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WHEN PUBLIC-PRIVATE PARTNERSHIPS FAIL

- THE EXTREME CASE OF THE NPM-INSPIRED LOCAL GOVERNMENT OF FARUM IN DENMARK

Carsten Greve Department of Political Science University of Copenhagen Rosenborggade 15 DK-1130 Copenhagen e-mail: cg@ifs.ku.dk and Niels Ejersbo Department of Politicial Science & Public Management University of Southern Denmark, Odense Campusvej 55 DK-5230 Odense M e-mail: niels@sam.sdu.dk

Paper for Nordisk Kommunalforskningskonference 29 November - 1 December 2002 Odense, Denmark

Abstract: Public-Private Partnerships (PPP's) have been hailed as the latest institutional form of co-operation between the public sector and the private sector. PPP's are defined as co-operation between public and private actors over a longer period of time, where risk, costs and resources are shared in order to produce a service or a product. The paper considers what happens when PPP's fail. The case of Farum local government in Denmark is examined. Farum is known for its radical use of NPM-reforms and PPP arrangements. Farum local government has experienced a series of events in 2002 which is set to be the most spectacular scandal in the history of Danish public administration. The results so far in 2002: The mayor is expelled from office. Income tax for citizens will rise 3,2% in 2002. Farum is put under administration by the Danish Ministry of Interior and cannot decide its own economic fate. Several investigations have been launched, including a police investigation and a Parliamentary investigation. The paper asks whether the scandal in Farum was connected to the use of PPP arrangements?

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INTRODUCTION Public-Private Partnerships (PPP's) have been hailed as the latest institutional form of co-operation between the public sector and the private sector (Savas 2000). the charismatic mayor. The former mayor may face criminal charges. the following questions will be examined: Why did PPP's fail in Farum? What are the lessons from Farum for future PPP deals? The main argument of the paper is that a contractual governance perspective will help us to understand why the local government scandal took place. Central government did not have sufficient rules to deal with experimenting local governments like Farum. The council will also face possible criminal charges because its members did not control the mayor's actions. costs and resources which are connected with these products or services" (Van Ham & Koppenjan 2001: 598). The structure of the contractual governance scheme in Farum was too complex for the mayor to oversee. but other countries have followed suit (Osborne. The local government is in effect administered economically by the Ministry of the Interior. has been split into two separate chapters. The institutional forms of PPP's vary from close contracting out cooperative efforts to infrastructure projects for building and operating new physical facilities such as schools. Managing a wide range of contracts is complicated. In early 2002. In this paper. and Australia. The "casualty list" in November 2002 looks as follows: The mayor has been expelled from office. The local government's finances are now in ruins. has enjoyed an overall majority in Farum. an important lesson is to be learned from the Farum case and that is to make PPP deals more transparent and involve the relevant stakeholders more. There is also an important lesson here to be learned for central government and that lesson is to be better prepared and gear and prepare the legislation for innovative local governments. The wider implications for local democracy in Denmark have yet to be considered. Farum was among the candidates for the title of the "Best Run Local Government in the World" sponsored by the Bertelsmann Foundation in Germany. but soon grew much bigger than that. Winners were Phoenix. New Zealand. Others view PPP's as financial arrangements where the utility for the public sector is difficult to see. ed. which led to the mayor's fall and the local government scandal. the Liberal Party. Brixtofte has followed an active NPM/marketization strategy relying on contracting out and. The local government of Farum in Denmark has been one of the world's most active local governments in experimenting with PPP's. whom to buy from and to be able to judge what is has bought. The local government taxes will be raised by 3. it acted more or less in panic and simply stopped the PPP deals overnight. Therefore. Most experience have been gathered in the UK (IPPR 2000). Private companies have paid money to the soccer club in exchange for securing contracts with the local government. It was the PPP deal with the construction of the soccer stadium and the sports arena. PPP's for delivery of public services. A PPP is still a "contested concept" with many different meanings attached to it (Linder. later. It was set off by newspaper revelations of excessive wine bills from restaurants. and the missing money from those deals. Mr. a major scandal erupted in Farum with damaging consequences for the local government and its mayor. 1999). Since the 1980's. There are several investigations going on. PPP's are only beginning to be used in public sectors around the globe. bridges or sports arenas.2 % in 2003. Arizona. The mayor and the local council must know what it wants to buy. 2000) PPP's are mostly connected with experimental "front runner" or "best run" local governments that seek to explore new ways to deliver better public service to lower costs. A further argument is that PPP's were too new politically and legally for the central government level. In 2000. tunnels. that triggered the development. 2002). 2 . Peter Brixtofte. PPP's can be defined as "co-operation of some durability between public and private actors in which they jointly develop products and services and share risks. Farum has changed mayor three times since February 2002. In the 1990's. the USA. The PPP deal is at the heart of the matter. PPP's are viewed by private companies as alternatives to "raw" contracting out (ISS. and which will exclude competition in the long run. including a police investigation and a Parliamentary commission. When the central government did act. The local chapter of the political party. made a sale-and-lease-back deal for its water supply and school buildings plus entered into BOOT (Build Own Operate Transfer or Build Own Transfer) models for the construction of the sports arena Farum Arena and the soccer stadium Farum Park as well as a nautic center called Farum Marina. Farum local government had contracted out its kindergartens and elderly homes. and Christchurch.

