Public–private partnership

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Depiction of the various levels of private-sector involvement in public private partnerships. See Delivery models section. Source: Brookings Institution

A public–private partnership (PPP, 3P, or P3) is a cooperative arrangement between two or more public and private sectors, typically of a long-term nature.[1][2] In other words, it involves government(s) and business(es) that work together to complete a project and/or to provide services to the population.[3] They are an example of multistakeholder governance. Public–private partnerships have been implemented in multiple countries, are primarily used for infrastructure projects, such as the building and equipping of schools, hospitals, transport systems, and water and sewerage systems.[4]

PPPs have been highly controversial as funding tools, largely over concerns that public return on investment is lower than returns for the private funder. PPPs are closely related to concepts such as privatization and the contracting out of government services.[1][5] The lack of a shared understanding of what a PPP is and the secrecy surrounding their financial details makes the process of evaluating whether PPPs have been successful complex.[6] P3 advocates highlight the sharing of risk and the development of innovation[6], while critics decry their higher costs and issues of accountability.[7] Evidence of PPP performance in terms of value for money and efficiency, for example, is mixed and often unavailable.[8]

Definition[edit]

There is no consensus about how to define a PPP.[5] The term can cover hundreds of different types of long-term contracts with a wide range of risk allocations, funding arrangements, and transparency requirements.[1] The advancement of PPPs, as a concept and a practice, is a product of the new public management of the late 20th century and globalization pressures. Despite there being no formal consensus regarding a definition, the term has been defined by major entities.

For example, The OECD formally defines public-private-partnerships as "long term contractual arrangements between the government and a private partner whereby the latter delivers and funds public services using a capital asset, sharing the associated risks".[9] The Government of India defines a P3 as "a partnership between a public sector entity (sponsoring authority) and a private sector entity (a legal entity in which 51% or more of equity is with the private partner/s) for the creation and/or management of infrastructure for public purpose for a specified period of time (concession period) on commercial terms and in which the private partner has been procured through a transparent and open procurement system."[10] According to Weimer and Vining, "A P3 typically involves a private entity financing, constructing, or managing a project in return for a promised stream of payments directly from government or indirectly from users over the projected life of the project or some other specified period of time".[11]

A 2013 study published in State and Local Government Review found that definitions of public-private partnerships vary widely between municipalities: "Many public and private officials tout public-private partnerships for any number of activities, when in truth the relationship is contractual, a franchise, or the load shedding of some previously public service to a private or nonprofit entity." A more general term for such agreements is "shared service delivery", in which public-sector entities join together with private firms or non-profit organizations to provide services to citizens.[12][13]

Debate on privatization[edit]

There is a semantic debate pertaining to whether public–private partnerships constitute privatization or not. Some argue that it isn't "privatization" because the government retains ownership of the facility and/or remains responsible for public service delivery. Others argue that they exist on a continuum of privatization; P3s being a more limited form of privatization than the outright sale of public assets, but more extensive than simply contracting-out government services.[7]:chapter 1

Supporters of P3s generally take the position that P3s do not constitute privatization, while P3 opponents argue that they are. The Canadian Union of Public Employees describes P3s as "privatization by stealth".[7]:chapter 1

Origins[edit]

Governments have used such a mix of public and private endeavors throughout history.[14][15] Muhammad Ali of Egypt utilized "concessions" in the early 1800s to obtain public works for minimal cost while the concessionaires' companies made most of the profits from projects such as railroads and dams.[16] Much of the early infrastructure of the United States was built by what can be considered public-private partnerships. This includes the Philadelphia and Lancaster Turnpike road in Pennsylvania, which was initiated in 1792,[17] an early steamboat line between New York and New Jersey in 1808; many of the railroads, including the nation's first railroad, chartered in New Jersey in 1815; and most of the modern electric grid.[citation needed] In Newfoundland, Robert Gillespie Reid contracted to operate the railways for fifty years from 1898, though originally they were to become his property at the end of the period.[citation needed] However, the late 20th and early 21st century saw a clear trend toward governments across the globe making greater use of various PPP arrangements.[2] This trend seems to have reversed since the global financial crisis of 2008.[6]

Pressure to change the standard model of public procurement arose initially from concerns about the level of public debt, which grew rapidly during the macroeconomic dislocation of the 1970s and 1980s. Governments sought to encourage private investment in infrastructure, initially on the basis of accounting fallacies arising from the fact that public accounts did not distinguish between recurrent and capital expenditures.[7]:chapter 1

In 1992, the Conservative government of John Major in the UK introduced the PFI,[18] the first systematic program aimed at encouraging public-private partnerships. The 1992 program focused on reducing the public-sector borrowing requirement, although, as already noted, the effect on public accounts was largely illusory. Initially, the private sector was unenthusiastic about PFI, and the public sector was opposed to its implementation. In 1993, the Chancellor of the Exchequer described its progress as "disappointingly slow". To help promote and implement the policy, he created institutions staffed with people linked with the City of London, accountancy and consultancy firms who had a vested interest in the success of PFI. The Labour government of Tony Blair, elected in 1997, expanded the PFI initiative but sought to shift the emphasis to the achievement of "value for money", mainly through an appropriate allocation of risk. The PPP unit Partnerships UK was created from the previous pro-PPP institutions within the UK government. This semi-independent organization's mandate was to promote and implement PFI, and was central in making PPPs the "new normal" for public infrastructure procurements in the country.[19] Multiple countries subsequently created similar PPP units on Partnership UK's model.

