A Public-Private Partnership is a contractual agreement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards associated with the delivery of the service and/or facility.

Public Private Partnerships do not represent privatization; Government retains ownership, controls and regulations, as well as remedies for non-performance. Public Private Partnerships are only appropriate if the life cycle risk-adjusted cost of providing the service is lower than if undertaken by the Government under conventional financing methods. There are different types of PPP’s that work to create a successful and beneficial partnership for both the private sector and public agency.

Types of PPP's

• Design Build (DB): Private entity designs and builds to Government requirements and Government assumes financing, operating and maintenance responsibility
• Design Build Finance (DBF): Private entity designs and builds to Government requirements; provides financing for a facility often through a long term lease
• Design Build Finance Operate Maintain (DBFOM): Private entity designs and builds to Government requirements; provides financing through long term lease, operating agreement or concession; and operates and maintains the facility at a predetermined price to Government standards

Criteria For Successful PPP's

• Political commitment to process
• Enabling legislation in place
• Organizational structure in place to prepare Requests For Proposals and evaluation of bids
• Defined design and operating performance specifications predetermined with user departments
• Final environmental clearance (CEQA) achieved or in sight to prevent unforeseen delays negating bids

Benefits

• Construction and life-cycle cost savings
  • UK National Audit Office study expects average life-cycle savings of 17%
  • Province of BC (Canada) Government study showed average savings of 9%
• Enables construction to be brought forward by spreading front-end cost over lifecycle of asset
• Strong incentive for contractor to accelerate completion so service payments can commence
• On time and on budget delivery: UK Government study 2003
  • 73% of non PPP projects over budget, 70% delivered late
  • 22% of PPP project over budget, 24% late
• Construction and maintenance can be shifted to private sector subject to stipulated performance standards; avoids deferral of maintenance through annual budgeting process
• Customer Service Orientation: customer satisfaction metrics can be built into contract
• Enables Public Sector to focus on outcomes and core business