Public Private Partnership Pros and Cons

Public Private Partnership (P3) Benefits and Disadvantages

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A P3 or public-private partnership is a contract—often a long-term contract—between a governmental body and a private entity, most often a corporation. The goal of the partnership is to provide some public benefit, either an asset or a service. A key element of these contracts is that the private party must take on a significant portion of the risk because the contractually specified remuneration—how much the private party receives for its participation—typically depends on performance.

An Example of Successful PP3 Partnering

P3s have gotten off to a relatively slow start in the US, but there are a good many of them all the same. They've generally been extremely successful. The high-occupancy toll lanes project in Virginia in a good example. Several private sector firms participated in this partnership and the partnership saved millions of dollars. It brought additional highway capacity online years earlier than the traditional government-does-all approach might have done.  

Public-Private Partnership Benefits

Public-private partnerships offer several benefits:

  • They provide better infrastructure solutions than an initiative that is wholly public or wholly private. Each participant does what it does best. 

  • They result in faster project completions and reduced delays on infrastructure projects by including time-to-completion as a measure of performance and therefore of profit.

  • A public-private partnership's return on investment or ROI might be greater than traditional, entirely private or government methods. Innovative design and financing approaches become available when the two entities work together.

  • Risks are fully appraised early on to determine project feasibility. In this sense, the private partner can offer a break on unrealistic government promises or expectations. 

  • The operational and project execution risks are transferred from the government to the private participant, which usually has more experience in cost containment.  

  • Public-private partnerships may include early completion bonuses that further increase efficiency. They can sometimes reduce change order costs as well.

  • By increasing the efficiency of the government's investment, it allows government funds to be redirected to other important socioeconomic areas.

  • The greater efficiency of P3s reduces government budgets and budget deficits.

  • High-quality standards are better obtained and maintained throughout the life cycle of the project.

  • Public-private partnerships that reduce costs also allow lower taxes.

Public-Private Partnership Disadvantages

P3s also have some drawbacks:

  • Every public-private partnership involves risks for the private participant, which reasonably expects to be compensated for accepting those risks. This can increase government costs.

  • When there are only a limited number of private entities that can perform these tasks, such as with the development of a jet fighter, the limited number of private participants that are big enough to take these tasks on might limit the competitiveness required for cost-effective partnering.  

  • Profits of the projects can vary depending on the assumed risk, competitive level, complexity, and the volume of the project being performed.

  • If the expertise in the partnership lies heavily on the private side, the government is at an inherent disadvantage. For example, it might be unable to accurately assess the proposed costs.