A public-private partnership is a contractual agreement between the public sector and private sector for the provision of assets or the delivery of services that allocates responsibilities, risks, revenues and costs among the various partners.
Public-private partnerships can take many different forms. As a result, the responsibilities, risk, revenues and costs allocated to the private sector depend on the type of partnership pursued.
Finance Only: A private entity, such as a financial services company, provides the funds to finance a project directly or uses various mechanisms such as a long-term lease, issuance of equity or bond issue to secure the required capital.
Design-Build: The private sector, typically through a competitive bid process, designs and builds infrastructure to meet public sector requirements. The contract is usually for a fixed price; thus risks associated with cost overruns are transferred to the private sector. Once built, the asset is transferred to the public sector.
Contract Services: Operate and Maintain: A private company operates and maintains a publicly owned asset for a specified period of time. Ownership of the asset remains within the public sector.
Availability Payment: A private company designs, builds, operates and maintains a publicly owned asset for a specified period of time. The public sector retains ownership and traffic and revenue risk and pays the private operator periodically based on lane availability, level of service and other factors.
Build-Own-Operate-Maintain: The private sector finances, builds, owns, operates and maintains an asset/infrastructure or service indefinitely. The constraints imposed by the public sector are stated in the original agreement, and these constraints are reviewed and adjusted through an ongoing regulatory authority.
Design-Build-Finance-Operate-Transfer: The private sector designs, finances and constructs a new facility/asset under a long-term lease and operates the facility during the term of the lease. When the lease expires, ownership is transferred to the public sector.
Build-Own-Operate-Transfer: A private sector entity is awarded a franchise to finance, design, build and operate a facility/asset for a specified period of time, after which ownership of the facility is transferred to the public sector.
Buy-Build-Operate-Transfer: An existing public sector asset is transferred to a private sector entity with the specification that the asset is upgraded and the private sector entity is responsible for operations for a specified period of time. Afterward, ownership of the asset is transferred back to the public sector.
Long-Term Lease Agreement: A private operator receives a license or concession (typically for an upfront fee) that allows them to operate a publicly owned facility/asset, usually for a specified lease period. Ownership of the facility/asset remains with the public sector.