PPP's promise innovation of public service delivery will take place. The second promise is that public services can be delivered more effectively and at a lower price. private parties run risks. 1996). Public organizations must confront a number of risks when they enter a PPP: substantive risks financial risks. especially by entering into a contract with a politically led organization. Access to the expertise of the private sector will be provided through use of PPP's. the attraction lies in gaining new markets and getting new investment opportunities (Van Ham & Koppenjan. Public organizations must beware that private parties do not transfer their own financial risks to the public sector. PPP's means cooperation based on trust where the parties to the contract are on equal terms. For the private parties. A PPP can be defined as ""co-operation of some durability between public and private actors in which they jointly develop products and services and share risks. democratic risks and political risks (Van Ham & Koppenjan 2001: 599-602). Second. The first promise is that PPP's will limit the local governments' financial situation. PPP's as infrastructure projects have been criticized from several perspectives. Third. Risk management is a central part of any PPP arrangement. The institutional form of a PPP varies. and allocate the risks to the parties most prepared to take them on (Van Ham & Koppenjan. Either by injecting cash into the local government's finances. Contract periods are long term. 35). This list include infrastructure projects like BOOT. 2001: 597). Savas (2000) lists a number of possible types of PPPs. Equality before the law. PPP's focuses on cooperation of entities: "The hallmark of partnerships is cooperation. Risk-taking is for private sector companies and not local governments. and the partners to the contract must recognize the risks involved. Contracting out means principalagent relationship between public purchasers and private providers. fair treatment for all and legally based decision-making has been the hallmark of what has been called "the traditional model of public administration" (Hughes. Third. costs and resources which are connected with these products or services" (Van Ham & Koppenjan 2001: 598). The financial and juridical elements are complex and require insights from a lawyer perspective or a financial analyst perspective. 1999: 35). usually meaning "cooperative ventures between the state and private business (Linder. why consider entering into PPP's? PPP's hold certain promises for local governments. Contracting out can be viewed as a form of PPP in this perspective (Savas. 2001: 601). public bureaucracy has been risk-adverse almost by definition. try to reduce them. BOO and other models. Should the future of local government finances be taken out of traditional economists' hands and be given to contract lawyers and financial investor experts? 3 . 2000). not competition. The institutional form can be a formal joint-venture company. Another risk to take for the public organization is not to be able to understand the complex financial deals private parties present to the public sector. Some points must be left open to future negotiations as new contingencies arise. A more narrow conception will look at PPP's as distinct from contracting out. which can be used to build or construct new physical facilities for the use of the local government's citizens. The parties to the contract are interested in gain sharing (Domberger. the disciplining mechanism is not customer exit or thin profit margins. common decision-making procedures. "The deal" in PPP in arrangements is not easily transparent (Hodge. 1998) and they cannot specify all future requirements in a contract. it simply means any form of cooperation between organizations in the public sector and the private sector. The relationship is characterized by mistrust as principals and agents both seem to maximize their utility. or by providing capital. Central to the definition and understanding of PPP's is risk sharing. an agreement to cooperate or simply a new organization where both public and private participates. First. This is of course a highly debatable point. 1998). BOT. and long term contractual relations. but a joint venture that spreads financial risk between private and private sectors" (Linder. risk of private discontinuity. How can a mayor and a local council enter into a 2o or 30-year contract is held accountable? What the mayor does is to constrain future mayors and local council members in their decision-making capabilities. risks sharing. Some include cooperation between public organizations and voluntary organizations as distinct forms of partnerships (Salamon. In broad terms. The partnership contract is therefore a relational contract in Williamson's (1996) sense of the term. Likewise. These models are highly complex and rest on extensive risk sharing between the parties in the partnership. The point is that local governments should avoid risk-related projects and stick to traditional and competent administration. is the meaning of local government to "manage risk"? Traditionally. the democratic accountability of PPP's are not sufficiently worked out yet. Contracts are usually for shorter periods of maximum five years. If there are risks. 2002).THE PROMISES AND PROBLEMS OF PUBLIC-PRIVATE PARTNERSHIPS PPP's can be defined in broad terms or in more narrow terms. sometimes up to 30 or more years. PPP's have the following elements: a business-like relationship. which may have new leadership by the next local council election. 1999.

