Public-Private Partnerships, also referred to as P3s, are agreements between developers and local governments or other public entities regarding the financing, design, construction, and operation of public facilities. The developers undertake the costs of the project, such as a parking garage, in exchange for payments from the local government over several years. P3s are particularly useful because they allow large-scale government projects, such as roads, stadiums, bridges, or hospitals, to be completed with private funding. In turn, P3s often involve concessions of tax or other operating revenue, protection from liability, or partial ownership rights over nominally public services and property to private sector, for-profit entities.
There are numerous distinctions between a P3 framework and traditional procurement, which has been the customary development method in the U.S. Traditional procurement can be defined as “design-bid-build,” where the public entity bids out separate contracts to private companies for the project’s design and then construction. The public entity, however, owns, operates, finances, and maintains the asset indefinitely. The project is sometimes financed through municipal debt, but most are paid out of an annual cash flow. This creates funding issues for important or imminent public projects. P3s result in faster funding, completion, and reduced delays on infrastructure projects. By increasing the efficiency of the public entity’s investment, a P3 allows government funds to be redirected to other important socioeconomic areas.
Whereas the traditional procurement method is “design-bid-build,” the most common delivery P3 methods are:
- DBFOM: Design-Build-Finance-Operate-Maintain
- DBFM: Design-Build-Finance-Maintain
- DBOM: Design-Build-Operate-Maintain
- DBF: Design-Build-Finance
While all P3 structures have pros and cons, DBFOMs are the most used. In a DBFOM, the private sector, usually comprised of several firms, is responsible for designing, building, financing, operating, and maintaining the public asset. As to financing, P3s employ long-term financing, based on a combination of equity and various types of debt (i.e. Transportation Infrastructure Finance and Innovation Act, TIFIA, private activity bonds, or loans).
The popularity of DBFOMs has facilitated P3s to evolve beyond contracts to complete parking garages or lease airports. Many P3s now entail multilateral relationships that support sustainable, long-term, and systemic solutions to public needs. Local and state governments are developing partnerships with the private and nonprofit sectors to address wide-ranging socio-economic and environmental issues such as labor shortage, unemployment, homelessness, healthcare, and air quality, to name a few.
The COVID-19 pandemic has rendered public-private partnerships a necessity as government entities alone find themselves ill-equipped to provide a full range of services and expertise. Local and state governments are partnering with the private and nonprofit sectors to facilitate economic recovery by funding much-needed infrastructure and social efforts in a more effective and sustainable way. This type of innovative public entrepreneurship strategy, policymakers collaborating with the private sector to address a public problem, contributes to the steady growth and vitality of communities.
The attorneys in Spiritus Law's Infrastructure & Development Practice help businesses prepare for opportunities, navigate changing landscapes, and find innovative solutions to build the framework for the new economy. We help steer projects that create jobs and develop the communities where people want to live, work and play. Contact us today to have us help with your project.