Public-Private Partnerships:Purpose of Tool:
A public-private partnership (PPP) is a tool that local governments can use to help fund costly investments, particularly infrastructure. This tool is especially relevant in light of recent reductions in local, state, and federal funding available for major infrastructure projects. A PPP is an agreement between the government and the private sector to jointly fund and/or manage a public infrastructure project. In many cases, the private sector plays a greater role in the planning, financing, construction, operation, and maintenance of the facility. There are many types of PPP arrangements, whereby the public and private sectors bear varying levels of responsibility for projects. The private sector reaps financial benefits either directly from the government that it has contracted with (payment for services rendered, such as design and construction) or in the form of operations revenue once the project is complete.
Benefits of Using Tool:
A PPP has numerous benefits for the community. The public sector typically does not have to invest significantly in funding upfront; rather, the private sector takes on this burden and is repaid through revenue streams. Because of the private sector’s desire to recoup costs, projects are usually delivered efficiently, on time and on budget. A PPP contract also protects taxpayers by shifting risk in the project to the private sector; this is accomplished through quality controls built into the contract. In addition, a PPP usually saves the public sector money spent for construction, operation, and maintenance.
Steps Involved to Use Tool:
In order to initiate a PPP, the government must first ensure that the arrangements are legal within the state and local jurisdictions. It also helps to have a supportive regulatory framework, so that the initiation of the PPP does not become controversial or turn into a political struggle. The following are basic procedures for a local government to establish and operate a project under a PPP.
Policy and Planning Phase:
1. Establish objectives for the PPP, including the government’s roles and responsibilities
2. Evaluate alternative financing structures, from traditional to more innovative financing
3. Communicate the economic and social benefits of the PPP, especially to detractors
4. Build market interest in potential projects among construction and facility management firms
1. Establish a feasible timeframe for the activities of the PPP based on project objectives, market interests, budgets, and other similar factors
2. Utilize a financial model to evaluate the best value for available money
3. Establish performance standards for the PPP
4. Develop a draft project agreement and issue a request for proposals (RFP) to potential bidders
5. Select a preferred bidder
Construction and Concession Phase:
1. Once construction begins, monitor the activities on an ongoing basis. Continue to monitor the contract for finance, operational and maintenance issues that may arise
2. Upon completion of the project, arrange to receive the asset back or hand it over to the private entity
Special Requirements to Use Tool:
Before proceeding with a potential PPP, local governments should ensure that there is state legislative and regulatory support for such arrangements. If not, the appropriate parties or individuals should be made aware of the benefits of the PPP tool. This process, however, may take months or years to accomplish.
Specials Resources Needed to Use Tool:
A successful PPP is maintained through a clear understanding, among both the public and private entities, of the roles and responsibilities of each party in the PPP. In addition, there are a number of resources that are helpful throughout the lifecycle of the PPP, including financial models to plan for and monitor the financial aspects of the project; a marketing plan for both the public and legislators; bidders who have ideally had success in past PPP arrangements; and staff to provide project management and long-term oversight of the project.
Communities / Agencies that Have Used Tool:
In 2002, the Port of Galveston formed a PPP with Royal Caribbean International, Carnival Cruise Line, and CH2M HILL to expand the Port’s cruise ship services and facilities. The private sector provided the upfront investment in the cruise terminal development, anticipating increased revenue from operations. The public sector benefited by conserving capital funds, increasing revenues from growth in related industries, and building stronger ties to the business community. Over $14 million of projects were completed, including a new terminal and headhouse. Overall, the Port, as well as the State of Texas, has seen increased tourism and revenue from the cruise terminal expansion PPP. Contacts:
Port of Galveston (Public Sector Partner)
Royal Caribbean International
Carnival Cruise Line (Private Sector Partners)
In 1990, the Atlanta-Fulton County Water Resources Commission (AFCWRC) entered into a PPP with Veolia Water and Khafra Engineering for start-up and operations assistance at a new water treatment facility. This partnership has been renewed multiple times. The private sector has saved AFCWRC significant costs by using innovative approaches in the provision of water service, even with expansion of the plant and additional flow capacities. The success of these companies has allowed them to enter into similar ventures throughout the United States. The PPP truly demonstrates a close partnership, as the facility owner (AFCWRC) and the operators (private sector) work closely together on-site on a daily basis. Contacts:
Atlanta-Fulton County Water Resources Authority (Public Sector)
Veolia Water North America (Private Sector)
Metrics to Use to Monitor Tool Effectiveness:
PPPs can be used to implement a variety of infrastructure projects, so there are no set metrics for success. Typical measures of successful PPPs include cost and time saved by the local government, public acceptance, and the quality of the final product.
List of Resources to Obtain Additional Info: