Everything you need to know about public-private partnership

Public-private partnership consulting firms have a lot of responsibilities. A PPP or public-private partnership is a contract between a private entity and governmental body, with the main goal of providing some public benefit – a service or an asset. PPPs are long term and involve large companies on the private side.

With these contracts, the private party should take on a significant risk because the specified remuneration in the contract – how much the private partner gets for its participation – depends on performance.

Success of PPP

PPPs are very popular in European companies and they have gotten off to a slow start in the US. However, they are increasingly used for public work and large-scale infrastructure projects. A lot of PPP projects have been very successful in recent decades.

Benefits of PPPs

PPPs offer a lot of benefits. They provide better solutions in terms of infrastructure than an initiative that is wholly private or wholly public. Each participant in the arrangement does what he does best.

PPPs result in faster completion of projects and reduced delays in projects by including a measure of performance and profit. A PPP’s return on investment might be greater than projects that have all government or all private fulfilment. Financing approaches and innovative design become available when the two parties or entities work together to achieve the same goals.

In PPP, risks are fully appraised early to determine the feasibility of the project. This means that the PPP consulting firms can serve as checks against any unrealistic government expectations or promises.

The project execution and operational risks are transferred from the government to private participants. The private participant is usually more experienced in cost containment. PPPs may include early competition bonuses that increase efficiency further. In some cases, they reduce change order costs. By increasing the efficiency of governments’ investment, it allows governments’ funds to be directed back to other important areas.

The greater efficiency of public private partnerships rescues budget deficits and government budgets. High-quality standards are obtained and maintained throughout the life cycle of the project. PPPs that reduce costs can lead to lower taxes.

Disadvantages of PPP

There are several disadvantages of PPPs. Every PPP involves risks for the private participants who expect to be compensated accordingly for accepting the risks. This can increase government costs.

In the case of a limited number of private entities that are capable of completing a project, such as with the development of jet fighters, the limited number of participants in the private sector that are big enough to take the tasks on might limit the required cost-effective partnering competitiveness.

Projects’ profits can vary greatly depending on the assumed risk, the complexity of the project, the level of competition and the scope of the project. In case the expertise in the partnership lies on the side of public private partnership consulting firms, the government will be at a disadvantage. For example, the government might be unable to assess the proposed costs.