Public-private partnership

Last updated on April 17, 2022

What is a public-private partnership?

A public-private partnership (PPP) is a type of cooperative arrangement between a public agency (federal, state, or local government) and a private sector entity (usually a business). Under a PPP, the private sector entity provides a service or facility and assumes some financial, technical, and operational risk in doing so. In return, the public sector entity provides compensation to the private sector entity.

The concept of a PPP is not new; governments have long contracted with private firms to build roads, bridges, and other infrastructure projects. What is new is the increased use of PPPs as a tool for delivering public services, such as healthcare, education, and housing.

What are the benefits of a public-private partnership?

The benefits of PPPs include improved service quality and delivery, increased efficiency and accountability, and enhanced value for money.

Improved service quality and delivery: Private sector entities are typically more efficient and innovative than public sector entities. They are also more responsive to customer needs. As a result, PPPs can lead to improved service quality and delivery.

Increased efficiency and accountability: PPPs can help to increase the efficiency of public services by introducing private sector discipline and accountability.

Enhanced value for money: PPPs can provide enhanced value for money by leveraging private sector financing and expertise.

What are the challenges of a public-private partnership?

The challenges of PPPs include the potential for increased costs, the risk of corruption and cronyism, and the need for strong governance arrangements.

Potential for increased costs: The private sector entity involved in a PPP is typically motivated by profit. As a result, there is a risk that the costs of delivering public services under a PPP will be higher than if the services were delivered by the public sector.

Risk of corruption and cronyism: The awarding of contracts to private sector entities can be susceptible to corruption and cronyism.

Need for strong governance arrangements: PPPs require strong governance arrangements to ensure that the public interest is protected. These arrangements should include clear and transparent rules for the awarding of contracts, independent oversight, and effective dispute resolution mechanisms.

How can a public-private partnership be structured?

A PPP can be structured in a number of ways, depending on the nature of the project and the needs of the parties involved. The most common structure is a concession, under which the private sector entity builds, finances, operates, and maintains the project for a fixed period of time. At the end of the concession period, ownership of the project is transferred to the public sector entity. Other structures include build-operate-transfer (BOT), build-own-operate (BOO), and build-operate (BO).

Who owns the assets in a public-private partnership?

The ownership of assets in a PPP depends on the structure of the PPP. Under a concession agreement, ownership of the assets usually remains with the private sector entity during the concession period. At the end of the concession period, ownership is transferred to the public sector entity. Under a BOT agreement, ownership of the assets is usually transferred to the public sector entity at the end of the project.

How is risk shared in a public-private partnership?

The sharing of risk in a PPP depends on the structure of the PPP. Under a concession agreement, the private sector entity typically bears most of the risk. Under a BOT agreement, the risks are typically shared between the public and private sector entities.

How are profits shared in a public-private partnership?

The sharing of profits in a PPP depends on the structure of the PPP. Under a concession agreement, the private sector entity typically receives all of the profits. Under a BOT agreement, the profits are typically shared between the public and private sector entities.

What is the role of the government in a public-private partnership?

The role of the government in a PPP depends on the structure of the PPP. Under a concession agreement, the government typically provides compensation to the private sector entity and regulates the project. Under a BOT agreement, the government typically provides compensation to the private sector entity, regulates the project, and bears some of the risk.

What is the role of the private sector in a public-private partnership?

The role of the private sector in a PPP depends on the structure of the PPP. Under a concession agreement, the private sector entity typically builds, finances, operates, and maintains the project. Under a BOT agreement, the private sector entity typically builds, finances, operates, and maintains the project and shares some of the risk with the government.

How are public-private partnerships financed?

Public-private partnerships are typically financed through a combination of government funding and private sector financing. Private sector financing can take a number of forms, including equity investment, debt financing, and user fees.

Some examples of successful and unsuccessful public-private partnerships

Some examples of successful public-private partnerships include the London Underground, the Channel Tunnel, and the Port of Singapore.

Some examples of unsuccessful public-private partnerships include the California High-Speed Rail project and the Sydney Monorail.

What factors should be considered when deciding whether to enter into a public-private partnership?

When considering whether to enter into a PPP, governments should carefully assess the risks and benefits involved. The following factors should be taken into account:

• The nature of the project: Is the project suitable for delivery by the private sector?
• The needs of the parties: What are the needs of the government and the private sector entity? What type of PPP would best meet those needs?
• The risks and benefits: What are the risks and benefits of a PPP? How do they compare to the risks and benefits of alternative delivery models?
• The procurement process: How will the procurement process be structured? What are the risks and benefits of different procurement models?
• The legal and regulatory framework: What is the legal and regulatory framework for PPPs in the jurisdiction? Is it adequate to protect the interests of the parties involved?

What are the steps involved in developing a public-private partnership?

The steps involved in developing a PPP vary depending on the jurisdiction, but typically include the following:

1. Identify the project: The first step is to identify a project that is suitable for delivery by the private sector.
2. Assess the needs of the parties: The second step is to assess the needs of the government and the private sector entity. What type of PPP would best meet those needs?
3. Conduct a feasibility study: The third step is to conduct a feasibility study to assess the technical, financial, and economic viability of the project.
4. Develop the PPP agreement: The fourth step is to develop the PPP agreement, which sets out the rights and obligations of the parties.
5. Procure the private sector entity: The fifth step is to procure the private sector entity through a competitive bidding process.
6. Implement the project: The sixth step is to implement the project in accordance with the PPP agreement.
7. Monitor and evaluate the project: The seventh step is to monitor and evaluate the project to ensure that it is meeting its objectives.

Procurement process for a public-private partnership

The procurement process for a PPP can be structured in a number of ways, depending on the jurisdiction. The most common approach is to use a competitive bidding process, under which private sector entities submit proposals in response to a request for proposal (RFP) issued by the government. The RFP should set out clear and transparent criteria for the selection of the private sector entity.