Public Private partnership

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PUBLIC PRIVATE PARTNERSHIP is a cooperative arrangement between one or more public and private sector actors, typically of a long term nature.^[1] Governments have used such a mix of public and private endeavors throughout history.^[2]^[3] However, the past few decades has seen a clear trend towards governments across the globe making greater use of various PPP arrangements.^[1]

There is no consensus about how to define a PPP.^[4] PPPs can be understood of both as a governance mechanism and a language game.^[1] When understood as a language game, or brand, the PPP phrase can cover hundreds of different types of long term contracts with a wide range of risk allocations, funding arrangements and transparency requirements. And as a brand, the PPP concept is also closely related to concepts such as privatization and the contracting out of government services.^[1]^[4] When understood as a governance mechanism the PPP concept encompasses at least five families of potential arrangements, one of which is the long term infrastructure contract in the model of the UK's Private Finance Initiative (PFI).^[1]^[4]^[5] Particular types of arrangements have been favored in different countries at different times.

Infrastructure PPPs as a phenomenon 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 phenomena.^[6] Different disciplines commonly emphasize different aspects of the PPP phenomena.^[6] The engineering and economics professions primarily take a utilitarian, functional focus emphasising concerns such as project delivery and relative value- for-money (VfM) compared to the traditional ways of delivering large infrastructure projects. In contrast, public administrators and political scientists tend to view PPPs more as a policy brand, and as a useful tool for governments to achieve their objectives.

Common themes of PPPs are the sharing of risk and the development of innovative, long term relationships between the public and private sectors.^[6]The use of private finance is another key dimension of many PPPs, particularly those influenced by the UK PFI model, although this has aspect has waned since the global financial crisis of 2008.^[6] The PPP phenomenon has been controversial. The lack of a shared understanding of what a PPP is makes the process of evaluating whether PPPs have been successful complex.^[6]Evidence of PPP performance in terms of VfM and efficiency, for example, is mixed and often unavailable.^[6]^[6]

According to Weimer and Vining, "A P3 typically involves a private entity financing, constructing, or managing a project in return for a promised steam of payments directly from government or indirectly from users over the projected life of the project or some other specified period of time".^[7] Because P3's are directly responsible for a variety of activities, as indicated by Weimer and Vining, P3's can evolve into monopolies motivated by rent-seeking behavior(s).

Long term infrastructure contracts

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5 Examples of Public-Private Partnerships In Action

Date:

10.23.2013

Author:

Travis Pearl

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One of the continuing trends in government contracting is the usage of public-private partnerships or P3s as a way to build true partnerships between the public and private sector. P3s have been used successfully for decades in the U.S., but with new financial pressures on federal, state and local agencies, many agencies have a renewed focus toward P3s as a means to reduce operating budgets by turning operations and maintenance responsibilities over to private companies.

From technology to tolls to teaching, we’ve found five examples of P3s across the country that highlight the risk, rewards and opportunities of public-private partnerships at every level of the government.

EXAMPLE #1 - PARKS: Private maintenance and operations agreements for federal, state, and local parks

The US Forest Service in Arizona turned over operations of the Crescent Moon/Red Rock Crossing Recreation Area in Sedona, Arizona to Recreation Resource Management (RRM) in 1994. RRM operates the park under a public-private partnership with the U.S. Forest Service. This long-running P3 partnership stands out because RRM prepared and published a case study on the project in 2011. RRM’s case study compared the privately-run Crescent Moon park to the nearby Red Rock State Park. Red Rock State Park is operated by Arizona State Parks, a public agency. RRM found that while the two parks in the study are geographically close and share similar entry-fees, attendance and overall revenue numbers, Crescent Moon (operated under the P3 agreement with RRM) returns close to $45,000 to the U.S. Forest Service each year in the form of net revenue, while RRM claims the publicly operated Red Rock State Park operated by Arizona State Parks costs the U.S. Forest Service $234,000 per year.

EXAMPLE #2 - EDUCATION: Leveraging private real estate for public schools

A collection of interesting P3 examples exist around repurposing existing private real estate for use as classrooms for public schools or building new mixed-use construction that houses both private businesses as well as public school classrooms. A few examples around the nation can be found on The Heritage Foundation’s report “New tax law boosts school construction with Public-Private Partnerships”including:

700 students in Mesa, AZ report to class each morning in a former Smith’s grocery store.1,200 students in Raleigh, NC are repurposing a manufacturing facility as classroom space.Two schools in Phoenix, AZ share a 300,000 sq ft. venue that once served as the Maryvale Mall.

