Public Private Partnership

A public private partnership is a legally-binding contract between government and
business for the provision of assets and the delivery of services that allocates responsibilities and business risks among the various partners. The private sector is responsible for the more commerical functions such as project design , construction, finance and operations. In a P3s arrangement, government remains remains actively involved throughout the project's life cycle. P3s take a variety of forms, with varying degree of public and private sector risk. In fact, risk transfer from the public to private sector is critical elements of all P3s. The goal is to combine the best capabilities of the public and private sectors for mutual benefit. For example; if a private company assumes responsibility for financing and building a highway, it also assumes responsibility for related risks; interest rates could rise; construction could be delayed; labour costs could increase; and so on.
If the company also takes responsibility for highway operation and maintenance, it assumes even more risk. For example; traffic volumes might not be as high as anticipated, and unforeseen circumstances such as mudslides, snowstorms or an earthquake could add significantly to maintenance costs. Why would the private sector be willing to assume these risks? Because where risk exists, so does opportunity. The private sector partner gains a relatively stable, long term investment opportunity. Revenues are in the form of either a fee for service, paid by government, or fees collected from users, as in the case of high way tolls.

Benefits of P3s for Government and Tax payers

(1) Improve service delivery

By allowing both sectors to do what they do best. Governments core business is to set policy and serve the public. It is better positioned to do that when the private sector takes responsibility for non-core functions such as operating and maintaining buildings.

(2) Improve cost-effectiveness

By taking advantage of private sector innovation, experience and flexibility, P3s can often deliver services more cost-effectively than traditional approaches. The resulting saving can then be used to fund other needed services.

(3) Increase investment in public infrastructure

Investment in hospitals, schools, highway and other provincial assets have traditionally seen funded by the Province and, in many cases, have added to levels of overall debt. P3s can reduce government's capital costs, helping to bridge the gap between the need for infrastructure and the Province's financial capacity.

(4) Reduce public sector risk

By transferring to the private partner those risks that can be better managed nt the private partner. For example, a company that specializes in operating buildings may be better positioned than government to manage risks associatied with the changing demands of commerical real estate.

(5) Deliver capital projects faster

Making use of the private partner's increased flexibility and access to resource.

(6) Improve budget certainty

Transferring risk to the private sector can reduce the potential for Government cost overruns from unforeseen circumstances during project development or service delivery. Services are provided at a predictable cost, as set out in contract agreements.

(7) Make better use of assets

Private sector partners are motivated to use facilities fully, and to make the most of commerical opportunities to maximize returns on their investment. This can result in higher levels of service, greater accessibility, and reduced occupancy costs for the public sector. The P3s approach also encourages a "life cycle" approach to planning and budgeting, through the use of long-term contracts. For example, a company that agress to operate and maintain a building for 50 years will have to ensure that the asset remains in a certain condition and, therefore, must include maintenance costs in its budget for the life of the agreement. By contrast, public sector planning is based on three-year cycles in British Columbia. Maintenance costs can sometimes be deferred in response to budget pressure, which can reduce the value of an asset over time.

Benefits of P3s for the private sector

P3s give the private sector access to secure, long-term investment opportunities. Private Partner can generate business with the relative certainty and security of a government contract. Payment is provided through a contracted fee for service, or through the collection of users fees- and the revenue stream may be secure for as long as 50 years or more. Private sector partners can from P3s by achieving efficiencies, based on their managerial, technical, financial and innovation capabilities. They can also expand their P3s capacity and expertise - or their expertise in a particular sector - which can then be leveraged to create additional business opportunities.