still the owner (because FIH was not allowed to make alterations to the facilities without the consent of Farum local government). BT. The political opposition in Farum plus skeptical citizens' groups. Farum local government was not allowed to use the money in its daily running of the local government. the Complaints Council for Contracting Out announced that the tender process in which FHI had won the right to finance the infrastructure-projects of the soccer stadium and the sports arena had not followed EU-rules on tender and contracting out. Farum local government was the first local government in Denmark to contract out administrative work at the city hall to a private company (one of the big five auditing companies). this was not a "sale-and-lease-back" arrangement although it has been called that in the media and by the Complaints Council for Contracting. The opinion were divided into two camps. owns it and operates it until it . The financing of the projects came from private finance sources. but nothing more than that. FIH as the owner was not obliged to follow the EU-tender rules. schools and swimming pools and leased them back. In the late 1990's.moved by the opportunity to tell other mismanagement stories . The local government sold its water company. According the civil servant.in 20 years time . the "build-own-operate-transfer (BOOT)"-model. Farum contracted out its kindergartens and elderly homes to the Danish international company. for example by publicly telling Brixtofte to quit drinking. Further investigations showed that the local government had paid excessive bills. it seemed like "a good news story". 2000). In one of the several books the mayor has written (Brixtofte. but none other story had produced "hard evidence". administrators and citizens has been what are the financial risks involved in the deal. the drinking habits of Peter Brixtofte had been widely known. The main finance institution was the FIH-institute. Sale-andlease back was a preferred policy instrument. At first therefore. Technically speaking. own. A relatively huge sum of money had to be deposited. FIH build the sports arena. In 2000 the Ministry of the Interior put a stop to the sale-and-leaseback arrangements.in which the mayor was also. Also business magazines have been skeptical and has examined the foundations of the deal and found them fragile at best In a now famous passage. The great discussion among politicians.000 DKK for the mayor and four of his friends for one evening. the construction of Farum Arena and parts of Farum Park was another PPP-type. Farum local government executives (foremost the mayor) who was enthusiastic about the idea and who had the support of his majority party. in effect. A civil servant in Farum then disclosed . and operate the facilities and turn the facilities over the Farum local government after 20 years. the scandal grew at a rapid pace. which financed both three major infrastructure projects. Farum had claimed it was not the owner of the facilities because FIH had taken them over in the PPP deal. The Farum Scandal in 2002 On 6 February 2002. BT had hard evidence in the form of the restaurant bills and witness statements from former employees at the restaurant. In the following weeks. the business magazine editorial accused the mayor of gambling in the casino with taxpayers money (an accusation that was dismissed by the mayor and his adviser at the time). let the FIH-institute build. carried a headline story on its front-page announcing that mayor Peter Brixtofte of Farum had been picking up huge restaurant bills for red wine for over 8000 DKK a bottle. but Farum local government has to fund it through its lease of the facilities. when the bills were actually connected to the soccer club . Instead. the policy of contracting out policy and PPP's was hailed as revolutionary in a Danish public service context.that he had been forced to withhold a payment for a building site in Farum which triggered a bonus check for 325. One bill alone had "red wine" for 64. Around the same time. The mayor pushed forward three big construction projects in the late 1990's: a 3500 capacity indoor sports arena (Farum Arena). FIH finances the deal through a 20-year loan. There had been numerous newspaper stories of the Farum experiment in newspapers before that. Contracting out has been used extensively. waste water facilities. But the Complaints Council for Contracting Out ruled that Farum was. The deal was that Farum would obtain loans. PPP's in the narrow sense of infrastructure projects and deals have been used since the mid-1990's in Farum. Because the 4 . ISS. the mayor had made a clear decision and ordered the civil servant to withhold the payment so a check would be issued.PPP'S IN FARUM AND THE FARUM SCANDAL IN 2002 PPP's in Farum PPP's in the broad sense of the term has been a key strategy for Farum local government since the early 1990's. chairman and shareholder. Among politicians and journalists. the daily tabloid newspaper.000 DKK to a close friend of the mayor. Farum had sold the ground where Farum Arena was to be.will transfer it to Farum local government. but few had acted upon the knowledge. a state-of-the-art soccer stadium (Farum Park) and a nautic marina (Farum Marina).