While initiated in first world countries, PPPs immediately received significant attention in transition economies, as they promised to bring new sources of funding for infrastructure projects, which could translate to job and growth. However, lack of investor rights guarantees, commercial confidentiality laws, dedicated states spending on public infrastructure, and the possibility of staple revenues from user fees made it difficult to implement Public–private partnership in transition economies. The World Bank's Public-Private Infrastructure Advisory Forum attempts to mitigate these challenges.[7]

Economic theory[edit]

In economic theory, public–private partnerships have been studied through the lens of contract theory. The first theoretical study on PPPs was conducted by Oliver Hart.[20] From an economic theory perspective, what distinguishes a PPP from traditional public procurement of infrastructure services is that in the case of PPPs, the building and operating stages are bundled. Hence, the private firm has strong incentives in the building stage to make investments with regard to the operating stage. These investments can be desirable but may also be undesirable (e.g., when the investments not only reduce operating costs but also reduce service quality). Hence, there is a trade-off, and it depends on the particular situation whether a PPP or traditional procurement is preferable. Hart's model has been extended in several directions. For instance, authors have studied various externalities between the building and operating stages,[21] insurance when firms are risk-averse,[22] and implications of PPPs for incentives to innovate and gather information.[23][24]

Clarence N. Stone frames public–private partnerships as "governing coalitions". In Regime Politics Governing Atlanta 1946–1988, he specifically analyzes the "crosscurrents in coalition mobilization". Government coalitions are revealed as susceptible to a number of problems, primarily corruption and conflicts of interest. This slippery slope is generally created by a lack of sufficient oversight.[25] Corruption and conflicts of interest, in this case, lead to costs of opportunism; other costs related to P3s are production and bargaining costs.[26]

Other theoretical approaches[edit]

Infrastructure PPPs can be understood at five different levels: as a particular project or activity, as a form of project delivery, as a statement of government policy, as a tool of government, or as a wider cultural phenomenon.[6] Different disciplines commonly emphasize different aspects of the PPP phenomena.[6] Engineering and economics primarily take a utilitarian, functional focus emphasizing concerns such as overall project costs and quality compared to traditional ways of delivering large infrastructure projects. In contrast, public administrators and political scientists tend to view PPPs more as a policy brand and a tool for governments to achieve their objectives.[27]

Funding models[edit]

A defining aspect of many infrastructure P3s is that most of the up-front financing is bore by the private sector. The way this financing is done differs significantly by country. For P3s in the UK, Bonds are used rather than bank loans. In Canada, P3 projects usually use loans that must be repaid within 5 years, and the projects are refinanced at a later date.[7] In some types of public private partnership, the cost of using the service is borne exclusively by the users of the service—for example, by toll road users.[2] In other types (notably the PFI), capital investment is made by the private sector on the basis of a contract with government to provide agreed-on services, and the cost of providing the services is borne wholly or in part by the government.[28]

Typically, a private-sector consortium forms a special company called a special-purpose vehicle (SPV) to develop, build, maintain, and operate the asset for the contracted period.[29][30] In cases where the government has invested in the project, it is typically (but not always) allotted an equity share in the SPV.[31] The consortium is usually made up of a building contractor, a maintenance company, and one or more equity investors. The two former are typically equity holders in the project, who make decisions but are only repaid when the debts are paid, while the latter is the project's creditor (debt holder).[7]

Public infrastructure is a relatively low-risk, high-reward investment, and combining it with complex arrangements and contracts that guarantee and secure the cash flows make PPP projects prime candidates for project financing. The equity investors in SPVs are usually institutional investors such as pension funds, life insurance companies, sovereign wealth and superannuation funds, and banks. Major P3 investors include AustralianSuper, OMERS and dutch state-owned bank ABN AMRO, which funded the majority of P3 projects in Australia. Wall Street firms have increased their interest in P3s since the 2008 financial crisis.[7]

It is the SPV that signs the contract with the government and with subcontractors to build the facility and then maintain it. A typical PPP example would be a hospital building financed and constructed by a private developer and then leased to the hospital authority. The private developer then acts as landlord, providing housekeeping and other non-medical services, while the hospital itself provides medical services.[29]

