally large systems, are not developed by the tools of systems engineering, but only by engineers using tools.

(NASA 2010)

The lesson here is that whether you are a systems engineer or a program manager you cannot rely on tools to understand how program performance and organizational value is measured and controlled, but instead must rely on leadership skills that encourage an environment of inclusivity, collective creativity, shared ownership, and large‐scale transformation.

Integration in Program Delivery: Heathrow Terminal 5 (T5)

An important example of integration in program delivery that is often overlooked is the integration of the program team with the organization that will eventually operate the program. We can build the perfect program on schedule and budget, but if we fail to integrate the program with the operating organization, the program can ultimately be deemed a failure. As an example, Heathrow Terminal 5 (T5) was a megaproject that was on schedule and on budget since construction began, defying all the trends of previous megaprojects in the United Kingdom (Davies et al. 2009). T5 was seen as the first step in the regeneration of London’s main airport in preparation for the 2012 Olympics. However, on the day the Terminal opened, what was to be a grand celebration instead turned into a national disaster due to baggage delays, temporary suspension of check‐in, and the cancellation of 68 flights. This failure has been attributed to among other things a lack of systems integration and coordination between the program and the operating organization – each operating as separate systems. Once program management on Terminal 5 thought they surmounted the considerable issues related to building such a vast and technologically sophisticated terminal they suffered from technological hubris and forgot about the people issues related to the successful functioning of any large technical system (Brady and Davies 2010).

What really failed in the Heathrow Terminal Case Study was Integrated Project Delivery (IPD). The concept of IPD as defined by the American Institute of Architects (AIA), is a project delivery approach that integrates people, systems, business structures, and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize program results, increase value to the owner, reduce waste, and maximize efficiency through all phases of design, fabrication, and construction (AIA 2008). If there is little integration between the program and operations the final outcome is almost certain to fail. Ironically, Heathrow Terminal 5 was a model in systems integration in many ways, yet the outcome was a failure due to the discontinuity in one of the most important areas of integration, program delivery.

Integration is important in all aspects of a program because it fosters collaboration, and collaboration fosters knowledge and trust – key elements of program success. In every megaproject, there is a need to integrate the processes and systems required to deliver the program with those involved in the operations of the program’s end result (Davies et al. 2009). Recognizing the complexity of the delivery process in Heathrow Terminal 5, the CEO in his testimony before the House of Commons stated:

… with the benefit of hindsight, we might have adopted a more humble position, given the track record, (of other airport opening disasters) and it was unfortunate that we created an expectation of perfection in what was an extremely complicated programme.

Testimony of Colin Matthews, BAA CEO in House of Commons Transport Committee (HCTC) (EV 5) (2008)

Key Takeaways from the Heathrow Terminal 5 Case Include:

• Systems engineering is the emerging paradigm in complex environments to transfer the governance from “project based” to “system based” and thereby increase the chance of holistic success (Locatelli et al. 2014).
• Integration between the systems engineer, the program management team, and the operations team should take place during the earliest phase of the program and continue throughout the life cycle.
• Integrated delivery is an approach that integrates people, systems, business structures, and practices into a process that fosters collaboration and trust.
• Systems integration is a form of governance that can detect problems and solve them long before they spiral out of control.
• The systems engineer and the program manager have overlapping roles that benefit from shared responsibility.

The London Olympics

The London Olympics is another example of integration of a large, complex system megaproject that had achieved some success through a system of systems model (Davies and Mackenzie 2014). The construction program for the 2012 London Olympics broke down into many individual projects and was managed as a program similar to most megaprojects. The construction program consisted of more than seventy projects (planned, approved, and managed by principal contractors), including fourteen temporary and permanent buildings, 20 km of roads, 26 bridges, 13 km of tunnels, and 80 hectares of parkland. At the level of system of systems, a structure and process were established with capabilities to understand the total system, manage external interfaces with multiple stakeholders, coordinate the progress of the overall program, and help manage individual system projects.

