Public Private Partnerships

More frequently known as 3-P’s (PPP), Public Private Partnerships are becoming more prevalent as a way to finance, engineer, construct, and operate infrastructure projects across the United States. They have been used in other countries for some time now. For example the EU has had over 260 Billion Euro’s worth of 3P projects since 1990.

PPP involves a contract between a public sector authority and a private party in which the private party provides for a public project and assumes substantial financial, technical, and operational risk of the project. In some cases those end uses of the project bear the cost of of the project rather the the taxpayer. Toll roads are an example of this.

There are a few reasons why these have now taken hold in the United States. First, it is a way for government entities to harness the engineering and technical efficiencies of the private sector to bring projects on line. Second, it allows for the project to be done “off balance sheet” of the government entity. The funding is arranged for by the private sector vehicle implementing the project, although they can sometimes be done “on balance sheet” where the government entity compensates over time but gains substantial deferred cash flows.

As you can guess, the formation and structure of a PPP can be very very complex, daunting, costly, and time consuming for all parties involved. The jury is still out as to their overall success or failure. There haven’t been enough of them in the United States to conclude their viability. However, they aren’t going away any time soon.