Government sometimes make in kind contributions to a PPP, notably with the transfer of existing assets. In projects that are aimed at creating public goods, like in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant so as to make the project economically viable. In other cases, the government may support the project by providing revenue subsidies, including tax breaks or by guaranteed annual revenues for a fixed period. In all cases, the partnerships include a transfer of significant risks to the private sector.[32][33]. Because P3s are directly responsible for a variety of activities, they can evolve into monopolies motivated by rent-seeking behavior.[11]

Profit sharing[edit]

Some public-private partnerships, when the development of new technologies is involved, include profit-sharing agreements. This generally involves splitting revenues between the inventor and the public once a technology is commercialized. Profit-sharing agreements may stand over a fixed period of time or in perpetuity.[34]

Delivery models[edit]

There are many types and delivery models of PPPs, the following is a non-exhaustive list of some of the designs:

Operation & Maintenance Contract (O & M)
A private economic agent, under a government contract, operates a publicly-owned asset for a specific period of time. Formal, ownership of the asset remains with the public entity. In terms of private-sector risk and involvement, this model is on the lower end of the spectrum for both involvement and risk.[35]
Build-Finance (BF)
The private actor builds the asset and finances the cost during the construction period, afterwords the responsibility is handed over to the public entity. In terms of private-sector risk and involvement, this model is again on the lower end of the spectrum for both measures.[35]
Build-Operate-Transfer (BOT)
Build-Operate-Transfer represents a complete integration of the project delivery: the same contract governs the design, construction, operations, maintenance, and financing of the project. After some concessionary period, the facility is transferred back to the owner.
Build–own–operate–transfer (BOOT)
A BOOT structure differs from BOT in that the private entity owns the works. During the concession period, the private company owns and operates the facility with the prime goal to recover the costs of investment and maintenance while trying to achieve a higher margin on the project. BOOT has been used in projects like highways, roads mass transit, railway transport and power generation.[36]
Build–own–operate (BOO)
In a BOO project ownership of the project remains usually with the project company, such as a mobile phone network. Therefore, the private company gets the benefits of any residual value of the project. This framework is used when the physical life of the project coincides with the concession period. A BOO scheme involves large amounts of finance and long payback period. Some examples of BOO projects come from the water treatment plants.[37]
Build–lease–transfer (BLT)
Under BLT, a private entity builds a complete project and leases it to the government. In this way the control over the project is transferred from the project owner to a lessee. In other words, the ownership remains by the shareholders but operation purposes are leased. After the expiry of the leasing the ownership of the asset and the operational responsibility is transferred to the government at a previously agreed price.
Design-Build-Finance-Maintain (DBFM)
"The private sector designs, builds and finances an asset and provides hard facility management or maintenance services under a long-term agreement." The owner (usually the public sector) operates the facility. This model is in the middle of the spectrum for private sector risk and involvement.[35]
Design–build–finance–maintain-operate (DBFMO)
Design–build–finance–operate is a project delivery method very similar to BOOT except that there is no actual ownership transfer. Moreover, the contractor assumes the risk of financing until the end of the contract period. The owner then assumes the responsibility for maintenance and operation. This model is extensively used in specific infrastructure projects such as toll roads. The private construction company is responsible for the design and construction of a piece of infrastructure for the government, which is the true owner. Moreover, the private entity has the responsibility to raise finance during the construction and the exploitation period.[38] Usually, the public sector begins payments to the private sector for use of the asset post-construction. This is the most commonly used model in the EU according to the European Court of Auditors.[39]
Design–build–operate–transfer (DBOT)
This funding option is common when the client has no knowledge of what the project entails. Hence he contracts the project to a company to design, build, operate, and then transfer it. Examples of such projects are refinery constructions. [40]
Design–construct–manage–finance (DCMF)
A private entity is entrusted to design, construct, manage, and finance a facility, based on the specifications of the government. Project cash flows result from the government's payment for the rent of the facility. Some examples of the DCMF model are prisons or public hospitals.
Concession
A Concession is a grant of rights, land or property by a government, local authority, corporation, individual or other legal entity.[41] Public services such as water supply may be operated as a concession. In the case of a public service concession, a private company enters into an agreement with the government to have the exclusive right to operate, maintain and carry out investment in a public utility (such as a water privatization) for a given number of years.[35]

P3 drivers[edit]

There are many drivers for PPPs[2][42]. Advocates argue that PPPs enable the public sector to harness the expertise and efficiencies that the private sector can bring to the delivery of certain facilities and services traditionally procured and delivered by the public sector.[43] Critics argue that PPPs are part of an ideological program that seeks to privatize public services for the profits of private entities.[7]