Davies et al. (2009) research underlines the importance of developing a system of systems integration capability to manage the most complex type of system megaproject. In addition to the technical and managerial capabilities required to design and integrate individual systems (Shenhar and Dvir 2007), a wider role of systems integration is required to manage the interfaces between multiple systems within a program, and between the system as a whole and external environment within which it is conceived, developed, and delivered (Davies and Mackenzie 2014).

Integration at the Big Dig

During the peak construction years on America’s largest inner‐city highway project, the Central Artery Third Harbor Tunnel Project, popularly known as the Big Dig, changed the project structure from a traditional program management model into an integrated project organization (IPO) as shown in Figure 6.2.

An IPO is an organization where both the owner’s employees and the management consultant’s employees work under one organization structure. This change was made because management decided that an integrated organization would enhance collaboration and reduce conflict at a time when it was desperately needed. The change involved challenges as the project had multiple employers each with different policies and procedures and work cultures. As shown in Figure 6.2, the integration meant that employees of one employer would be reporting to the senior staff of another employer. This transition to an IPO was made in 1999, just as construction activity was peaking. Ideally, an IPO should have been established at the commencement of the project to ensure its full benefits (Greiman 2013). From the project perspective, the IPO solved many implementation problems and created greater efficiencies; however, this transition to the IPO was met with mixed reviews from the oversight perspective. In its Report on the Big Dig, the National Academies stated (BICE 2003): “The implementation of the IPO has complicated the control of expenses for the B/PB management‐consultant team.” One of the criticisms of the Big Dig during the process of integration was the loss of independence between the public‐ and private‐sector managers of the project. Working as one integrated team has many advantages but the oversight function requires a separate independent structure (BICE 2003).

Integration at Crossrail

The introduction of the integrated team simplified accountabilities and created a framework for the collaborative tackling of challenges throughout the project, whilst ensuring Crossrail could recruit the best person for any particular role.

— Bill Tucker, Central Section Delivery, Project Delivery Partner

The Crossrail project is the biggest infrastructure project in Europe. It required the construction of 118 km of new railway from Shenfield and Abbey Wood in the East to Heathrow Airport and Reading in the West, including the construction of 10 new stations. Crossrail operates as an integrated team with staff from Crossrail Limited, the Program Delivery Partner, and the Project Partner. Each organization has its own recruitment processes and procedures as well as terms and conditions for staff.

Crossrail has defined its governance at two levels:

• Corporate Governance – established by the Crossrail Board which sets out delegated authority levels for the board, its committees and subcommittees as well as the scheme of delegated authorities for the executive directors of CRL.
• Program governance – which sits beneath this and constitutes all the forums which, in aggregate, control the Crossrail Project in accordance with the delivery strategy.

Crossrail has implemented processes and procedures to streamline the recruitment of the integrated team. A learning legacy paper on Recruiting for an Integrated Team reviews Crossrail’s approach to working with multiple partners to secure the right person for the right role (Kosowski 2016). Crossrail also implemented processes and procedures to bring people from multiple organizations, with different terms and conditions together so that they can work in an integrated way as one team. This process is outlined in the People Strategy paper (Pascutto 2016). With staff from different employers, subject to different processes, the integration allowed for the development of processes to manage change and secure the right person for the right job. Crossrail was required to plan for and manage organizational change throughout the project lifecycle.

