Public private partnership

Introduction

Most transit agencies engage in some form of public-private partnership. An agency that engages with a private-sector firm to design or construct a transit plaza is engaging in a simple public-private partnership that distributes risk and responsibility between the public and private sectors to accomplish a project with a public benefit. Recently, as government has tightened its fiscal belt, transit agencies and other stakeholders have become interested in public-private partnerships as a means of attracting additional funding or accelerating project completion. However, public private-partnerships are often misunderstood. A public-private partnership must confer some benefit (usually a rate of return on capital) to the private sector partner. However, a common public perception of these partnerships is that they can amount to a taxpayer giveaway to the private sector.

Risk transfer

One argument in favor of a public-private partnership is that allows the public sector to offload some related to project design, finance, construction, operations, and maintenance. Design-build contracts are popular because the structure allows a single party to manage risks related to designing and constructing an infrastructure project. Risks related to costs of constructing a specific design element or certain design flaws can be reduced. A design-build-operate-maintain contract can allow a single party to manage design and construction elements that may impact operation or maintenance costs, rather than allowing parties to transfer risk and costs to other parties.

Additionality

Public private partnerships can lead to investments in infrastructure that would have otherwise been delayed or not made at all. In these cases, the partnership provides an additional investment that would not be possible if the public sector were to rely solely on its own support. Engaging in a public private partnership that produces additional investment is not a choice between public support and a partnership with private support, but rather pursuing the investment under a private-sector partnership and not pursuing the investment at all.

Flexibility

Certain contracting arrangements better accommodate necessary adaptations to deal with unforeseen circumstances. Multi-year projects can face conditions that were not expected during the project planning and onset phases.

Types of PPPs for Transit Agencies

In transportation, a Public-Private Partnership "involves one or more aspects of the funding, financing, planning, design, construction, operation and maintenance of a transportation facility" In practice, this can take several forms.

Contracting

Agencies use private sector contractors to provide some or all ancillary and core services. Contracting may range from purchasing (using an external printing company to print schedules), to contracting ancillary services (outside payroll), to contracting transit operations - their core service. Agencies must evaluate ancillary and core service outsourcing on a case-by-case basis to understand what may gained and what may be lost.

Financial Innovation

Move from public grants that expects no rate of return to a diversified approach that includes private capital financing that expects a positive rate of return. More popular

Unlocking value

Politically difficult to unlock value.

Real Estate

Joint development

See article on value-capture finance

Public Perception (giving away profits)

Unlock value or move projects forward in time.

Additional Reading

American Public Transportation Association Task Force on Public Private Partnerships. "Public-Private Partnerships in Public Transportation: Policies and Principles for the Transit Industry." 2008.