and on 8 February he flew to the Canary Islands. on 10 February broke into the office of the civil servant in the middle of the night and removed a number of papers and filing reports that was the proof material. The purpose of the commission is to make sure that no stone is left unturned in the investigation of what happened in Farum with an explicit aim of preventing a similar scandal to occur in the future (Forslag til Folketingsbeslutning om Undersøgelseskommission om Farum.Complaints Council ruled that it was not legal according to EU tender rules. which is known for its use of market-type mechanisms. the minister of the interior announced that he would put Farum local government "under administration" because of the disastrous economic situation. On 18 February. Therefore.disputed by Hodge. it was revealed that the mayor had secured a bank loan on 250 million DKK without consulting the local council. 1. the mayor is finally suspended from office after lengthy negotiations on how to make a suspension. 5 . The minister of the interior was previously vice-mayor in the local government of Græsted-Gilleleje. was stand-in mayor for a short period. Farum local government will go from being one of the cheapest local governments to live in to be one of the most expensive local governments in Denmark. Charges have been brought against the mayor for unlawful obtainment of a bank loan without the knowledge or the consent of the local council 2) An attorney investigation is examining whether anything illegal has been happening in the transactions of the local government in Farum. The minister had in his local government days been ardent supporter of public-private partnerships and competitive government. A twist to the minister's ruling is that the minister is a former ally of the mayor. On the Canary Island of Lanzarote friends surrounded him. from the poolside of his hotel in the Canary Islands (this lasted until his attorney advised him to come home and face the allegations and his critics). The decision was verified later on in the spring. 2000). Various investigations have been launched into the Farum scandal: 1) The police are investigating the mayor's actions. They both encouraged market-solutions to the public sector. At first. The cause that is used is the bank loan of 250 million DKK. On 7 February 2002. But on 20 February. November 2002 i Folketinget). the loan could have been 20% cheaper. Allegedly. When all this took place. and who to replace him. The Ministry of Interior had not been taking any kind of action in the first days of the scandal. In the BT newspaper. because the Travel Company paid sponsorships to the soccer club where the mayor was chairman. The mayor needed the money from the PPP deal with FHI because it would take some time to constructing and selling the housing estates. which the mayor has not told the local council about. On 21 March. The scandal evolved in a number of surprising ways. The press soon flew out and for a week or so. As a result of the economic transactions and the disastrous economic situation. A new mayor. it was revealed how the senior citizens' trips were "money machines" for the local government. The papers from the civil servant who had complained about the mayor were removed when the head of the mayor's secretariat. from a Citizens' List. On the evening of the 11 February. the local government's debt had grown so much that the payment of salaries to the employees in Farum local government had been at stake. the police began an action where the town hall was ransacked and more than 50 removal boxes full of paper were taken away as well as several computers. the day after the "red wine story". the mayor denied that he had secured the loan. the fact was confirmed. This piece of news came at a particular bad time for Farum as the mayor had recently bought a disembarked army base with the intention of turning the former base into profitable new housing estates. Brixtofte conducted interviews and commented on the situation back in Farum. it was disclosed how the mayor and his chief administrative officer had paid money of up to 9 million DKK to a close friend of the mayor in the building industry. Paul Watchell. as senior citizens in Farum had been given a free trip to the Canary Islands. a liberal party member. the claim from the citizen who made the case is that 20% could have been saved (the rule of thumb for contracting out . In his absence in February. Henrik Jerner.. but later on. 3) The opposition parties in the Danish Parliament have decided upon a Parliamentary "investigation commission" which will begin its work in 2003. Steen Gennsmann. replaces Brixtofte as mayor. the minister of the interior has confirmed Farum's local council's decision to raise personal income tax by 3. The minister of the interior confirms the suspension of the mayor on 6 May 2002. and before becoming minister. On 14 February it was revealed how the Farum local government charged too high prices from companies involved in the infrastructure projects only to transfer the money the local soccer club. the mayor had taken a sick leave. They belong to the same party. but only for a short while. the mayor was located in the Canary Islands in Spain where he was taking a holiday. Later in February. he was mayor of the regional government of Frederiksborg (where Farum local government is situated).2% for 2003. Behandling 20.

