Public Private Partnerships

Public Private Partnerships

The Worldwide Revolution in Infrastructure Provision and Project Finance

Darrin Grimsey and Mervyn K. Lewis

This path-breaking book considers the recent trend for governments to look increasingly to private sector finance, provided by private enterprises constructing and managing public infrastructure facilities in partnership with government bodies.

Chapter 5: The Structure of Partnership Agreements

Darrin Grimsey and Mervyn K. Lewis

Subjects: economics and finance, financial economics and regulation, public finance, public sector economics


WHEN SHOULD PPPS BE USED? Under traditional methods for procuring infrastructure, the public sector has obtained new assets – for example, roads, bridges, schools, hospitals, buildings, etc. – separately from services. The associated services have then been delivered by the public sector organizations either by using their own work force or by outsourcing or contracting out, fully or in part, the service provision to other specialist operators. External contracting out and outsourcing have grown over the last two decades as public (and private) sector organizations have searched for ways to enhance efficiency and make better use of resources. A partnership agenda takes this further and offers a different approach to traditional procurement because the acquisition of infrastructure assets and associated services is accomplished with one long-term contract, under which the initial capital outlay is financed by the private sector. One of the major objectives of the PPP is to harness private sector management expertise, and the market disciplines associated with private ownership and finance, for the provision of public services. Of course, private sector skills are also employed under traditional procurement when the public sector engages design skills and private constructors, what the PPP adds is a different type of inducement for those involved. The private sector entity is encouraged to plan beyond the bounds of the construction phase and incorporate features that will facilitate operations and maintenance within a cooperative framework. This is one respect in which a PPP is designed to act as an incentive contract. PPP Applications Based on...

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