Privatised Public Service Monopolies

Privatised public service monopolies occur where there is a natural monopoly, such as water supply; careful procurement is essential.

Consumer choice is not always possible, and local or national government must then make procurement choices on behalf of the people.  “From rank incompetence to corrupt practices, procurement is under scrutiny in all walks of life”, according to an article Public Service. Private Good?   The article cites examples of successful public procurement, as well as some disasters.

Where the service is a natural monopoly, such as the supply of water to a particular geographical area, government can retain a competitive element by awarding a fixed-term licence to one contractor, to be re-tendered after a period of several years (sufficient time to allow the contractor’s investments to be paid for).  There are risks in allowing privatised public service monopolies – the privatisation of a natural monopoly – so the procurement processes are then of the utmost importance:

●  The procurement specification must ensure that adequate quality is delivered.  There is no reason why a purchased service should be any worse than that provided by a State’s own employees, but a loose specification could allow a private provider to increase profit by delivering a sub-standard service – as in an example reported by The Independent: Water firms pollute rivers every week; the procurement contract should have specified penalties for pollution, rather than letting the courts impose derisory fines.

●  The selection of supplier must be transparent, to avoid corruption.  Regular quotations should be solicited from different companies, some of whom should not be local.

●  Economic benchmarking exercises should be carried out periodically, to compare quality and cost of similar services in other countries.

The advantage in having privatised public service monopolies is alleged to be that private companies can invest without being drawn into political negotiation on the national budget, but procurement safeguards are essential to ensure that the taxpayers benefit.



This page is intended to form part of Edition 4 of the Patterns of Power series of books.  An archived copy of it is held at https://www.patternsofpower.org/edition04/3534a.htm