that adequate regulation is missing. the mayor stopped cooperation with ISS as a contractor the local government's kindergartens. The daily newspaper. Both types of PPP arrangements are not working as first intended by the local government. as central government has not any previous position or ruling to rely on (in the case of the sale-and-lease-back arrangement). PPP's have contributed to a low moral in the local government. Suddenly. PPP arrangements have to be fitted into the traditional set of rules (in the case of EU tender rules). In contracting out. the local government was not responsible for the constructing of the sports arena or the stadium. and therefore a bending of the rules was not acceptable. In another contract. the concept was very little known in the Ministry of the Interior and the State Regulation Council that regulates local government affairs. In a certain way. However. The argument in the following section refers to the points introduced in the theory section. private sector providers have paid money to sponsorships for the soccer team in exchange for contracts for public service delivery. which Farum got out of because it placed FIH as the constructor and owner of the stadium. the central government responded with a preemptive strike . 6 . the construction of the new part of the soccer stadium was also handed over to FIH. The missing part is the bidding process. Politiken. The Ministry looked upon the activities with some bewilderment. The former mayor of Farum has made the argument several times that the regulatory system is not sufficiently prepared to deal with local governments that introduce new practices in public service delivery. and it could be argued (as the Complaints Council did in its ruling) that Farum was. The two cases raise the broader question of the centrally laid rules and the new local government practice with PPP's. In a wider perspective. the rules for EU-tender are reasonably clear.WHEN PUBLIC-PRIVATE PARTNERSHIPS FAIL: LESSONS FROM THE CASE OF FARUM PPP's in Farum has failed in the sense that one arrangement was found in violation of EU-regulations for tender and contracting out. this is no excuse for then bending or violating existing rules. declined to pay sponsorships for the soccer club. In Farum's argument. It shows that the rules are not designed to PPP arrangements. Instead. local governments had to deposit the money from sale-and-lease-back arrangements thereby making it indifferent to the local government to pursue with sale-and-lease-back arrangements or not. but we cannot know if Farum could have got the sports arena and soccer stadium for a cheaper price. or have to be evaluated in no particular context. the mayor is right . the owner of the sports arena and soccer stadium. which it could pay for new public services. In the case of the BOOT-model for constructing the new indoor sports arena and the soccer stadium. the thought dawned on the Ministry that sale-and-lease-back arrangements could be a potential danger for the national economic policy if local governments were allowed to sell and then lease back their physical assets. Gradually. When the company. the nature of the PPP deals (simple or complex?) and democratic accountability (clear accountability structure or insufficient accountability structure?) Clash between central rules and local innovation When Farum began on sale-and-lease-back arrangements. This is a case of central rules not being up to date or geared for an innovative practice in local governments. Instead of designing new rules to meet the challenge of PPP-arrangements. but had left it to FIH to do the work. The controversial issue in this case was if Farum local government then violated the EU tender and contracting out rules because the contract was not put out to tender because Farum had transferred the ownership to FIH by Farum local government. The Ministry of the Interior decided in the end that it would not allow sale-and-lease-back arrangements as Farum had introduced them. Farum local government had signed a contract with the finance institute FIH that gave FIH the right to a greenfield site in the city of Farum with a clause saying that FIH should construct a new indoor stadium. More and more local governments were beginning to follow Farum's model in the 1990's. We will look at risk taking and regulation (risk-taking without constraints or risk-taking in a regulated environment?). counted 13 local governments that had experimented with PPP's. the government (the Ministry of the Interior) effectively banned the sale-and-lease-back arrangements in Farum's version.to forbid the kind of arrangements that Farum was promoting. central rules again collided with new local government practice. In this case. in effect. ISS. because the contract was not put out to tender. Again we see a clash between centrally laid rules and new local government practice. FIH might have been the winner of the bidding process. Farum got all this money in its hands.

