Public private partnerships have been a popular means of funding public projects in a number of countries around the globe.
They offer a model whereby private enterprises can work with governments in order to provide some benefit to the public. The idea is that, by sharing the burden and spreading the risk, both parties will feel more encouraged to invest in projects which both would pass on when working alone.
What is a Public Private Partnership?
A public private partnership is a contract signed between a private group or organization, usually a corporation, and a government entity. The contract stipulates the terms by which both parties will work together in order to achieve something which benefits the public. This benefit can come in the form of an asset, for example a sports stadium which will draw in lots of revenue, or a service, such as a new library or hospital.
What often sets these contracts apart from others is that they often stipulate that the private entity will be paid on a performance basis. Because of this, the private entity takes on more of the risk, however the measure is designed to ensure that private firms cannot receive large amounts of public funds if they do not perform to a high standard. It is this aspect that makes the public private partnership politically viable.
The Benefits
By spreading the risk of an investment between private entities and public bodies, the public private partnership is able to produce infrastructure solutions which otherwise wouldn’t be viable for either party individually. When they are encouraged to work together they are often willing to share the risk of participating in such ventures. In this article – https://onlinempa.syr.edu/blog/infrastructure-public-private-partnerships/ – the author wonders whether pursuing public private partnerships could have allowed Donald Trump to solve the American infrastructure problem.
When public private partnerships go well they result in smoother, and faster, project completions. For public infrastructure projects, which for their duration often obstruct commuters or result in disruptions to other services, a rapid turn around time can make a big difference to public reception. Not only this, but when commuters are delayed and obstructed there is a corresponding degree of economic damage, a faster completion time will minimize this damage.
Disadvantages
There are also some drawbacks to the public private partnership model. For one thing, because the risk level is often higher for the private firm, they expect to be compensated appropriately. This is natural of course, but it means that the projects are often expensive for governments to pursue and allocate public funds to. When the private firm does not perform as expected, while it will often be penalized contractually, costs can rapidly spiral for the government body. When public private partnerships have gone wrong they have often been very expensive for the taxpayer.
Public private partnerships can be a very effective way of funding necessary public infrastructure projects that would otherwise likely remain overlooked. There are advantages and drawbacks to their use, but when they are done properly they are very beneficial to everyone involved.
