What is a PPP?

Public – Private Partnership (P3) is a long-term performance-based approach to procuring public infrastructure where the private sector assumes a major share of the risks in terms of financing and construction and ensuring effective performance of the infrastructure, from design and planning, to long-term maintenance.

Do the governments provide any financial aid for PPPs?

Governments do not pay for the asset until it is built;

  • A substantial portion of the cost is paid over the life of the asset and only if it is properly maintained and performs according to specifications; and
  • The costs are known upfront and span the life-cycle of the asset, meaning that taxpayers are not on the financial hook for cost overruns, delays or any performance issues over the asset’s life.

How do PPPs work?

  • Adopting a whole life-cycle approach: the private sector assumes responsibility for all or many of the phases of an asset’s life-cycle. In doing so, the private sector assumes the interface risk between the phases, is fully accountable for whether the asset delivers, and is incented to produce the most effective result over the lifespan of the asset. The all-too-familiar problems of poor design, sub-standard construction or inadequate or deferred maintenance become the responsibility of the private sector.
  • Paying based on performance: the private sector is paid only on performance; in the the majority of our projects no payment is made until substantial completion, and a significant portion is paid only over the life of the asset based on clear performance criteria. This aligns financial incentives for on-time, on-budget delivery and for the achievement of performance standards during the useful life of the asset. Moreover, since payments are made only on performance the private sector partner must raise significant financing for the construction of the asset. Lenders and equity participants provide a level of due diligence and oversight that brings enormous discipline to the process.
  • Specifying the what, not the how: in a P3, the public sector specifies what it wants and leaves as much scope as possible to the private sector to develop the best solution to deliver results. This focus on the what — rather than the how — enables the private sector to develop the most innovative solutions.

Why is the private sector interested in PPPs?

As compared to traditional procurement, PPP projects provide the private sector with a greater role in the design, building, financing, and/or operation of public infrastructure and offer a unique business opportunity, allowing private companies to deliver a broad range of services in different industrial sectors over a long term concession period (typically 20 to 30 years). The private sector is interested in PPPs because they provide an opportunity to work with stable, bankable partners in governments, and they provide a long-term revenue stream, among other reasons.

When is a PPP the right choice?

  • Public-Private Partnerships are the right solution when the benefits exceed the costs. This requires thorough Value for Money analysis. Our experience demonstrates that this upfront work produces better projects even if a PPP approach is not the preferred option, as it requires a more systematic consideration of costs, risks, and performance expectations.
  • Successful PPPs tend to be large, complex projects that transfer the risks of some, or all, of the components of the project (design, build, finance, operation and/or maintenance) to the private sector and deliver positive Value for Money.
  • Value for Money is assessed by comparing the estimated total costs of delivering a public infrastructure project using a PPP delivery method to the costs of delivering the project using a traditional delivery method.

What is a Value-for-Money Analysis?

A value for money analysis is the comparison between the total project costs (capital base costs, financing costs, retained risks and ancillary costs), at the same point in time, for traditionally delivered project (known as the public sector comparator or PSC) and delivery of the same project using the PPP model (known as the shadow bid). The incremental difference between the public sector comparator and the shadow bid is referred to as the value for money. If the shadow bid costs are lower than the public sector comparator, the PPP project is found to deliver positive value for money to the taxpayer.

What is "risk transfer" in a PPP?

Risks arise in all projects, regardless of the procurement approach. In a PPP, project risks are transferred to the party best able to manage them. By making the private sector responsible for managing more risk, governments reduce their own financial burden. The private sector bids a fixed price for the bundled contract, and must pay out of pocket should any unforeseen expenses arise e.g.) cost escalation, construction defects, unexpected maintenance requirements, etc.

COMMON QUESTIONS

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COMMON QUESTIONS

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COMMON QUESTIONS

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COMMON QUESTIONS

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COMMON QUESTIONS

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COMMON QUESTIONS

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COMMON QUESTIONS

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COMMON QUESTIONS

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COMMON QUESTIONS

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COMMON QUESTIONS

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