What am I allowed to do?
What laws and policies exist regarding the delivery of infrastructure and the potential involvement of private finance? Are there political, legal or policy constraints that would make it difficult to use certain partnership structures?
These questions are among the first that need to be answered before a public sector entity gets too far ahead of itself. The legal and policy framework in place - in addition to the temperament of the electorate - will automatically narrow the pool of possible partnership options. Most public sector entities face restricted choice in partnership arrangements. For example, U.S. state legislation in this area runs the gamut, from prohibiting even design-build contracts to permitting fully fledged concession arrangements.
Of those governments with laws on the books, some are finding that the enabling legislation does not provide the flexibility necessary to support the range of possible deals in which political leaders are interested. The presence of a legal structure that is more or less in line with market norms for PPP-type projects in more mature markets will be of assistance. With governments worldwide competing to attract private investment, a poor legal framework will stymie a jurisdiction's efforts to increase the degree of private sector participation in infrastructure development.
Recently, several governments have improved upon their existing legislation. The State of California has adopted a new legal framework for transportation PPPs that authorizes regional transportation agencies and Caltrans to enter into an unlimited number of PPPs through 2017, removing earlier restrictions on the number and type of projects they may undertake. The legislation establishes an independent Public Infrastructure Advisory Commission to advise state and local agencies on PPP best practices, and it allows for solicited and unsolicited proposals from the private sector.
In addition to legislative constraints, political factors often determine the extent or nature of private sector involvement. For instance, the Commonwealth of Pennsylvania was unable to garner sufficient legislative support to enter into a concession agreement for the Pennsylvania Turnpike that would have raised $12.8 billion to meet other pressing transportation needs. In Canada and elsewhere, "core" services (such as teaching, health care and prison guards) are distinguished from "non-core" services (such as janitorial services, food services and transportation), and the public sector generally retains the former.