(a)        Why are PPP projects so important?

PPP projects are a fundamental concept used by a large number of countries around the world to deliver vital public services, develop new assets and ensure economic growth, across a variety of sectors including energy, transport, public services, education, health, waste, water, etc.

The size and nature of the assets for these projects may warrant outsourcing of services to private entities, because the government is not always the best direct procurer of projects. There may be existing challenges with how projects are selected, funded, delivered and maintained.

The increased size and complexity of the projects require an increased scrutiny by the government of its long-term risk and the most efficient way to deliver and maintain its infrastructure. Procurement procedures must respond to this by ensuring that these projects are robust in themselves, and in the hands of potential bidders.

Complex contracts, such as PPP, often provide an enhanced level of control that is better focussed than general regulation, so this may allow the government to target and address specific needs in terms of controlling the delivery and scope of service.

(b)        What is PPP?

(i)         Form of public-private partnership

PPP could literally be interpreted as any form of public – private partnership. Such partnerships are nothing new – it has been said that the construction of the national railway network in the UK in the 19th century was a good example of a public-private partnership, and many of the bridges in central Paris built in the 16^th and 17^th centuries were financed and operated on a public-private partnership model. In reality, governments have always been dependent on partnerships with private sector contractors and financiers to develop public infrastructure.

(ii)       Form of public procurement

PPP is most commonly used to refer to a specific form of public procurement. In this guide we will be generally talking about the form of PPP being rolled out by numerous governments around the world. Namely, one where a single contract is established for the development and long-term operation of a single asset on a project finance basis.

This can be contrasted with “looser” forms of public private partnership, such as joint venture arrangements (which can be quite common for urban regeneration / property development projects, where the project outcomes are somewhat looser) and perhaps even looser “handshake” partnerships.

(iii)      What is the difference between PPP / P3 / PFI / DBFM / BOT etc?

PPP is the umbrella term used by most countries to refer to public-private partnerships (whether in the narrower or broader senses referred to above). P3 is the term generally used in North America, but with the same meaning.

PFI is the term that was used for PPP in the UK where central government funding was used. If only local government funding is being used then it is often referred to as PPP, but the distinction is not always consistently made. Some other countries like Japan also use the term PFI.

Most European countries refer to their current private finance infrastructure programmes as PPP, which are very similar to the UK model. There is no magic in the name.

Other terminology that is commonly seen in a PPP context includes:

DBFOM / DBFM / DBOM / DBF: being combinations of Design – Build – Finance – Operate – Maintain.

A DBF (Design Build Finance) contract is a form of PPP contract which focusses on the construction phase only, where the procuring government pays out the financiers on construction completion. If a project involves construction and long-term maintenance of an asset (but not its operation), it might be termed a DBFM, whereas if operations are included (such as tolling operations or passenger-carrying operations) it may be termed a DBFOM.

BOT, BOOT, BOO: being combinations of Build – Own – Operate – Transfer. The principal point of reference for these definitions is the timing of private sector ownership and transfer back to the public sector. The ownership aspect may be very relevant for the project structure in a utility context (e.g. power generating assets), but in an infrastructure PPP context, the asset is typically an important piece of public infrastructure, such as a road, railway, airport or government building, and rights of ownership are less important, because on a termination the asset should always revert to the public sector without any hindrance. Accordingly on infrastructure PPPs there may be no full legal ownership by the private sector during the project term, and it may only have a lease or licence, co-terminous with the concession agreement.

(c)        How is the term “PPP” defined?

(i)         One definition of “PPP” is as follows:

The establishment of a long term contractual partnership

… between public and private sector bodies

… where the private sector take substantial responsibility for designing, building, financing, operating and maintaining a major public infrastructure asset

… in accordance with an agreed output specification

… in return for a fee based on the continued availability of the asset

and/or

… in return the right to recover some or all of the revenues deriving from the asset

(ii)        Graham Vinter[1] defines PPP as “a partnership between the private and the public sector that tends to involve the delivery of services by the private sector to the public or private sector rather than the exploitation of an asset. PPPs typically involve some form of capital expenditure by the private sector followed by the delivery of a service, usually involving the asset the subject of such expenditure.”

(iii)       The World Bank defines PPP as arrangements, typically medium to long term, between the public and private sectors whereby some of the services that fall under the responsibilities of the public sector are provided by the private sector, with clear agreement on shared objectives for delivery of public infrastructure and/ or public services.

(iv)       CCPPP (Canada)[2] defines PPPs as a cooperative venture between the public and private sectors, built on the expertise of each partner, which best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.

(v)        Infrastructure Australia defines PPPs as a long-term contract between the public and private sectors where the government pays the private sector to deliver infrastructure and related services on behalf, or in support, of the government’s broader service responsibilities.

(vi)       NCPPP (US)[3] defines PPP as a contractual arrangement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility.

(vii)      US FHWA defines PPPs as contractual agreements between a public agency and a private entity which allow for greater private participation in the delivery of transportation projects. Typically, this participation involves the private sector taking on additional project risks, such as design, construction, finance, long-term operation, and traffic revenue.

[1] ‘Project Finance: a Legal Guide’, Graham D. Vinter, Gareth Price, Sweet & Maxwell, 2006

[2] The Canadian Council for Public-Private Partnerships (CCPPP) is a national organisation that aims to collaborate with all levels of government and communities to facilitate smart, innovative approaches to public infrastructure development and service delivery that achieves the best outcomes for Canadians. It achieves this by conducting research in various PPP sectors, educating the public and stimulating dialogue between public and private sector decision-makers on the financing and delivery of public services.

[3] The National Council for Public-Private Partnerships (NCPPP) is a non-profit organisation that advocates for and supports PPPs at the federal, state and local levels in the United States. The organisation also aims to raise the awareness of governments and businesses of the means by which their cooperation can cost-effectively provide the public with quality goods, services and facilities.