Another common driver is that PPPs may be structured so that the public-sector body seeking to make a capital investment does not incur any borrowing; rather, the borrowing is incurred by the private-sector vehicle implementing the project. On PPP projects where the cost of using the service is intended to be borne exclusively by the end-user, or through a lease billed to the government every year during the operation phase of the project, the PPP is, from the public sector's perspective, an "off-balance sheet" method of financing the delivery of new or refurbished public-sector assets. This driver was particularly important during the 1990s, but has been exposed as an accounting trick designed to make the government of the day appear more fiscally responsible, while offloading the costs of their projects to service users or future governments. In Canada, many auditor generals have condemned this practice, and forced governments to include PPP projects "on-balance sheet".[7]

On PPP projects where the public sector intends to compensate the private sector through availability payments once the facility is established or renewed, the financing is, from the public sector's perspective, "on-balance sheet". According to PPP advocates, the public sector will regularly benefit from significantly deferred cash flows. This viewpoint has been contested through research that shows that a majority of PPP projects ultimately cost significantly more than traditional public ones.[44][45]

Associated costs[edit]

Research has showed that on average, governments pay more for PPPs projects than for traditional publicly financed projects.[44][45] This higher cost of P3s is attributed to these systemic factors:

  • The private sector's higher cost of capital: governments can typically borrow capital at an interest rate lower than any private company ever could. This is because governments have the power of taxation, which guarantees that they will be able to repay their debts. Since lending to governments almost always come at a lower risk than lending to private entities, governments gets better credit and cheaper financing costs for building large infrastructure projects than private finance.[46]
  • Transaction costs: P3 contracts are much more complex and extensive than contracts made in traditional publicly financed projects. The negotiation of these contracts require the presence of lawyers on all sides of the table, and can take months to finalize. Barrie Mckenna reports that "transaction costs for lawyers and consultants [in P3s] add about 3 per cent to the final bill."[47]
  • Private profits: Private company that engage in P3s expect a return on investment after the completion of the project. Often, this is paid by the government through tax revenue.[7]:chapter 4

Sometimes, private partners manage to overcome these costs and provide a project cheaper for the taxpayers. This can by done by cutting corners, designing the project so as to be more profitable in the operational phase, charging user fees, and/or monetizing aspects of the projects not covered by the contract. For P3 schools in Nova Scotia, this latter aspect has included restricting the use of school walls, fields and grass, and charging after-hours facility access to community groups at 10 times the rate of non-P3 schools.[7]:chapter 4

Studies on effectiveness[edit]

The effectiveness of PPPs as cost-saving or innovation-producing ventures has been called into question by numerous studies. A common problem with PPP projects is that private investors obtained a rate of return that was higher than the government's bond rate, even though most or all of the income risk associated with the project was borne by the public sector.[48] A UK Parliament report [49]underlines that some private investors have made large returns from PPP deals, suggesting that departments are overpaying for transferring the risks of projects to the private sector, one of the Treasury's stated benefits of PPP.

A 2008 report by PriceWaterhouseCoopers argued that the comparison between public and private borrowing rates is not fair because there are "constraints on public borrowing", which may imply that public borrowing is too high, and so PFI projects can be beneficial by not putting debt directly on government books.[50] The fact that PPP debt is not recorded as debt and remains largely "off balance sheet" has become a major concern. Indeed, keeping the PPP project and its contingent liabilities "off balance sheet" means that the true cost of the project is hidden[51]. According to the International Monetary Fund, economic ownership of the asset should determine whether to record PPP-related assets and liabilities in the government's or the private corporation's balance sheet is not straightforward[52]. According to a 2018 UN Report [45], "in terms of costs, private finance is more expensive than public finance, and public-private partnerships can also incur high design, management and transactional costs due to their complexity and the need for external advice"[53]. In addition, negotiations on issues other than traditional procurement can cause project delays of some years[54].

In the United Kingdom, it has been found that many private finance initiative programs ran dramatically over budget and have not provided value for money for the taxpayer, with some projects costing more to cancel than to complete. An in-depth study conducted by the National Audit Office of the United Kingdom[55] concluded that the private finance initiative model had proved to be more expensive and less efficient in supporting hospitals, schools, and other public infrastructure than public financing.

Contract management is a crucial factor in shared service delivery[56], and services that are more challenging to monitor or fully capture in contractual language often remain under municipal control. In the 2007 survey of U.S. city managers, the most difficult service was judged to be the operation and management of hospitals, and the least difficult the cleaning of streets and parking lots. The study revealed that communities often fail to sufficiently monitor collaborative agreements or other forms of service delivery: "For instance, in 2002, only 47.3% of managers involved with private firms as delivery partners reported that they evaluate that service delivery. By 2007, that was down to 45.4%. Performance monitoring is a general concern from these surveys and in the scholarly criticisms of these arrangements."[12][13]

