For potential private sector partners - large or small - the key incentives for opting into a PPP are financial. Such financial incentives are generally determined by three factors: compensation arrangements, the levels of competition and the levels of risk.
Compensation is one of the most important areas of negotiation between the municipality and its private partners. As much as possible, compensation structures should be designed to push the firm to achieve the municipality's most important goals, but ultimately, the result must be acceptable to both or the partnership will falter. Compensation structures for the private sector partner tend to fall into two major categories: those directly agreed by the government as part of the partnership arrangement (fees for services or profit from ongoing operations); and those pursued independently by the private partner as a result of the partnership arrangement (other contracts, capital gains from increasing share value). While the municipality should be aware of the latter and how they may affect the firm's interest and performance, the focus here is on the direct compensation agreed as part of the partnership arrangement.