Free choice and PPPStatus in Denmark

SOIMarch 30th 2008

Professor Michael SteinickeUniversity of Southern Denmark

Plan for the presentation

• Introduction to market testing in Denmark

• Free choice and PPP• Legal challenges, status and

perspectives

Market testing in Denmark-recent development

• 1. Generation: procurement and privatization

• 2. Generation: free choice, the right to challenge and PPP– From just after 2001 (new government in

Denmark)– Free choice and the right to challenge:

from January 1st 2003– PPP: a work in progress from early 2000

Briefly on the right to challenge

• Undertakings had the right to challenge the public authorities own carrying out their activities by submitting a specific offer

• The municipality was required to seriously consider the offer, but was not required to reach any specific conclusion– Even if the offered price was lower than the municipality’s

own price there was no requirement to accept the offer• Only in certain situations the municipality had the

option to refuse to consider the offer e.g.– If the offer was abnormally low– If the undertaking didn’t have the required technical or

financial capacities– If it had already been decided to bring the activity to

market testing (public procurement)

The right to challenge - continued

• Scepticism from the beginning:– Considered to be a provocation to force a specific

offer upon a municipality which didn’t express the need for it

• Only a very few challenges from undertakings• A number of challenges in the rules themselves

– If an offer was found to be interesting, often no agreement could be made before a procurement procedure was carried through

– The foundation for these rules was the possibility to make a direct award

• The rules were repealed from July 1st 2007

Free choice

• Free choice as a concept: the right to chose, the citizens as consumers– A way to increase efficiency and quality of public

services

• Different levels/methods of free choice– Free choice of schools, hospitals, day care institution,

etc.• Often only a choice between public solutions• In a few cases private alternatives can be chosen if certain

conditions are met

– The only area where private companies are ensured access (if qualified) is in the field of supplying home help to the elderly

• Focus on free choice of home help

Free choice of home help

• An obligation to establish a free choice for receivers of home help– Home help covers personal and practical help

• The legal framework is law on social services §§ 91-92• Overall there are two models:

– Procurement• A limited number of service suppliers is selected subject to

competition• The correct price is found through the competition

– Approval or qualification• All qualified undertakings will gain access to the group of service

suppliers from which the elderly can make the choice• The price is established by the municipality

– A third possibility: a hybrid• No certainty for business for the undertakings

Free choice on home help-challenges

• Competition between the municipalities and undertakings– VAT

• The problem: public authorities received full compensation whereas private undertakings only were compensated a smaller part

• The Danish Competition Councils meeting of November 24th 2004 (no decision)

• New rules from July 2006: no VAT compensation– The cost analysis

• Competition Council meeting December 17th 2003• A municipality’s cost analysis covered different prices pr. hour and

included subsidized labour• Clash with the EU procurement rules?

– The only authorized way to market test in the EU is by public procurement

– Not considered to be a problem• Private caretaking has traditionally been subject to bad

press

Free choice on home help-effects

• A few surveys have been conducted• National Social Appeal Board:

– 5 % of the elderly chose private suppliers– The largest obstacle for success: the elderly

• Conclusions of report from OECD:– From 4 % (personal help) to 21 % (practical

help)– Large suppliers are less suitable than smaller

suppliers– New suppliers will emerge

PPP in Denmark

• Focus on specific types of PPP:• Offentlig-privat partnerskab

– PPP; organizing construction and services in the same contract

• Samlet udbud– Collected procurement; including all parts of a

construction project in one procurement• Servicepartnerskaber

– Service partnerships; an agreement at an early stage in the process, and common development of the project

• Sale-and-lease-back• Offentlig-privat selskab (L548)

– Public-privat companies; requiring a minimum level of private involvement and a maximum level of public control

PPP - trends

• A slow start, only now picking up momentum– Numbers are:

• Only two handful of projects so far• About 20 more projects in the works

• Department-driven– A top-down process– A lot of material and co-financing options

• A few municipalities are marketing themselves on PPP, e.g. Odense Kommune (municipality of Odense) who has the ambition to become the Nordic Champion on public innovation

• In general favourite projects are: construction of schools, cultural institutions, sports facilities, day care centres, infrastructure projects and retirement homes

• Favourite methods: firstly PPP’s, secondly collected procurement

PPP – legal issues

• Is the current legal framework in Denmark sufficient?

• Probably not– Or at least not fully up to the challenge

• Specific issues:– Tax issues; the link between ownership and

deduction– Procurement rules are not modeled to be used in

PPP– Competitive dialogue is probably saving some of the

glory for the procurement rules– Other issues:

• General lack of room for discussions• Lack of flexibility

In conclusion

• The right to challenge was a failure• The free choice rules are considered

a success, but free choice of supplyer of home help has been subject to some debate due to the the private involvement

• PPP might be a success, but it is still at an early stage

Further information

• Websites:• www.udbudsportalen.dk• www.ebst.dk/ops• Books:

– Michael Steinicke: Kommunale aktiviteter (2003)

– Karsten Naundrup Olesen and Michael Steinicke: Offentlig privat samarbejde (2009)