Depending on the nature of the public private partnership, there may be a need to negotiate a number of agreements. These include:
• a development agreement that defines the successful proponent's obligations and rights regarding the design and construction aspects of the projects
• a management and operations agreement that defines the successful proponent's obligations and rights regarding the management and operations of the facility
• a transfer agreement, which may be required where an interest in property is being transferred. Some forms of public private partnership may involve more than one transfer (e.g., transfer to private partner at outset and transfer back to local government at the end of the term).
In addition to the types of agreements that relate to specific aspects of the public private partnership, there are also different types of contracts relating to how payment is determined. Options include:
• fixed price contracts
• unit price contracts
• cost-plus fee contracts
• phased contracts
A fixed price contract is used when management and operation of a facility or service is comparatively simple, predictable and certain. The details of the work must be prescribed in the standards, specifications and drawings attached to the contract. There must also be performance measurement mechanisms built into the agreement. Local governments use fixed price contracts to take advantage of the private partner's experience and expertise at a competitive price.
A unit price contract relates consideration to units of service or materials. The standards and specifications identify the level of service or description of materials. Local governments use these contracts for service, operating or maintenance agreements, or a combination of these. In this type of contract, the local government is able to benefit from a competitive price.
A cost-plus fee contract is used when the scope of the work or service is not well-defined at the outset, for example, if new or untried technology will be installed or if the quantity of the work or service is not known at the outset. Normally, the private partner negotiates a fee or profit margin while the local government controls all other costs directly or as passthroughs. Local governments benefit because the private partner can provide unique expertise or experience.
A phased contract is used as an alternative to a cost-plus fee contract in the case of a complex facility development or where the proposed facility or service has not been well-defined. The private partner agrees to a fixed price or unit price, combined with details of work to be performed at each phase.