In Ontario, a 2012 review of 28 projects showed that the costs were on average 16% lower for traditional publicly procured projects than for PPPs.[44] A number of Australian studies of early initiatives to promote private investment in infrastructure concluded that in most cases, the schemes being proposed were inferior to the standard model of public procurement based on competitively tendered construction of publicly owned assets.[57] In 2009, the New Zealand Treasury, in response to inquiries by the new National Party government, released a report on PPP schemes that concluded that "there is little reliable empirical evidence about the costs and benefits of PPPs" and that there "are other ways of obtaining private sector finance", as well as that "the advantages of PPPs must be weighed against the contractual complexities and rigidities they entail".[58]

Value for money[edit]

In response to negative findings about P3 projects was the development of formal procedures for the assessment of PPPs in which the focus was on value for money. Heather Whiteside defines "Value for money" as:

Not to be confused with lower overall project costs, value for money is a concept used to evaluate P3 private-partner bids against a hypothetical public sector comparator designed to approximate the costs of a fully public option (in terms of design, construction, financing, and operations). P3 value for money calculations consider a range of costs, the exact nature of which has changed over time and varies by jurisdiction. One thing that does remain consistent, however, is the favoring of "risk transfer" to the private partner, to the detriment of the public sector comparator.[7]:chapter 1

Value for money assessment procedures were incorporated into the PFI and its Australian and Canadian counterparts beginning in the late 1990s and early 2000s.[7]:chapter 4A 2012 study showed that value-for-money frameworks were still inadequate as an effective method of evaluating PPP proposals.[44] The problem is that it is unclear what the catchy term "value-for-money" means in practice and technical detail. A Scottish auditor once called it "technocratic mumbo-jumbo".[7]:chapter 4

More recent reports indicate that P3 represents poor value for money.[59] A treasury select committee stated that 'PFI was no more efficient than other forms of borrowing and it was "illusory" that it shielded the taxpayer from risk'. One key criticism of P3s, when it comes to value for money, is the lack of transparency surrounding individual projects, which makes it difficult to draft independent value-for-money assessments.[60]

Transfer of risk[edit]

One of the main rationales for P3s is that they provide for a transfer of risk: the Private partner assumes the risks in case of cost overruns or project failures. Methods for assessing value-for-money rely heavily on risk transfers to show the superiority of P3s. However, P3s do not inherently reduce risk, they simply reassign who is responsible, and the Private sector assumes that risk at a cost for the taxpayer. If the value of the risk transfer is appraised too high, then the government is overpaying for P3 projects.[7]:chapter 4

Supporters of P3s claim that risk is successfully transferred from public to private sectors as a result of P3, and that the private sector is better at risk management. As an example of successful risk transfer, they cite the case of the National Physical Laboratory. This deal ultimately caused the collapse of the building contractor Laser (a joint venture between Serco and John Laing) when the cost of the complex scientific laboratory, which was ultimately built, was very much larger than estimated. [61]

On the other hand, Allyson Pollock argues that in many PFI projects risks are not in fact transferred to the private sector[62] and, based on the research findings of Pollock and others, George Monbiot argues[63] that the calculation of risk in PFI projects is highly subjective, and is skewed to favor the private sector:

When private companies take on a PFI project, they are deemed to acquire risks the state would otherwise have carried. These risks carry a price, which proves to be remarkably responsive to the outcome you want. A paper in the British Medical Journal shows that before risk was costed, the hospital schemes it studied would have been built much more cheaply with public funds. After the risk was costed, they all tipped the other way; in several cases by less than 0.1%.[64]

Following an incident in the Royal Infirmary of Edinburgh where surgeons were forced to continue a heart operation in the dark following a power cut caused by PFI operating company Consort, Dave Watson from Unison criticized the way the PFI contract operates:

It's a costly and inefficient way of delivering services. It's meant to mean a transfer of risk, but when things go wrong the risk stays with the public sector and, at the end of the day, the public because the companies expect to get paid. The health board should now be seeking an exit from this failed arrangement with Consort and at the very least be looking to bring facilities management back in-house.[65]

Furthermore, assessments ignore the practices of risk transfers to contractors under traditional procurement methods. As for the idea that the private sector is inherently better at managing risk, there has been no comprehensive study comparing risk management by the public sector and by P3s. Auditor Generals of Quebec, Ontario and New Brunswick have publicly questioned P3 rationales based on a transfer of risk, the latter stating he was "unable to develop any substantive evidence supporting risk transfer decisions".[7]:chapter 4 Furthermore, many PPP concessions proved to be unstable and required to be renegotiated that favor the contractor.[66]

Accountability and transparency[edit]

One of the main criticism of public-private partnerships is the lack of accountability and transparency associated with these projects. Part of the reason why evidence of PPP performance is often unavailable is that most financial details of P3s are under the veil of commercial confidentiality provisions, and unavailable to researchers and the public. Around the world, opponents of P3s have launched judicial procedures to access greater P3 project documentation than the limited "bottom line" sheets available on the project's websites. When they are successful, the documents they receive are often heavily redacted.[7]

Growth and decline[edit]

