What is a Public-Private Partnership? (And why we should think broadly about it)

Bilzin Sumberg
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Bilzin Sumberg

Ask ten people in the industry to define a public-private partnership (P3), and you’ll probably get twice as many definitions. The World Bank’s PPP Knowledge Lab defines a P3 as "a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance." That definition excludes (in my view, appropriately) one pole of the spectrum—the outright sale of a public asset to the private sector—which, although often confused with P3s, is better defined as “privatization” and should be thought of as a separate concept. The World Bank’s definition would also exclude (again, appropriately) the other end of the spectrum—ordinary construction and service contracts. In between those two poles, there is a lot of space. Few would dispute that a long-term design-build-finance-operate-maintain (DBFOM) contract is a P3, but what about a long-term design-build-operate-maintain (DBOM) contract without any private financing? That pretty cleanly falls within the World Bank’s definition, but within the industry, that is controversial. And what about a design-build-finance (DBF) that includes private financing but no long-term management responsibilities? That is probably less controversial within the industry but does not fall within the World Bank’s definition. Any definition (and surely any alternative that I could offer) is likely to face the same challenges—arguably over-inclusive in one area and under-inclusive in others. That is perhaps a necessary consequence of one of the P3 model’s greatest assets—its flexibility. Because each project, and each government, will have different goals, there cannot be a one-size-fits-all P3 structure, and the flexibility of the model (and as a result, of the industry) lends itself to application to nearly any project. However, only by emphasizing a broad definition of the P3 model can the potential of the model be achieved. If, for example, P3s are thought of as only DBFOM projects, then a grantor that is uninterested in transferring responsibility for operations and maintenance may not think to consider the many possibilities that the P3 model can still offer.

Completely separate from the question of which types of contractual arrangements qualify as P3s is what types of projects qualify as P3s. The industry in the United States has long been focused on highway projects, and due to the success of the model, the P3 model is widely accepted as a potential model that should (or must) be at least considered for the delivery of a new highway or bridge project. The P3 model is also gaining traction for mass transit projects (such as the Los Angeles Airport Automated People Mover system), water and sewer infrastructure, certain social infrastructure projects (i.e., government buildings)—but that acceptance remains a work in progress, and governments do not yet instinctively think of P3s as a possibility for projects of every type. But they should. The P3 model’s emphasis on lifecycle costs, financing flexibility, and competitive procurement has much to offer any project type.

Earlier this month, the Pennsylvania legislature passed a bill that will significantly expand the list of eligible project types under the Commonwealth’s transportation P3 program. The bill expands the program and includes not only every type of transportation infrastructure that one could imagine (now including rest areas, weigh stations, welcome centers, and unmanned aerial systems) but also potential projects that don’t include any infrastructure, such as the provision of driver and vehicle services and projects that support the development of driverless vehicles. We hope that other states and local governments will follow suit and similarly think of P3s in expansive terms. As we have seen with road P3s, success begets success. By emphasizing the breadth and flexibility of the model, it is more likely to be adapted to new types of projects, which can then be replicated throughout the country.

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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