Beyond repurposing existing real estate, Construction.com details a New York City projectwhere the city leased 1.5 acres of city owned property to a private firm in exchange for the developer adding space for two public schools in a 12-story building that also houses a Whole Foods store. The project marks the 17th P3 deal that New York’s Department of Education has signed to build new public schools by leveraging mixed-use development with private companies.

EXAMPLE #3 - TRANSPORTATION: Operations of public roads and highways

In 2006, private companies Cintra Concesiones de Infraestructuras de Transporte and Macquarie Infrastructure Partners were awarded a project to operate a 157 mile stretch of Indiana’s public roadways. The partnership of private companies paid the state a one-time fee of $3.8 billion for a 75-year agreement to operate the roadway in exchange for the revenue from the tolls. The project is estimated to save the state of Indiana about $100 million per year in operating costs, but has yet to turn a profit for the private company investors who took on the deal. The deal is held as an example to investors to exercise caution in bids for P3 contracts. In the case of the Indiana Toll Road, traffic on the toll road has been lower than projected – causing the revenue shortfall for the private investors. Learn more about the Indiana Toll Road project in a Bloomberg Businessweek review of the project or view the 2006 press release on the closure of the deal here.

EXAMPLE #4 - GAMING: State lottery operations

Illinois transitioned its state lottery system to a P3 program in 2011. The change was revolutionary and has since caused other states to consider similar initiatives around their lottery programs. Projections at the time of the contract grant were that the initiative would increase state proceeds by $1.1 billion – an increase of nearly 30%. The 10-year contract went to Northstar Lottery Group, a partnership of 3 private companies. For the 2011 fiscal year following the P3 initiative, the Illinois Lottery reported record sales and record proceeds to the state. Based on the successful PPP lottery operations partnership in Illinois, six other states considered P3 management of their state lottery programs. Read more about the public-private partnership of the Illinois Lottery initiative on reason.org.

EXAMPLE #5 - INFORMATION TECHNOLOGY: High speed internet access for America’s cities

Over the last few years, there has been rapid growth in high speed internet and wireless infrastructure in US cities spurred by an increase in public-private partnerships with IT providers. In 2012, the City of Seattle announced a deal with Gigabit Squared to provide ultra high-speed fiber connections to residential and commercial customers, an infrastructure upgrade that will “help bring 21^stcentury infrastructure to Seattle” according to the city’s mayor.

A Look Ahead: Expansion of P3s into new contracting sectors

The five categories of public-private partnerships above highlight some of the opportunities, risks and rewards associated with P3s on both the public and private side of the deal. While road and bridge projects have been the most traditional applications of P3s in the past, some investors are predicting a broadening of the types of projects that will be funded via P3s. Richard Norment, Executive Director of the National Council for Public-Private Partnerships is predicting an increase in P3s in the water and wastewater industries. D.J. Gribbin of Macquarie Group, an investment group with a specialty in infrastructure projects, sees P3 growth potential in university housing projects. The P3 experiments that have taken place across the country over the past two decades are paving the way for even more growth and diversification in P3s going forward, bringing with them opportunities for government contractors in industries that haven’t traditionally utilized the P3 model for financing and operations.

Onvia is currently tracking over 2700 spending plans and budgets for agencies across the country that specifically reference public-private partnership opportunities. Many of these plans and budgets will be coming to bid over the next 12-24 months, presenting significant opportunities for private companies to partner with public agencies to create the next example of a P3 success. Top areas where we are seeing P3 activity in the Onvia data set are in the Education, Transportation, Utilities and Natural Resources sectors. If you would like to gain access to the budgets and capital improvement plans for federal, state and local agencies across the country in one simple interface – request a live demo of the Onvia Spending Forecast Center (SFC) or download our SFC product datasheet.

For more information on public-private partnerships at the federal, state and local level, watch our free webinar with Mary Scott Nabers, author of “Collaboration Nation, How Public-Private Ventures are Revolutionizing the Business of Government”.

View Our Free Webinar on Public Private Partnerships and the P3 Revolution

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