Farum has not led an open doors policy. So the formal democratic accountability within the local council was not being effective in regulation the behavior of the mayor and holding him to account for his actions in the Farum case. The institutions of auditing at the local level and the regulatory system have been undergoing change or preparing for change while Farm local government experimented with PPP's. tried to assess the risk Farum was taking with the new PPP-arrangements. gambling with (future) tax payers' money. However. In 1999. The newsmagazine claimed . In the case of Farum. in effect. Administrative audit ("forvaltningsrevision") only recently has been made compulsory for local governments also (administrative audit has been a feature in the audit of central government for years). various ministers who made it clear they wanted a new regulatory structure have undermined the work of State Regulatory Body. there has been a government white paper on regulation of local governments . The mayor has not been forthcoming in revealing details and conditions in the contracts that he as a mayor has signed on behalf of the local council The financial and juridical implications of the deals have not been clear. the prospect of being ousted from office by the voters of Election Day has been the primary institution for effective democratic control. Administrative audit had not found its own position in the local government yet. Did PPP's lead to low ethics? There is a wider issue that goes beyond the breaking or bending of existing rules.and that the mayor was. 7 . the arguments were hard to follow as it mainly concerned the judgement of future rent developments. The State Regulatory Body has not enjoyed sufficient legitimacy for several years. But since the mayor has enjoyed an overall majority in several periods in office and had many loyal followers and admirers of his personal charisma. The other body is the State Regulatory Council. and only a handful of financial experts will be able to penetrate the logic and the construction of the financial PPP arrangements. the councilors in his own party did not question the thinking behind the PPP deals. The mayor and his economic adviser defended their contractual construction vigorously. In the case of the State Regulatory Body. Lack of attention to democratic accountability The third point is that democratic accountability has not been considered properly in the Farum case.and the government has for some time advocated an overhaul of the regulatory structure. The auditor that audited the finances of the local governments has not detected any wrongdoings or mismanagement in its accountancy reports. which is central government institution that regionally have as their duty to oversee matters and regulate at the local government level.Closed deals The second point relates to the nature of the contract that Farum local government entered into with the finance institute FIH and other contractors. Did partnerships and contracting that implied detailed negotiations with private sector companies lead to low ethical standards and consequently to unacceptable and unethical behavior on the part of the mayor and his close advisers? There is an argument to be made for extensive use of PPP's will lead to too close connections between the local government and private providers. The mayor has been formally accountable to the local council. Despite a huge number of expressions from concerned citizens and citizens' groups. company executives might be willing to engage in new relationships. In local governments. These are highly detailed and complex financial arguments. the newsmagazine. Farum local government exploited the gap in the regulatory system by pushing forward with reforms that no institution was able to evaluate properly because of insufficient expert knowledge and no legitimacy.also in an editorial that the calculations and the financial forecasts were not safe . the State Regulatory Council has not been able to correct the mismanagement and wrongdoings in the local government of Farm. For non-financial experts. This made it easier for the mayor to dismiss the rulings and judgements of the State Regulatory Body (why bother taking their rulings serious if they are going to be abolished anyway). Other institutions of democratic control through auditing. The bodies the mayor had to give account to have not lived up to their responsibilities. Børsens Nyhedsmagasin. Negotiations with private providers mean many meetings and close dealings. the financial audit part should have detected some of the wrongdoings (including unlawful obtainment of bank loans). for citizens' groups and for journalists. Only recently has the Ombudsman been allowed to handle local government issues. Access to relevant documents has been hard to get for the opposition in the local councils. In effect. To secure a contract for a company. the mayor builds up close relationships with private providers of public services in the areas of kindergartens and elderly homes. ombudsman control and regulation of local government activities have been neglected to a certain extent.

