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Public Private Partnerships

 

A public-private partnership (PPP) is an arrangement between a public authority and a private partner designed to deliver a public infrastructure project and service under a long-term contract (EPEC, 2018). In a PPP the focus is on the specification of project outputs rather than project inputs, taking account of the whole life cycle implications for the project. The risks for realization of the project are transferred to the private sector while the payments to the private sector reflect the services delivered. The PPP Company may be paid by users through user charges (e.g. motorway tolls), by the Authority (e.g. availability payments) or by a combination of both (e.g. low user charges together with public operating subsidies).

 

DBFM and DBFMO are the most common types of contract for PPP projects used in the Netherlands. DBFM stands for Design, Build, Finance, Maintain; while DBFMO also includes Operate. In The Netherlands projects are seen as eligible for PPP if the expected investment exceeds €60 million for infrastructure projects. For such projects, a Public-Private Comparator (PPC) and a Public Sector Comparator (PSC) are drawn up, to investigate whether PPP would be more effective and result in a better price-quality ratio compared to a traditional procurement procedure (https://www.government.nl/topics/public-private-partnership-ppp-in-central-government/when-is-ppp-appropriate).

 

Public-private financing is often used to overcome the gap between design and execution, thereby optimising the financial project development. Moreover, it may enable relaxing the fixed-price principle. Another advantage is that the contract is based on outcome standards instead of detailed standards how to realize these outcomes (Reynaers, 2015); this leaves more room for creativity and innovative technologies from the private sector.

 

There are three main types of public-private partnerships showing similarity to the three procurement models described above: consultation, interaction without (financial) engagement, and interaction with (financial) engagement (Van Ham and Koppenjan, 2002; Koppenjan and Enserink, 2009). The latter type can be used to integrate BwN elements in the project, as risks can be spread among the partners.

 

In PPP, risk handling needs to be settled explicitly. In a typical design & construct case the responsibilities can easily be included in the contract. When private or PPP consortia cover more phases, however, this may be a point of concern.

 

There is an ideology behind PPP constructions called ‘New Public Management’, implying that the government will function better if it operates more like the private sector and cooperates more with the private sector. However, the strategy is not without risks and imposes high demands on the role of governments (Koppenjan, 2015). Most examples presently are motorways, railways, government buildings and energy plants, and not many examples exist in the water sector. However, the water purification plan for Delfland is a positive example in the water sector (Reynaers, 2015).

 

For further reading, see PPP in practice and below references.

 

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