Public-Private partnerships

Franchise
Description

When local governments partner with the private sector to finance and build new infrastructures, they created a public private partnership. Those partnerships are set up in order to  provide public services that meet the public's expectations while transferring part of the risks to the private entity: the most transferred the risk, the further away from the project the local government. Hence, local governments are financially involved (through subsidies, guarantees, etc.) but do not bear the risks associated with project management and delivery risks.

Advantages

Transfer of operational risks (in addition to construction risks) to the private sector  ; acceleration of project implementation ; low impact on public budget.

Risk transfer, especially delivery risks and risks associated with project management.

Drawbacks and precautions

Additional financing cost, inability  to cover independently unprofitable areas ;  public control more remoted.

When the level of risk transfer is too high, local goverments can be kept away from the project and lose control over operations.

Success factors

Use of technical engineering and socio-economic expertise : when the public authority is not competent to do it, it has to seek assistance from specialized experts while preventing any conflict of interest.

Operation

A franchise is a management system in which the local government entrusts the co-contracting party with construction work and allows it to provide their services at their expense for a specified period.

Investment attached to the public private partnership.

Own or external resources.

Partnership contract
Description

When local governments partner with the private sector to finance and build new infrastructures, they created a public private partnership. Those partnerships are set up in order to  provide public services that meet the public's expectations while transferring part of the risks to the private entity: the most transferred the risk, the further away from the project the local government. Hence, local governments are financially involved (through subsidies, guarantees, etc.) but do not bear the risks associated with project management and delivery risks.

Advantages

Balanced distribution of risks due to transfer of the construction risks amongst others ; lifecycle cost approach ; guarantee of performance ; single rent payment for a lower impact on budget.

Risk transfer, especially delivery risks and risks associated with project management.

Drawbacks and precautions

In case of abusive use, potential desequilibrium in risk distribution, cumbersome and expensive process for candidates.

When the level of risk transfer is too high, local goverments can be kept away from the project and lose control over operations.

Success factors

Use of technical engineering and socio-economic expertise : when the public authority is not competent to do it, it has to seek assistance from specialized experts while preventing any conflict of interest.

Operation

Contract by which a local government entrusts a third party with a broad mission related to investment.

Investment attached to the public private partnership.

Own or external resources.

Mixed enterprise (public/private)
Description

When local governments partner with the private sector to finance and build new infrastructures, they created a public private partnership. Those partnerships are set up in order to  provide public services that meet the public's expectations while transferring part of the risks to the private entity: the most transferred the risk, the further away from the project the local government. Hence, local governments are financially involved (through subsidies, guarantees, etc.) but do not bear the risks associated with project management and delivery risks.

Advantages

Combines the flexibility of private organizations with public control over decision making.

Risk transfer, especially delivery risks and risks associated with project management.

Drawbacks and precautions

Limited risk transfer.

When the level of risk transfer is too high, local goverments can be kept away from the project and lose control over operations.

Success factors

Use of technical engineering and socio-economic expertise : when the public authority is not competent to do it, it has to seek assistance from specialized experts while preventing any conflict of interest.

Operation

Creation of a company with public and private capital funding.

Investment attached to the public private partnership.

Own or external resources.

Public project management
Description

When local governments partner with the private sector to finance and build new infrastructures, they created a public private partnership. Those partnerships are set up in order to  provide public services that meet the public's expectations while transferring part of the risks to the private entity: the most transferred the risk, the further away from the project the local government. Hence, local governments are financially involved (through subsidies, guarantees, etc.) but do not bear the risks associated with project management and delivery risks.

Advantages

Control by the public entity.
Risk transfer, especially delivery risks and risks associated with project management.

Drawbacks and precautions

Lowest level of externalization, where the public body is still responsible for project management, thus bearing a significant part of operational and maintenance risks, time-consuming and rigid procurement procedure and direct budetary impact.
When the level of risk transfer is too high, local goverments can be kept away from the project and lose control over operations.

Prerequisites

Suitable Regulatory Framework.

Success factors

Use of technical engineering and socio-economic expertise : when the public authority is not competent to do it, it has to seek assistance from specialized experts while preventing any conflict of interest.

Operation

Ownership: Public and private entities work hand-in-hand.

Uses: Investment attached to the public private partnership.

Sources: Own or external resources.

Examples
Santiago de Chile: PDF icon Urban highway concession