606) asks "how to retain competition in partnership without lapsing into contracting out?" One strategy could be to try "serial organizational monogamy" (Greve & Ejersbo.or rather till the 30 or so year contract expires. which have provided the finance for Farum's big projects. Against this argument is the fact that the mayor had been in office since the 1980's and had enjoyed an overall majority. All of these institutions must be prepared for local governments that are not only traditional administrative units. "Power corrupts" and the mayor had simply been too long in office. and that Farum should have put the tender for building the sports arena and soccer stadium out to the open market. 2002). CONCLUSION This paper has considered the spectacular scandal in the Danish local government of Farum in Denmark. The implication of the argument is that close negotiations for public service delivery for longer periods of time can make the relationship between public sector organizations and private sector organizations too close and the partnership will then end in abuse towards citizens and taxpayers. the local governments must be aware of the danger of tying itself to one professional partner for too long time. The Farum scandal had more to do with traditional power politics than with PPP's and contracting. First. Serial organizational monogamy describes a relationship between public and private organizations which is build on trust. innovative managerial minded local governments. which has evolved during 2002 and continues to amaze the public.In the Farum case. Third. Democratic accountability cannot rely solely on election days. As companies start to refer to "raw contracting out" when they want to engage in longterm partnerships with local governments. if the partnership does not turn out as planned. The Complaints Council's decision showed that the relationship was too close for comfort.and even enter into institutional forms of partnerships . With the infrastructure PPP arrangements. PPP's involves risks and need a risk management effort. For a market to work. the sports arena and the soccer stadium. In the long run. the Farum case shows that democratic accountability is fragile in PPP's. The right way to pursue for local governments is to acknowledge that a partnership can take place. administrators. but only for a limited period of time. it is debatable if the fate of local government economy should be left to financial analysts instead of political judgement.but not necessarily to "death do them part" . Farum build a close relationship with the finance institution FIH. What does the future hold for PPP's? Several authors have noted how a lack of competition is unhealthy for publicprivate co-operation. 8 . Serial organizational monogamy means that public sector organizations and private sector organizations can co-operate . but also risk-taking. private providers agreed to pay for sponsor fees to the soccer club in exchange for contracts with the local government. and politicians. The policy implication is that PPP's must be treated with care. the ombudsman. Serial organizational monogamy can be a viable alternative to both traditional contracting out and new arrangements with partnerships. it will not be long before they put their own interests before that of the general public. Second. PPP's are likely to lead to failure in the sense that they cannot be carried out as planned by local governments. which is difficult to work with for public managers and politicians who usually have much shorter time spans on their mind. The contract horizon must be much more focused for public managers and politicians to work with it. Before an adequate legislation is in place. The scandal is also an embarrassment to the national government. or at least the prospect of competition. if you put too many people of a profession together in a room. As Adam Smith once noted. Van Ham & Koppenjan (2001. The mayor would have shown a similar behavior even if Farum had not collaborated with the financial institution to construct the new stadium. there has be some sort of competition . A close contact was also established with a "big five" auditing company when it started to deliver administrative services to Farum local government. which is promoting marketization and partnerships with the private sector. which will squeeze out competition. the Farum case has shown that infrastructure PPP's lead to a potential clash between local government ambitions and central government rules. The control side has to be as dynamic as the innovative side of local government activity. but also make it clear that competitors are waiting in the wings. but must be supplemented by renewed democratic institutions of control such as auditing. The main challenge in PPP's in their current form is that they are set to last too many years (20 to 50 years). the Farum case shows that the financial deals in infrastructure PPP's are complex and requires financial expertise to judge if the deals are healthy for the local government economy. and regulatory council.

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