From 1990 to 2009, nearly 1,400 PPP deals were signed in the European Union, representing a capital value of approximately €260 billion.[67] Since the onset of the financial crisis in 2008, estimates suggest that the number of PPP deals closed has fallen more than 40 percent.[68][48]

Investments in public-sector infrastructure are seen as an important means of maintaining economic activity, as was highlighted in a European Commission communication on PPPs.[69] As a result of the significant role played by PPPs in the development of public-sector infrastructure, in addition to the complexity of such transactions, the European PPP Expertise Centre (EPEC) was established to support the public sector's capacity to implement PPPs and share timely solutions to problems common across Europe in PPPs.[70]

U.S. city managers' motivations for exploring public-private service delivery vary. According to a 2007 survey, two primary reasons were expressed: cost reduction (86.7%) and external fiscal pressures, including tax restrictions (50.3%). No other motivations expressed exceeded 16%. In the 2012 survey, however, interest had shifted to the need for better processes (69%), relationship building (77%), better outcomes (81%), leveraging resources (84%), and belief that collaborative service delivery is "the right thing to do" (86%). Among those surveyed, the provision of public services through contracts with private firms peaked in 1977, at 18%, and has declined since. The most common form of shared service delivery now involves contracts between governments, growing from 17% in 2002 to 20% in 2007. "At the same time, approximately 22% of the local governments in the survey indicated that they had brought back in-house at least one service that they had previously provided through some alternative private arrangement."[12]

Sectors[edit]

Water services[edit]

Sign at the entrance of the Regina Wastewater Treatment Plant

After a wave of privatization of many water services in the 1990s, mostly in developing countries, experiences show that global water corporations have not brought the promised improvements in public water utilities. Instead of lower prices, large volumes of investment, and improvements in the connection of the poor to water and sanitation, water tariffs have increased out of reach of poor households. Water multinationals are withdrawing from developing countries, and the World Bank is reluctant to provide support.[71]

The privatization of the water services of the city of Paris proved to be unwanted, and at the end of 2009 the city did not renew its contract with two of the French water corporations, Suez and Veolia.[72][73] After a year of being controlled by the public, it is projected that the water tariff will be cut by between 5% and 10%.[74]

In the 2010s, as wastewater treatment plants across North America came of age and needed to be replaced, multiple cities decided to fund the renewal of their water infrastructure through a public-private partnership.[7] Among those cities were Brandenburg, Kentucky, which was the "first local government in Kentucky to execute a public-private partnership under legislation passed in 2016"[75], and Regina, Saskatchewan, which held a referendum on the plant's funding model. The P3 option won out."[76]

Transportation[edit]

Another major sector for P3s in transportation. Many P3s in the United States have been toll road concessions.[7] Transportation projects have accounted for 1/5 of all P3 projects in Canada. Major transportation P3 projects have included the Confederation Bridge linking Prince Edward Island and New Brunswick, the Pocahontas Parkway in Virginia, and the London Underground PPP.

Health services[edit]

For more than two decades, public-private partnerships have been used to finance health infrastructure. In Canada, they comprise 1/3 of all P3 projects nationwide.[7] Governments have looked to the PPP model in an attempt to solve larger problems in health care delivery. However, some health-care-related PPPs have been shown to cost significantly more money to develop and maintain than those developed through traditional public procurement.[77]

A health services PPP can be described as a long-term contract (typically 15–30 years) between a public-sector authority and one or more private-sector companies operating as a legal entity. The government provides purchasing power, outlines goals for an optimal health system, and contracts private enterprise to design, build, maintain, and/or manage the delivery of agreed-upon services over the term of the contract. The private sector receives payment for its services and assumes substantial financial, technical, and operational risk while benefitting from returns on its investments during the operational phase.[78]

A criticism of P3s for Hospitals in Canada is that they result in a "internal bifurcation of authority". This occurs when the facility is operated and maintained by the private sector while the care services are delivered by the public sector. In those cases, the nursing staff cannot request their colleagues from the maintenance staff to clean something (urine, blood, ect.) or to hang workplace safety signs, even if they are standing next to each other, without the approval of the private managers.[7]:chapter 4

In the UK, P3s were used to build hospitals for the National Health Service. In 2017 there were 127 PFI schemes in the English NHS. The contracts vary greatly in size. Most include the cost of running services such as facilities management, hospital portering and patient food, and these amount to around 40% of the cost. Total repayments will cost around £2.1 billion in 2017 and will reach a peak in 2029. This is around 2% of the NHS budget.[79]

PPP units[edit]

Public-private partnership units are organizations responsible for promoting, facilitating, and assessing P3s in their territory. They can be government agencies, or semi-independent organizations created with full or part government support. Governments tend to create these units as a response to criticisms of the implementation of P3 projects in their country prior to the creation of the P3 unit.[80] In 2009, 50% of OECD countries had created a centralized PPP unit, and many more of the institutions exist in other countries. [81]

Other types of P3s[edit]

While long-term infrastructure project compose the bulk of P3 projects worldwide, other types of Public-private partnerships exists to suit different purposes and actors.

