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Dear Readers!
Family-run companies generate almost 50% of the German economy’s total turnover and provide over 50% of all jobs in our country. Our ‘Mittelstand’ (i.e. our SMEs) – which, we are constantly being told, is held in envy around the world – is the anchor that gives Europe’s largest national economy the stability it needs, driving growth across the whole of the continent. 83% of all apprenticeship jobs in Germany are created by SMEs. 1,307 of the globally identified 2,700 ‘Hidden Champions’ are German Mittelstand firms. So what have these facts got to do with public private partnerships?
They are an opportunity for local authorities and their companies to become a part of this exceptional success story. Family-owned businesses focus on values, traditions and reliability across generations. More often than not, they are deeply rooted in their regions and actively involved in their communities. And it is this that enables them to enjoy long-term success. We believe it to be a good decision when a municipal partner chooses to have its essential public services provided by a joint venture with a private-sector partner. Learning from mistakes made and drawing the right conclusions for the future are two further strengths of family-run companies that have been able to enjoy decades of success on their markets thanks to their high levels of expertise and their special ethos.
The need for greater efficiency by, on the one hand, dividing up tasks and specialising in specific areas and, on the other, keeping costs under control means that once again public private partnerships are being viewed as a future-proof business model.
For decades now, REMONDIS has been showing every day that better results can be achieved by working together. With 64 PPP companies and a whole range of third-party service provision agreements, we have perfected the public private partnership concept for all essential public services – from waste management, to water management, all the way through to public transport – to the benefit of both parties. Working together with its municipal partners, REMONDIS delivers services to over twelve million people living in Germany. Local authorities and their residents always receive the highest quality of service possible and have the peace of mind that their fees and charges will remain stable over a long period of time.
As a rule, public private partnerships are a real blessing for a council’s budget as they are a reliable source of tax revenue. The most can be made of the opportunities to optimise operations. Successful collaboration work with the private sector preserves public property and creates jobs. Fees and charges are stabilised and the pressure on the public purse is relieved.
This latest special issue is dedicated to the subject of public private partnerships and takes an in-depth look at the various PPP models, the advantages for local authorities and their residents and the positive impact they have on jobs, the environment and the local economy. Councils wishing to achieve long-term budget stability, high quality public services and maximum levels of sustainability by operating an environmentally responsible circular economy will find some valuable suggestions and accounts in this issue to help them with their decision-making processes.
We look forward to working with you!Yours Ludger Rethmann
A whole range of options
People looking to set up a cooperation agreement between the public and private sectors can choose from a whole range of different models. There are a number of reasons why effective PPP projects are a success and these can primarily be put down to the intensity of the collaboration work, the length of the project, joint development activities and secure financing. While the level of commitment of the private sector partner differs from model to model, responsibility for the fees and charges always remains in the hands of the local authorities.
Operations management model
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When a local authority opts for the operations management model, it commissions REMONDIS to act as one of the plant operations managers. The company is then responsible for ensuring all of a plant’s technical processes work smoothly and for carrying out all necessary maintenance work. Additional commercial tasks can also be provided if needed, up to and including customer service activities. The local authority remains the owner of the plant and its assets throughout. REMONDIS is also able to give it advice on possible investments as and when required. Such collaboration work is based on a bespoke contract – agreed on between the parties – and lasts between five and twenty years. The operations management model can be used as a stand-alone agreement or linked to a cooperation model. In this case, the contract is not concluded with the local authority but with the public-private joint venture.
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Operator model
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Both the range of services delivered in an operator model and the intensity of the cooperation work are much greater than in an operations management agreement. The greatest difference is the level of REMONDIS’ financial commitment. In this case, the private sector partner is not only in charge of running a plant’s operations but also for designing and building the infrastructure – and, crucially, financing it as well. As all investments are carried out by REMONDIS, the local authority benefits from having state-of-the-art technical standards without actually having to take any financial risks itself. What’s more, it can also plan its costs well into the future as such contractual agreements run for 20 to 40 years. Contractual performance is determined by the quality targets set out in the cooperation agreement. REMONDIS alone bears all business risks.
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Cooperation model
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The hallmark of the cooperation model is the long-term collaboration work set up as a joint venture (JV). Either a new JV is founded or REMONDIS acquires a share in an established municipal company. Both parties bring resources to the table and both are responsible for the business. The local authority normally owns a majority share in the company to secure influence and oversight. Being the owner of the plant and its assets, the PPP company is in charge of both running the operations and financing any investments. Any profits made from delivering services that are not essential public services are distributed as dividends. This gives the local authority greater financial leeway and provides it with additional funds that can be ploughed into other public sector projects.
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Third-party service provision agreement
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Local authorities can also procure the services they need by commissioning a third party. By definition, this classic type of cooperation work also falls into the category of public private partnerships. Having said that, though, third-party service provision agreements should really be in a category of their own as there is very little cooperation work in this model. Everything focuses on a service contract here that often lasts for five years. This means that the local authorities transfer one of their tasks to REMONDIS for this relatively short period of time, which the company then delivers – normally using its own equipment. Focus is entirely on the provision of the service. Other factors, such as financing, investments and future strategies, play no role whatsoever.
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