Thus far the discussion has assumed that a government is creating a framework to guide its own actions. However, where there are multiple levels of government, and there may be instances when one level may wish to empower, influence, or control a lower level of government. In federal systems, national governments may wish to affect the legal framework for states. National and state governments may also wish to enable or control local government entering into PPPs.
In federal systems, constitutions normally specify which matters are the preserves of states, and which of the federal government. PPP frameworks at the state level therefore apply to PPPs that are within state competencies. Federal rules apply to PPP projects that are federal competencies and executed by the federal government. Federal governments are generally limited by the constitution as to how much they can intrude on how state governments discharge matters that are within the state’s competence.
When it comes to local governments, it is generally the case that state or national governments can legislate the behaviour of local governments within their jurisdictions. In Australia and Canada, the national PPP policy does not apply to local government. PPPs are rare at the local level due to the small size of projects developed at this level. In France, local governments’ procedures for entering into PPP contracts are governed by national laws and the jurisprudence of the Conseil d’Etat. In Spain, PPPs done by local authorities have to respect the national general procurement legislation, as well as a specific law regulating municipal service procurement.
When governments cannot, or do not want to, control the behaviour of a lower level of government by law, they can often incentivize the desired behaviour through various kinds of inter-governmental fiscal transfer. In the United States, the Transportation Infrastructure Finance and Innovation Act TIFIA provides state governments with incentives to do transport PPPs by offering concessional finance for the projects. This comes in the form of direct loans, loan guarantees, and standby lines of credit. In Canada, PPP funding of provincial and municipal PPPs comes with requirements as to how projects are structured and managed.
However, such incentives are not always seen as efficient. In Britain, national government departments were previously given an allocation of “PFI credits” in their budgets. These could be paid to local authorities as grants to support local PPP projects, and they were useful in standardizing contracts and creating more consistent and higher quality provisions for risk allocation. For example, the Department of Transportation could use credits to support local government transportation projects, while the Department of Environment and Climate Change would support local government waste management projects. However, PFI credits were criticized as they gave additional spending power to central departments wishing to deliver PFI projects through local authorities. In 2010 they were abolished, with the aim of making central government funding neutral between PFI and non-PFI forms of project delivery at the local level.
Investors in many countries consider local governments to be less reliable counterparts than national governments, either because of lower credit ratings or limited availability of resources. This can create a role for national governments to provide financial or technical support to local governments. As a national government provides support to local governments, it may feel the need to control what local governments do.
Further examples of how national government can influence sub-national PPPs are outlined in box 2.5.
BOX 2.5: The Role of Sub-National PPPs
· Australia: Most large-scale development infrastructure in Australia is a state responsibility. The states of New South Wales and Victoria led the PPP agenda, developing state-based PPP frameworks in the early 2000s. These approaches were instrumental in the development of a national PPP policy framework. The national policy was prepared and endorsed by all state, territory, and commonwealth governments as an agreed framework for the delivery of all PPP projects. It recognized that a consistent national approach to PPP delivery across all governments was beneficial to all.
· Canada: Most infrastructure development is the responsibility of the provincial governments, therefore PPP frameworks are developed at the provincial level, without federal oversight. The federal government can however influence the delivery of provincial PPP programs by financing local and municipal PPP projects through the P3 Canada Fund.
· India: India’s Union Government, through the PPP cell in the Department of Economic Affairs, leads the development of the PPP framework. The PPP cell is responsible for all PPP matters, including policy, schemes, programs, and capacity building. Apart from the Union Government, state governments also have the right to enact their own PPP legislation under the constitution. Several states including Andhra Pradesh , Gujarat, and Karnataka have created their own PPP frameworks and have successfully developed their PPP projects.
· US: The national government is responsible for very little infrastructure. Even the national highway system (‘the Interstate’) is actually owned and operated by the states. Most of the funding comes from the federal gasoline tax, which is allocated to the states using a formula. For this reason, PPP frameworks are created by state governments. There is no federal level PPP framework in the US..
 “State” is used as a generic term that includes provinces (for example, in Canada or China) or any other second tier of government within a federal system.
 The Department of Infrastructure and Regional Development (2013) Local Government infrastructure. [Online] Available at: http://www.regional.gov.au/local/publications/reports/2002_2003/C4.aspx
 HM Treasury (2012) A New Approach to Public-Private Partnerships. Crown.
 Infrastructure Australia (2008) National Public Private Partnership Guidelines Overview. Commonwealth of Australia.
 The Department of Defence runs a large PPP Program for services on buses.