In contrast to the Big Dig one of the core principles of the governance structure for Crossrail is the clear separation of the sponsor group (or commissioning body), the delivery body (or executing body) and the users. In Crossrail’s case, the sponsoring group comprised the two main funders, the delivery body was undertaken by the executive board of Crossrail Ltd (supported by the project management team and supply chain) and the users are the operational team (Figure 6.3). This separation is vital as some organizations, e.g., Transport for London, have a role in each of these elements so clarity of reporting and accountability line is essential. CRL has put prominence on core governance principles such as:

• Clear statement of objective and parameters – including arrangement for remedy
• Sufficient autonomy with a single “controlling mind”
• A clear system of delegation and process for timely decisions that fall outside the limits of delegation
• Process for controlling changes
• Process for reporting and other communications
• A collaborative culture and working relationships
• Boardroom understanding of project objectives, strategy, and approach of what needs to be achieved
• A defined system for assurance at all levels

Valuation of a PPP Opportunity

PPP (P3) opportunities are assessed in different ways by public procurement processes, intergovernmental organizations, multilateral banks, and private investors. Organizations use different analytical tools and data to better understand the concepts, inputs, key assumptions and outputs from evaluations of risk, financial feasibility, benefit‐cost, and “value for money” analyses to compare the aggregate financial benefits and costs of a P3 alternative with conventional procurement. The following tools are commonly used in the evaluation of a P3.

1. The risk assessment component assists the user in understanding the process used in identifying, defining, valuing, and allocating risks. The outputs from this component are used as inputs into the value for money, benefit‐cost, and financial viability components.
2. The value for money analysis component assists the user in understanding the process used in conducting an evaluation of the financial impacts of P3 delivery in comparison with conventional delivery.
3. The benefit‐cost analysis component assists the user in understanding the process used in conducting an evaluation of the societal impacts of P3 delivery in comparison with conventional delivery.
4. The financial viability analysis component assists the user in understanding the process used in conducting an evaluation of the affordability to the public agency of the P3 delivery option and the conventional delivery option.

Multilateral banks such as the World Bank, the EBRD and the Inter‐American Development Bank use a number of financial ratios to test the financial viability including:

• Debt‐to‐equity Ratio – Compares the amount of debt in the project against the amount of equity invested.
• Debt‐service cover ratio (DSCR) measures the income of the project available to meet debt service (after deducting operating expenses) against the amount of debt service due in the same period. This ratio can be either backward‐ or forward‐looking.
• The loan life cover ratio (LLCR) is the net present value of future project income, available to meet debt service, over the maturity of the loan against the amount of debt.

The typical structure of a PPP is shown in Table .6.1

Typical Steps in the PPP Process

The development of a PPP process can be complex and time consuming and must comply with local and national laws to ensure that the agreement will be legally sound and enforceable if disputed by the parties themselves or a third party that has an interest in the project. Box 6.3 provides an example of the PPP process in Ethiopia, yet it is similar to many of the requirements for approval of PPPs in both developed and developing countries (Ethiopia 2018). One of the key aspects in ensuring that a public private partnership will be viable is the openness and transparency of the procurement process for the selection of the private sector partner. Any failure to follow the tender procedures may result in revocation of the PPP agreement at a later date.

Program and Project PPP Development

The structure of a PPP program can vary widely depending on the financial, economic, social, technical, and legal analysis. In some countries, the PPP development may involve a two‐step process. As shown in Figure 6.5, the PPP should be structured first at the program level which usually requires establishment of a statutory and regulatory authority which defines the public and private obligations and returns, develops capabilities and determines a procurement approach. The PPP at the project level requires preliminary project planning, eligibility of PPP, solicitation of proposals, and procurement and team integration and development. This is generally a negotiated process whereby the government entity will have certain requirements that may be established by law or regulation and the private sector will have certain requirements based on an analysis of their business case.

Advantages and Challenges of Implementing P3s

Although PPPs are popular in many European countries and in many developing countries where the infrastructure needs are greatest and financing is scarce, P3s have gotten off to a relatively slow start in the United States. However, they are increasingly used for large‐scale infrastructure and public works projects, particularly highway projects. Many P3 projects in recent decades have been extremely successful. For example, the high‐occupancy toll lanes project in Virginia involving several private sector firms, resulted in cost savings in the millions of dollars. In addition, the collaboration between government and private partners brought expanded highway capacity online years earlier than a traditional government‐does‐all approach might have done. A key element of these contracts is that the private party must take on a significant portion of the risk because the contractually specified remuneration – how much the private party receives for its participation – typically depends on performance with incentives sometimes given for better than expected performance. Table 6.2 provides a list of some of the typical advantages of a PPP along with the challenges though every project has some unique advantages and challenges depending on the complexity and uncertainty that exists, particularly in megaprojects.

