public-private-partnerships

What Are Public-Private Partnerships And How They Work? Public-Private Partnerships In A Nutshell

A public-private partnership (PPP) involves collaboration between the public and private sectors that can be used to finance, build, or operate infrastructure projects. Public-private partnerships are unique to some extent, but many share common characteristics such as service orientation, whole life costing, risk allocation, long-term relationships, and transparency.

Understanding public-private partnerships

Public-private partnerships are defined by a long-term contract between a private party and a government agency where the aim is to provide a public asset or service. 

In most cases, a private company provides the capital for government projects and services up-front and then collects a fee from taxpayers or the government over the duration of the contract. The private sector also tends to be responsible for the design, construction, and operation of the asset in addition to the maintenance required over its useful life.

The PPP model is entrenched in many countries and is used for:

  • Economic infrastructure – such as roads, airports, dams, bridges, sewerage systems, and public transportation systems, and
  • Social infrastructure – such as schools, hospitals, sports facilities, entertainment centers, and prisons.

The fundamental characteristics of a public-private partnership

While every PPP has unique characteristics, there are a few principle features that are common to almost every contract. These include:

Service-orientation

The PPP approach has a core focus on delivering long-term public services including transportation, electricity, and water. There must always be adequate and prior consultation with end-users and other stakeholders before the commencement of project construction.

Whole life costing

The total cost of the project is computed for its entire life span, encompassing initial capital expenditure, maintenance, modification, and decommissioning costs.

Risk allocation

Since many infrastructure projects involve high risk, both the private and public sectors are allocated a share of the risk to reduce their respective exposure.

Long-term relationships

Public-private partnerships may last for decades because of the time required to construct the asset and its longer useful life. The private company is paid for services rendered so long as it continues to meet key performance indicators.

Transparency

As a funding tool, PPPs are no stranger to controversy as many believe the public return on investment is lower than the ROI enjoyed by the private funder. World-class standards of transparency concerning public and corporate governance are thus important to enhance the credibility of a public-private partnership.

Examples of a public-private partnership

In this section, we’ll take a look at some specific public-private partnership examples in the United States:

Gateway Arch

When the Gateway Arch in St. Louis, Missouri experienced a decline in visitors, the Gateway Arch Park Foundation raised $250 million in conjunction with an $86 million government grant to upgrade the monument. The partnership resulted in a 30% increase in attendance.

Puerto Rico

A consortium of United States and Canada-based firms partnered with Puerto Rican electricity provider Luma. The provider had failed to improve or maintain the power network which resulted in frequent power outages. The consortium now oversees transmission, distribution, billing, capital improvements, and human resources.

The Merced 2020 Project

The University of California Merced partnered with a coalition of local entities in a deal worth $1.3 billion. The funds went toward the expansion of the university with projects such as student housing, classrooms, research space, recreational facilities, and counseling services.

Key takeaways:

  • Public-private partnerships involve collaboration between the public and private sectors that are used to finance, build, or operate infrastructure projects.
  • Public-private partnerships are unique to some extent, but many share common characteristics such as service orientation, whole life costing, risk allocation, long-term relationships, and transparency.
  • Examples of public-private partnerships involving American companies include the Gateway Arch and Puerto Rican power network revitalization. A PPP was also used to secure $1.2 billion to fund the expansion of UC Merced. 

Main Free Guides:

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