PPPs: The good, the bad and the ugly

Back in October 2022, amid rising concerns over government expenditure, Prime Minister Robert Abela called for more private-sector involvement in government projects.

Public-private partnerships (PPPs), he insisted, would keep Malta’s economy going.

But history has shown us that not all PPPs are successful. In fact, some failed spectacularly, foremost among them the government’s deal with Vitals and then Steward Healthcare for the management of the three hospitals.

Experience has also shown us, however, that when PPPs are well-structured, with solid operational and growth plans, and well-managed, they can be very successful and become a win-win for the community and the economy, as well as private operators.

Over the years, the National Audit Office has, over the years, analysed the numerous PPP contracts investigating and highlighting shortcomings, as well as identifying positive aspects.

We looked at four of the main NAO reports into PPPs to see what worked and what did not.

ELC landscaping contract - The first PPP which exposed many contractual pitfalls

The government entered into its first public-private partnership in 2002. The Environmental Landscapes Consortium (ELC) was responsible for landscaping Malta’s roundabouts and public gardens.

This PPP lasted for 21 years, during which the government’s expenditure exceeded €100 million.

The main objective of the PPP was to improve the environment and the aesthetic appeal of public spaces in Malta.

In fact, the ELC was instrumental in bringing about positive change in the landscaping of Malta's public spaces. The quality related to the maintenance of landscaped sites improved considerably over the past two-decade duration of the contract.

However, the NAO highlighted several issues, including contractual breaches that could have led to contract termination, negotiated contractual rates that were not favourable to the government, a weak and understaffed monitoring unit that resulted in "tacit consent", and the government not always reaping the full benefits in terms of sites serviced.

Care Malta Group Limited Elderly Care Contract - A first attempt at elderly care home management with several challenges for the government

Care Malta Group Limited was awarded a PPP contract to provide comprehensive elderly care services, including the construction of new facilities and the refurbishment of existing ones.

CareMalta was the first private company in Malta to invest in developing a privately owned, purposely built facility for the elderly, in Mosta in 1993, and then later in Rabat in 1996.

It was also the first private company to closely partner with the Government to develop Malta’s first PPP in such care in Zejtun in 1994.

The objective of the PPP was to address the discrepancy between the demand and supply of government-funded elderly care.

This PPP relationship continued to grow and CareMalta today operates two other government-owned facilities at Cospicua (opened in December 1999) and Mellieha (opened in March 2008).

With the Mellieha Home, CareMalta Group managed to win the largest ever PPP contract yet awarded with a 30-year concession period to fund, build and manage this new ‘state of the art’ home.

The NAO report indicates that there were several issues, including the lack of competitiveness in the tendering process, high annual interest rates on PPP financing, and potential shortfalls in the number of carers and nurses provided by the home operators.

JCL and MHC Consortium St Vincent De Paule Contract - Significant savings to government, brand new infrastructure, concerns over tender competitiveness

The JCL and MHC Consortium was awarded a PPP contract for the provision of comprehensive services at St. Vincent de Paul Residence (SVPR), including catering services and the construction of a new kitchen.

The main objectives were to enhance the care provided at SVPR and increase its capacity.

The consortium committed to an additional €34 million investment, including the construction of two blocks, each block consisting of 42 rooms and 126 beds. As a result, SVPR’s capacity increased by 252 beds, bringing the final tally to 504 beds.

The first residents were admitted to the new blocks on 3rd July 2020.

Furthermore, the consortium agreed to a 6% discount on the government's current cost of servicing each resident, resulting in significant cost savings for the government over the duration of the contract.

Although it began as a tender with two bidders, the final contract evolved into a negotiated procedure, which raised concerns about the transparency and competitiveness of the process, but it was eventually given the court’s stamp of approval.

Vitals Global Healthcare/Steward Health Care Hospitals Deal - Questionable contracts, no savings to the government and deliverables that never saw the light of day and allegations of abuse of public funds

Possibly the PPP that made the most news – for all the wrong reasons – was the contract for the running of three hospitals in Malta and Gozo.

Vitals Global Healthcare, later taken over by Steward Health Care, was awarded a PPP contract to improve healthcare services in Malta.

The main objective was to improve healthcare services, including the refurbishment of existing facilities and the construction of new ones.

However, the contract was fraught from beginning to end with issues related to the awarding of the contract, financial sustainability, risk imbalance, and lack of cooperation from key stakeholders.

The contract also placed a significant financial burden on the Government, with the benefits clearly not outweighing the costs. There were also issues with the lack of promised deliverables and skyrocketing costs to the government.

Conclusion

Public-Private Partnerships (PPPs) can be beneficial to the taxpayer when they are properly managed and the objectives are clearly defined and achieved. The onus is on the government and the Department of Contracts to monitor and stay up-to-date to ensure that the taxpayer is defended at all times.