The Global Implementation of P3s: The Demand and Supply Side

The number of projects using PPP as a model of service delivery has increased in Emerging Markets and Developing Economies (EMDE). Between 2004 and 2013, G‐20 (Group of 20) countries accounted for 14 of the top 20 countries in terms of PPP project numbers, based on PricewaterhouseCoopers (PwC) analyses. Of those, three countries (China, India, and the United Kingdom) accounted for almost half of the total number of projects carried out by the top 20 countries. EMDE have tended to focus on more‐fundamental economic infrastructure such as energy and transport, while high‐income countries have implemented social infrastructure PPP projects, such as schools, hospitals, and leisure facilities. In EMDE, there is a steady and recognizable demand for investment in PPP infrastructure (WBG 2021).

Though the demand for PPPs can be great to make otherwise unviable projects bankable, the supply side is equally important. In other words, PPPs require the right projects to make the financing structure viable, they must have a regulatory environment with sustainable goals and they must also be able to attract the right kind of technical expertise combined with the ability to have a reliable revenue source that will be available throughout the expected life cycle of the project and beyond (WBG 2016). Box 6.4 highlights the PPP challenges in constructing Delhi Metro Rail.

The Economic Case for a PPP: Power Purchase Agreements

In order to make a PPP workable, the potential cash flow and revenue stream must be economically sound and predictable to the fullest extent possible (CRS 2020). Without a reliable revenue stream, a PPP will not be viable. Some PPP projects are funded wholly or primarily through user payments. This is most common in economic infrastructure sectors such as toll roads and electricity payments. Other PPP projects are funded wholly or primarily through government sources. This is the case in most social infrastructure projects, but government payments also occur in many economic infrastructure projects. For some forms of economic infrastructure (such as rail transport or water), a PPP project may be just one component of a broader network or service that is operated by another entity (the incumbent operator) and the user is paying that operator for the final service (transportation, water supply to homes). Examples are HSR projects in Europe (mainly in France and Spain), or wastewater and treatment projects (WWTP) and purification plants where the water is taken off by a public water authority that operates the service. For other projects, where it would be possible to charge the user for the use of the infrastructure contracted under the PPP (e.g., a road), it may be decided that no charge will be applied (that is, it would be a toll‐free highway). That is a public finance decision as to whether the project should be funded through user charges to the specific users or through utilizing tax revenues to make government payments (the tax revenues could be derived from usage‐related taxes, such as a fuel tax, or from general tax revenues). Examples are found worldwide, including in Canada, Hungary, Mexico, Spain, and Portugal.

A common form of revenue sourcing in the energy industry is the power purchase agreement between a producer of energy and an offtake purchaser know as a take‐or‐pay contract. Offtake Agreements significantly increase the likelihood of project loan approval by reducing long‐term project risk and offering stable cash flow for many years. To attract PPP investors and lenders a project must have a viable economic structure. This means there must be sufficient funds to cover the debt ratio as well as to provide a reasonable return on investment to project equity holders. Depending on the type of project, generally revenue is secured from user fees, government guarantees or publicly funded sources, or in the case of energy projects possibly through an offtake purchaser such as an electric or telecommunications company. Whatever, the source of financing it must be secured before project financing documents can be completed. Key features of a power purchase agreement in Vietnam are highlighted in Box 6.5. This document provides a form of guarantee for the project sponsors and lenders, but also provides for allocation of risk and transfer of liabilities under certain agreed upon circumstances. The power purchase agreement is an essential document to make a project bankable when user fees contain more uncertainty. Box 6.6 highlights the characteristics of some successful PPP projects in Hong Kong.

