A review of the possible obstacles and constraints to public private partnership may eliminate it as an option for delivery of a particular service or infrastructure. If the obstacles and constraints can be satisfactorily addressed, there are still a number of other considerations before proceeding to implementation. The first of these is whether the benefits of public private partnership outweigh the costs.
There are two steps that should be followed in assessing the benefits and costs for the use of public private partnerships:
1. The local government should establish the true cost of providing a service (either existing or proposed). This is called benchmarking or shadow bidding.
2. The benefits and costs should be systematically analyzed considering both quantifiable costs and benefits, and other non-quantifiable measures.
The establishment of benchmark costs requires that the true costs of providing the service by the local government are quantified. These include both capital and operating costs, such as:
• direct costs of providing the service, including salaries, wages, benefits, office space, equipment, capital equipment and insurance
• indirect costs, such as corporate overhead
• financing costs, including debt service costs and interim financing
The benchmark costs should reflect all relevant costs so that the public private partnership option can be compared fairly.
Where the local government is considering provision of a new service where cost information does not exist, benchmark costs must be projected. The projected costs for in-house delivery of a new service should be based on the costs of providing similar services by the local government and cost data from other local governments already providing the service.
Once the benchmark cost of providing a service has been established, the local government has a number of choices. It can adjust its approach based on the analysis and continue to provide the service without a private partner. If it
believes that the potential for a public private partnership is high, it can undertake a more systematic review of the benefits and costs of proceeding with a public private partnership.
Until the private sector responds to a proposal call for a particular service, the true costs of a public private partnership will not be known. These costs include:
• the cost of establishing the partnership, including all internal and external costs (e.g., outside expertise, legal fees)
• the cost associated with managing the contract including performance audits
As public private partnerships become more prevalent, cost data may become more readily available to local governments.
Costs and benefits other than strictly financial ones should also be considered in the analysis. These include:
• the transfer of risk (that could be both a benefit or a cost)
• loss of control
• loss of efficiencies during the transfer