Defence Conference

Collaboration
To improve efficiency, governments have the tendency to outsource the operational aspects of (public) services to private companies. To provide public services however remains at all times a political responsibility. The outsourcing of public services will therefor always result in collaboration between the governmental organization politically responsible for the (public) service and the private company responsible for the execution of the public service.

This collaboration is referred to as Public Private Partnership; PPP. PPP’s are also relevant for military organizations where more and more support services are outsourced to private companies. By outsourcing essential support services to private companies, the military organization becomes dependent on the performance of the private companies to realize its operational tasks. To maintain the operational capabilities remains a (political) responsibility of the military organization.

Public Private Partnerships
PPP’s are established with the aim to achieve a defined performance and to control costs. In trying to achieve this goal PPP’s are often hampered by different possible bottlenecks. The first bottleneck is the difference in interest between the partners; where the private company aims on maximizing profits and stakeholder value, the military organization aims on optimizing availability, reducing costs and improving military effectiveness. These interests are not aligned and may on the long term jeopardize performances.

A second bottleneck is insufficient exchange of information between the partners. This leads to different situational awareness’s for the partners, which may affect the performance. A third bottleneck is insufficient trust between the partners. This frustrates the collaboration and will affect the performance of the partnership.

The spiral
These three bottlenecks are interrelated; a shared interest between partners will lead to an exchange of relevant information, while an exchange of information will lead to an atmosphere of openness and mutual understanding. This will take away suspicion and mistrust and will lead to the buildup of trust between partners. Through the exchange of information, partners will get to know each other, gain insight in each other’s processes and techniques.

The trust and mutual understanding will lead to more possibilities to align interest, which will lead to more information exchange and to more mutual trust. This continuous spiral of aligned interests, information exchange and building trust, will lead to an ever improving performance of the partnership. On the other hand, if a shared interest or information exchange are lacking, the spiral will turn downwards and will lead to mistrust, suspicion and finally to a failed partnership.

Performance based contracts
Traditional input and activity based contracts are based on two opposite parties with opposite interest. The legal framework of this kind of contracts has to assure that performances are met and information is exchanged. However information exchange will be minimized and a build-up of trust is not obvious. The risk to end up in the downward spiral is present at all times. Traditional contracts are designed to enforce collaboration, but are not designed to support a partnership. Performance based contracts (PBC’s) are designed to align the interests of the partners. A PBC is not based on activities to be executed, but on an outcome performance to be achieved.

The contract partners are not positioned opposite to each other, but are jointly working on realizing the outcome. To achieve the performance is a common responsibility and both contract partners are rewarded if the performance is met. This joint responsibility stimulates collaboration, the exchange of information and generates trust between the partners, the spiral will go upward. A well designed PBC is well suited to support a PPP. To realize the aim of a PPP, achieving performance goals and realizing cost control, the use of a PBC is mandatory.

Colonel (Retired), Johan Kaelen, Royal Netherlands Air Force

© Defence Collaborations and logistics 2013 - Defence Conference