Public-Private Partnerships: They’re Not Just About the Money, But the Performance

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The need to spend significant dollars on the repair and expansion of the nation’s public infrastructure is a major concern expressed by many.  Even the two presidential candidates for the major political parties, who don’t seem to agree on anything else, agree that a commitment to repair and rebuild the nation’s infrastructure is critical to economic productivity and opportunity for its citizens.

In a recent paper published by the Center for American Progress, a public policy and research organization, entitled “Assessing Claims About Public-Private Partnerships,” the author concludes that public-private partnerships (“P3s”) are an alternate approach to infrastructure procurement that has as a key benefit: “the ability to transfer risk…”  This is achieved by transferring “some or all of the project development, design, construction, operational and revenue risk to a private entity.”  This is particularly the case for large complex projects (though the author doesn’t specify a dollar amount or discuss what he means by complex).

I am generally in agreement with the conclusion of the paper; however, most of the article is spent taking issue with “public-private partnership supporters” who are promoting P3s not as a delivery method that appropriately allocates project risks, incentivizes high quality operation and maintenance, provides budget certainty and encourages innovation, but as a financing scheme.  Specifically, the author accuses “Wall Street” of peddling high cost equity capital as the reason to do a P3.  The author also spends a fair amount of time critical of the assertion that these so-called “P3 supporters” make about the role of public pension investors in P3 transactions.

I recognize the role of private finance in these transactions, as well as the recent involvement of public pension funds as investors in P3 transactions, but to be clear: P3 is not all about the money—it’s about the performance and the value provided to the public sector and taxpayers of the transfer of design, construction and maintenance risk to the private sector.  I would like to have seen the author spend more time writing about what he concludes are the benefits of a P3 – that it is first and foremost a delivery method.  The private financing aspect of these transactions is not a magic source of liquidity for public infrastructure but can be an important driver of the overall value to be derived from a P3 approach.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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