Privatization of the World’s Water Supply

Privatization of the world’s water supply has been subject to controversy in Europe and other parts of the world for some time. At the European level, consistent with the definition of water as a public good of fundamental value for all Union citizens (EC 2014), water is lately at the center of a debate on a return to public management of water (Novaro and Bercelli 2017). The new European regulatory framework seems to widen the range of opportunities for the adoption of public management models for water control: on one hand, by excluding water services from the application of the market‐oriented rules governing the concession contract; on the other, by extending the application of the in‐house providing scheme (p. 2385).

France could be described as the birthplace of water privatization. Private companies have run French waterworks to one degree or another since the Napoleonic era (Godoy 2003).

Private water firms have had a dominant role in France for more than a century and in England and Wales since the 1989 Thatcher privatizations. Private utilities also have significant market shares in Spain, Italy, and Denmark, but attempts to privatize water elsewhere have met major resistance and support for public ownership has been growing across Europe for more than a decade.

The risks of privatization, of water resources according to a report by Léo Heller, former United Nations special rapporteur on the human rights to safe drinking water and sanitation, include unaffordability and unsustainability, possible deterioration of services, and increased opportunities for corruption (Heller 2020).

With water‐related hazards on the rise and the number of people experiencing water stress increasing, experts say the need for better water management is key. Yet, access to clean water still eludes 76% of people in sub‐Saharan Africa. Sometimes, according to Aminata Touré, former prime minister of Senegal and a member of Sanitation and Water for All’s Global Leadership Council, the private sector is the one with the tools and capabilities to access water that may be hard to reach (Root 2021). According to the World Bank (2016, p. 33) project cancellation rates vary greatly among sectors – for instance, deals in transport (5.1%) and water (5.7%) have a much higher cancellation rate than those in the energy sector (2%). With the lowest cost recovery among all sectors, it should be no surprise that water has the highest rate of cancelled investment commitments at 28.3%. In addition, the water sector has been plagued by the negative perception among stakeholders that water supply should not be provided by the private sector (WBG 2016). The impact of the pandemic has underscored the importance of strengthening key provisions in PPP legal frameworks to ensure that resilience to global disasters, such as pandemics, and other kinds of external shocks is strongly integrated in PPP projects and programs’ (WBG 2021).

Public–Private Partnerships: Goals and Advantages

The realities of the private sector marketplace exert a powerful discipline on businesses to maximize efficiency and take full advantage of business opportunities. Successful PPPs enable the public sector to access the discipline, skills and expertise of the private sector.

The Luis Muñoz Marín International Airport in San Juan, Puerto Rico, was privatized in 2013 through the U.S. Federal Aviation Administration (FAA) Airport Privatization Pilot Program (APPP) (FAA 2022). The partners involved were the public airport owner, Puerto Rico Ports Authority, the Puerto Rico P3 Authority, and Aerostar – a 50–50 venture between Highstar Capital, an infrastructure investor, and Grupo Aeroportuario del Sureste SAB de DV, which operates nine airports in Mexico. The process took four years to complete and resulted in a 40‐year lease under the Aerostar name. The privatization of San Juan’s Luis Munoz Marin International Airport demonstrates that privatization can occur in the United States if both the public and private sectors see that the benefits outweigh the costs. Meanwhile, instead of privatization under the APPP, many public sector airport owners have engaged the private sector through a variety of partnerships ranging from management contracts to development agreements to help reduce costs, improve services, and obtain capital investment without transferring airport control. While privatization may be an option for those public‐sector airport owners that determine the potential benefits outweigh the costs, the current structure of the U.S. airport system provides for a broad range of private‐sector participation making the need for full privatization less likely (CRS 2021).