Asset monetization[edit]

A form of P3 that became prevalent in American cities during the 21st century are asset monetization arrangements. They concerns a city's revenue-generating assets (Parking lots, garage and meters, public lights, toll roads, ect.) and transforms them into financial assets that the city can lease to a private corporation in exchange for operation and maintenance. These deals are usually done during periods of financial distress for the city, and the immediate revenues municipalities receive in these deals is used to pay down the debt or to fill budget holes. The 2014 Detroit bankruptcy deal included many of such Asset Monetization arrangements.[82]

Global public–private partnership[edit]

Global public–private partnership (GPPP) is a governance mechanism to foster public-private partnership (PPP) cooperation between an international intergovernmental organisation like the United Nations and private companies. Existing GPPPs strive, among other things, to increase affordable access to essential drugs in developing countries, and to [83] promote handwashing with soap to reduce diarrhoea.[84].

Market-led Proposal[edit]

Market-led Proposals (MLP) are P3s proposed by the private sectors. MLP policies encourage private sector firms to make unsolicited PPP infrastructure project proposals to the government, instead of putting the onus on the government to propose each project. During the 2010s, MLP policies has been implemented in most Austalian states and territories.[7]:chapter 5 Amy Sarcevic from Informa Australia notes that "to date, market-led proposals have had a relatively high failure rate".[85]

Partnership with non-profit organizations[edit]

Public–private partnerships with non-profits and private partners have seen a large increase over the years, in part because local and state governments rely heavily on the growing number of non-profits to provide many public services.[86] Neighborhood organizations or small and local non-profits saw a broad source of funding during the early years, but there has been a shift in funding more recently, reducing the overall funding and seeing more of it go to larger agencies focusing on large grants.[citation needed]

With the rise in public–private partnerships, there is also a rise in the responsibility that non-profits tend to hold. With some governments relying on many more of these organizations to provide public services, it is proving difficult for the government to hold non-profits responsible.[86] Too many projects and partnerships can also lead to a lack of accountability.[87] A lack of defined accountability roles can also lead to some taking advantage of others, causing a distrustful partnership.[88] Many partnerships can be terminated early due to issues with trust and cooperation during the contract implementation process. These issues can be avoided when the organization has initial guidelines for dos and don'ts,[89] a continuous commitment to negotiations in times of trouble, and even an outline for termination procedures if necessary.[87]

When entering into a cross-sector partnership, problems may arise due to differences between the cultures of government, industry, and non-profits. Items like performance measures, goal measurements, government regulations, and the nature of funding can all be interpreted differently, causing blurred communication.[87] Conflicts can also be related to territorialism or protectionism and a lack of commitment to working within the partnership.[90] A business partnership model would not be accurate or appropriate for a P3.[89]

Product development partnership[edit]

Product development partnerships (PDPs) are a class of public–private partnerships that focus on pharmaceutical product development for diseases of the developing world. These include preventive medicines such as vaccines and microbicides, as well as treatments for otherwise neglected diseases. PDPs were first created in the 1990s to unite the public sector's commitment to international public goods for health with industry's intellectual property, expertise in product development, and marketing.[citation needed]

International PDPs work to accelerate the research and development of pharmaceutical products for underserved populations that are not profitable for private companies. They may also be involved in helping plan for access and availability of the products they develop to those in need in their target populations. Publicly financed, with intellectual property rights granted by pharmaceutical industry partners for specific markets, PDPs are less concerned with recouping development costs through the profitability of the products being developed.[opinion] These not-for-profit organizations combine public- and private-sector interests, with a view toward resolving the specific incentive and financial barriers to increased industry involvement in the development of safe and effective pharmaceutical products.[citation needed]

Public–private–community partnership[edit]

Another model being discussed is the public–private–community partnership (PPCP), in which both the government and private players work together for social welfare, eliminating the prime focus of private players on profit. This model is being applied more in developing nations such as India.[citation needed]

Social Impact Bond[edit]

Social impact bonds (also called Pay for Success bonds) are "a public-private partnership which funds effective social services through a performance-based contract", according to Social Finance Ltd.'s definition [91] They operate over a fixed period of time, but they do not offer a fixed rate of return. Generally, repayment to investors is contingent upon a specified social outcomes being achieved.[92] A similar system, development impact bonds, is being implemented in developing countries.

