A public-private partnership occurs when government agencies share resources and revenue with a non-government company. These partnership arrangements are used to meet specific niche requirements and are legally binding. The types of project that are ideal for a public-private partnership vary, but they have four things in common: unmet need, revenue opportunity, shared liability and no clear governmental responsibility.
The term public-private partnership is used very loosely in the media to cover any arrangement where private firms are working exclusively with a particular government agency. In fact, this type of partnership has a very clear structure that defines the role of the private company, the government, and the ultimate responsibility. All public-private partnerships must be vetted and approved at the senior management level before they can begin.
In very broad terms, the role of government is to provide goods and services that provide a benefit that cannot be limited to paying members. A great example is a lighthouse. The benefits of the lighthouse are freely available to everyone and it meets a real need in the community. No private company will build a lighthouse because there is no way to recoup the costs. This is the role of government.
In a public-private partnership, the government has the responsibility for providing a specific service, but lacks the technology, resources, or political will to meet this need. If market forces were able to address the customer’s needs, then a private company would be formed to do this. In scenarios where this is not the case, the two work together.
Private companies exist to create profit, which requires a revenue stream. The only projects that can be transformed into public-private partnerships are ones with a clear revenue stream. A great example is a toll highway. It is the responsibility of the government to provide roads, but they can form a partnership to lower the construction costs. A portion of the revenue is directed to the company for a specific period of time.
The legal agreement that is required to form this type of partnership is thick and complex. The most important part of the agreement is the allocation of liability. This deals with the quality of the workmanship, cost overruns, natural disasters, revenue shortfalls, and other related issues. All of these items have the ability to derail the partnership and leave the citizens with an unexpected bill or unfinished project. The popularity of these projects is increasing as a way to increase services at a reduced cost.