Transit Services Public–Private Partnerships

The Reason Foundation in a study for the World Bank described private provision of transit services in three forms (Feigenbaum 2019). The purest provision – privately financed, operated, and maintained services – is limited to locations in which operating transit services can turn a profit. Thus far that has been limited to cities with a population density of 10 000 people or more per square mile. These include dense Asian cities such as Hong Kong and Tokyo, as well as other densely populated cities such as Mexico City and Cairo. As these are the only places in the world where transit systems can be operated profitably, there are a limited number of truly private services.

In a second type of private service, the public sector procures a contract with the private sector to design, build, finance, operate, and maintain service. These public–private partnerships (P3) are becoming an increasingly popular method of building new rail lines. Some experts believe that they could be used for bus rapid transit lines as well. P3s have a track record of producing a higher‐quality, lower‐cost transit solution compared with public management. Most popular in parts of Europe and Latin America, P3s for transit are now being used in Canada, the United States, and the Middle East. Most transit P3s use some amount of public funding to help build and/or operate the service.

A third option is for the private sector to plan and operate transit service via a competitive service contract, often called tendered service. Public entities will choose to contract different service provisions including operations, service planning, and maintenance to a private entity. These public agencies seek requests for qualifications and requests for proposals from several consortiums. They select between three and five finalists and award service to the team that offers taxpayers the best overall value (Feigenbaum 2019).

Public Private Procurement in the United States

The U.S. Department of Transportation sets forth detailed guidance in its Public Private Partnership (P3) Procurement Guide for Public Owners (USDOT 2019). There are rare exceptions to the open bidding process in a public project and they are usually set out in law or regulations. For example, if a project requires unique technical skills and engineering knowledge not readily available in the market, the public sponsor may seek a waiver or may pursuant to statute seek a sole source for the project without having to go through a public bidding process.

Or, as illustrated in the public procurement for the I‐495 Capital Beltway High‐Occupancy Toll (HOT) Lanes project in the Washington, DC area in Box 6.7, an exception may come about by an initial solicitation of a proposal by the private sector and no other bids are forthcoming illustrating the process for an unsolicited proposal.

The Seoul Metro System Private Procurement

Another example of private procurement for public transportation projects, is the Seoul Metro System, considered one of the best in the world (Railway Technology 2020). The subway is funded by the Macquarie Korea Infrastructure Fund (MKIF). It is the first private investment in the subway system. The company has made investments in the form of equity and subordinated loans. MKIF has a concession term of 30 years, starting from July 2009. On a daily basis, Seoul’s subway system serves more than 7 million passengers, compared to Beijing’s 6.74 million, Tokyo’s 6.22 million, and New York City’s 5.47 million. Seoul also has the highest number of subway stations in operation, comparable to New York City (468 stations) and Paris (301 stations); and a significantly longer track length than Beijing, London (415 km), and New York City (368 km) (Warsen et al. 2018).

Discussion Questions

1. Why is integration an important tool in developing and implementing global megaprojects?
2. How can the roles and responsibilities of program managers and systems engineers be integrated in the context of a megaproject?
3. How can integration improve the governance of megaprojects?
4. What are the key policy issues that must be decided prior to initiating a public private partnership?
5. What are the essential criteria a government must consider in selecting a private sector partner?
6. What is systems thinking and how can it be utilized to add value to the partnership?
7. How would you go about integrating the project organization and the numerous disciplines that exist on a project?
8. Why are public private partnerships important to developing countries?
9. How should public private partnerships be structured and governed?
10. What are the cultural considerations in establishing a PPP between the host government and foreign investors?
11. How can the PPP ensure private investors that the return on investment is realistic?
12. Who should bear the financial, economic, political, construction, operations and maintenance risks of a PPP?
13. What are the essential phases in building a PPP?
14. What are the considerations in transferring a PPP from a project environment to operations? How would you mitigate risk during and after the transition?
15. Why would a project seek out an offtake purchaser and in the case of an energy project what are the advantages of a power purchase agreement and who would the agreement benefit the most?
16. How do you ensure the integrity of the PPP and its partners?