Public-private partnerships (also called P3s) have been used throughout the world and in many states. Here are some ways that a P3 could benefit public entities, private investors, and businesses:
What are the benefits of public-private partnerships?
Risk Sharing Between the Public and Private Sectors
Risk sharing between the public and private sectors ensures that each has “skin in the game” and is incentivized to make the project successful. Traditional risks assumed by the public entity – such as financing and long-term operations – are often transferred to the private sector, and the private sector is compensated for this additional risk.
Private Investment & Creative Financing
P3s are funded primarily by private investment. Private investment may assist the public sector in all or part of a project, provide for timeline acceleration and operational expertise.
Private Sector Innovation
In traditional design-bid-build procurement processes, a public entity is responsible for outlining detailed specifications for the project. P3s differ because the public entity generally specifies the project’s desired outputs, and it is up to the private sector to provide new, innovative designs to provide those outputs. The private sector also provides expertise on project management and project selection.
Faster Time to Market
Private investment makes capital immediately available, which accelerates projects when they otherwise would have been delayed. Additionally, long-term P3 projects are procured as a whole rather than in parts. This avoids start-up costs for each procurement process.
Lower Long-Term Maintenance Costs
P3 contracts typically last 35-40 years, so the private sector is incentivized to reduce the need for maintenance when constructing infrastructure or facilities. This reduces long-term costs when compared to a traditional model when the public entity is responsible for maintenance after construction. Because P3 contracts account for long-term maintenance, they also create greater price certainty.
Is a public-private partnership right for my organization?
P3s are not appropriate for every project, so it is critical to perform a significant amount of due diligence including a strong financial analysis, such as a public sector comparator analysis, to determine if a P3 or a traditional design-bid-build process would be more cost effective for your organization.
The initial capital costs of a P3 are often higher than design-bid-build projects due to risk sharing, so you may be discouraged to explore a P3. However, it’s important to conduct an “apples-to-apples” financial analysis. A P3 is a long-term project, so it is important to compare its whole life costs against the projected costs if it was procured using the design-bid-build approach.
Feel free to contact us, and we can help you find the right resources to conduct a financial analysis.
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