how public private partnerships work
a city government for example might be heavily indebted and unable to undertake a capital intensive building project however a private enterprise might be interested in funding its construction in exchange for receiving the operating profits once the project is complete public private partnerships typically have contract periods of 20 to 30 years or longer financing comes partly from the private sector but requires payments from the public sector and or users over the project s lifetime the private partner participates in designing completing implementing and funding the project while the public partner focuses on defining and monitoring compliance with the objectives public private partnerships are typically found in transport and municipal or environmental infrastructure and public service accommodations risks are distributed between the public and private partners through a process of negotiation ideally though not always according to the ability of each to assess control and cope with them although public works and services may be paid for through a fee from the public authority s revenue budget such as with hospital projects concessions may involve the right to direct users payments for example with toll highways in cases such as shadow tolls for highways payments are based on actual usage of the service when wastewater treatment is involved payment is made with fees collected from users advantages and disadvantages of public private partnershipspartnerships between private companies and governments provide advantages to both parties private sector technology and innovation for example can help improve the operational efficiency of providing public services the public sector for its part provides incentives for the private sector to deliver projects on time and within budget in addition creating economic diversification makes the country more competitive in facilitating its infrastructure base and boosting associated construction equipment support services and other businesses there are downsides too the private partner may face special risks from engaging in a public private partnership physical infrastructure such as roads or railways involves construction risks if the product is not delivered on time exceeds cost estimates or has technical defects the private partner typically bears the burden in addition the private partner faces availability risk if it cannot provide the service promised a company may not meet safety or other relevant quality standards for example when running a prison hospital or school demand risk occurs when there are fewer users than expected for the service or infrastructure such as toll roads bridges or tunnels however this risk can be shifted to the public partner if the public partner agrees to pay a minimum fee no matter the demand public private partnerships also create risks from the general public s and taxpayers point of view private operators partnership with the government may insulate them from accountability to the users of the public service for cutting too many corners providing substandard service or even violating peoples civil or constitutional rights at the same time the private partner may enjoy a position to raise tolls rates and fees for captive consumers who may be compelled by law or geographic natural monopoly to pay for their services lastly as with any situation where ownership and decision rights are separated public private partnerships can create complex principal agent problems this may facilitate corrupt dealings pay offs to political cronies and general rent seeking activity this would happen by attenuating the link between the private parties who make important decisions over a project from which they stand to benefit and accountability to the taxpayers who foot at least part of the bill and who may be left holding the bag in terms of ultimate liability for the project s outcome examples of public private partnershipspublic private partnerships are typically found in transport infrastructure such as highways airports railroads bridges and tunnels examples of municipal and environmental infrastructure include water and wastewater facilities public service accommodations include school buildings prisons student dormitories and entertainment or sports facilities 