See also[edit]

References[edit]

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[1]

Further reading[edit]

  • Abou-bakr, A (2013), Managing Disasters Through Public–Private Partnerships,Georgetown University Press.
  • Burnett, M. "PPP – A decision maker's guide", European Institute of Public Administration, 2007
  • Chinchilla, C. "El nuevo contrato de colaboración entre el setor público y el sector privado", Revista Española de Derecho Administrativo nº 132 (2006)
  • Delmon, J. "Private Sector Investment in Infrastructure: Project finance, PPP projects and risk," Kluwer, 2009.
  • Delmon, J. "Public Private Partnership Programs: Creating a framework for private sector investment in infrastructure, Kluwer, 2014.
  • Gonzalez Garcia, J. "El contrato de colaboración público privada", Revista de Administración Pública, nº 170 (2006).
  • Koh, Jae Myong (2018) Green Infrastructure Financing: Institutional Investors, PPPs and Bankable Projects, Palgrave Macmillan. ISBN 978-3-319-71769-2.
  • Linotte Didier, Un cadre juridique désormais sécurisé pour les contrats de partenariat, AJDA, n° 1/2005 du 10 janvier 2005.
  • Monera Frédéric, Les financements innovants de services et de projets publics, Revue de la Recherche Juridique – Droit prospectif, PUAM, 2005–1, p. 337 & s.
  • Moszoro M., Gasiorowski P. (2008), 'Optimal Capital Structure of Public–Private Partnerships', IMF Working Paper 1/2008. [1]
  • Colman, J. (2002), 'Mumbo jumbo...and other pitfalls:Evaluating PFI/PPP projects', National Audit Office PFI / PPP Conference "Bringing about beneficial change, London, May.
  • Economic Planning Advisory Commission (EPAC) (1995), 'Final Report of the Private Infrastructure Task Force', Australian Government Publishing Service, Canberra.
  • Economic Planning Advisory Commission (EPAC) (1995), 'Interim Report of the Private Infrastructure Task Force', Australian Government Publishing Service, Canberra.
  • Harris, A.C. (1996), 'Financing infrastructure: private profits from public losses', Audit Office of NSW, Public Accounts Committee, Parliament of NSW, Conference, Public/Private infrastructure financing: Still feasible?, Sydney, September.
  • Hart, Oliver (2003). "Incomplete contracts and public ownership: Remarks, and an application to public‐private partnerships". Economic Journal 113: C69-C76.
  • Hoppe, Eva I.; Schmitz, Patrick W. (2013). "Public‐private partnerships versus traditional procurement: Innovation incentives and information gathering" (PDF). RAND Journal of Economics. 44: 56–74. doi:10.1111/1756-2171.12010.
  • House of Representatives Standing Committee on Communications Transport and Microeconomic Reform, (1997), 'Planning not Patching: An Inquiry Into Federal Road Funding', The Parliament of the Commonwealth of Australia, Australian Government Publishing Service, Canberra.
  • Industry Commission (1996), 'Competitive Tendering and Contracting by Public Sector Agencies', Australian Government Publishing Service, Canberra.
  • Iossa, Elisabetta and Martimort, David (2012). "Risk allocation and the costs and benefits of public‐private partnerships". RAND Journal of Economics 43: 442–474.
  • Loxley, J. (2010). Public service, private profits : the political economy of public/private partnerships in Canada. Fernwood Publishing. 224 p.
  • Minnow, Martha and Jody Freeman (2009), Government By Contract: Outsourcing and American Democracy, Harvard U.P.
  • Monbiot, G. (2000), 'Captive State, The Corporate Takeover of Britain', Macmillan.
  • Möric, K. (2009), 'Les partenariats public-privé – le choix du partenaire privé au regard du droit communautaire, Editions Larcier, 264 p.
  • Onses, Richard (2003). The Public Private Partnership of Cartagena de Indias – Colombia: Agbar's Experience. Barcelona. ISBN 978-84-607-8089-2.
  • Quiggin, J. (1996), 'Private sector involvement in infrastructure projects', Australian Economic Review, 1st quarter, 51–64.
  • Schaeffer, PV and S Loveridge (2002), 'Toward an Understanding of Types of Public-Private Cooperation'. Public Performance and Management Review 26(2): 169–189.
  • Spackman, M. (2002), 'Public-private partnerships: lessons from the British approach', Economic Systems, 26(3), 283–301.
  • Strauch, L. (2009), 'Public Private Partnership in European Road Infrastructure: PPP as Investment Asset Following the M6 Road Project in Hungary', VDM.
  • Talibdjanov, N. and Koshnazarov, S. UNDP & Chamber of Commerce and Industry of Uzbekistan, Public-Private Partnership in Uzbekistan: Problems, Opportunities and Ways of Introduction (2008–2009)
  • Venkat Raman, A. and JW Bjorkman (2009), 'Public-Private Partnerships in Health Care in India: Lessons for Developing Countries'. London. Routledge.
  • Whiteside, H. (2015). Purchase for profit: public-private partnerships and Canada’s public health-care system. University of Toronto Press.


  1. ^ Schaeffer, P.V. & S. Loveridge, 2002. “Toward an Understanding of Types of Public-Private Cooperation.” Public Performance and Management Review 26(2): 169-189.