Governance in PPP is essential to achieve and improve long-term service outcomes (Clifton and Duffield, 2006). Management, conversely, integrates efficiency through incentives into contractual agreements of PPPs. The interaction between these two concepts produces financial sustainability and credibility of PPPs. Commercial benefits, public interests, and community acceptance are tested through project procurement and bidding processes and are rectified contractually with terms and conditions that involve charge/pricing regimes, risk allocation and expectations of contract compliance. Behavior of participants in PPPs and the incorporation of any changes are managed through out the life-cycle of these contacts.
Recently, governance and management issues have been focusing on the identification of appropriate projects that provide management engagement. Management is important because it delivers service subject to numerous variations in contracts where societal interests and regulations make it difficult to confront such variations.
Societal Interests:
Distributional Equity-Ensure those who benefit from infrastructure share the costs and that those who are disadvantaged are compensated.
Intergenerational Equity-Ensure the cost of infrastructure is fairly distributed over the life of the asset such that current users do not pay in advance for future demand. Management and governance provide the basis for this particular aspect of equity.
Regulation:
The role of regulation is to manage reasonable limits expected by society. It is related to ensure that variations to the contract agreement are due to exogenous factors rather than the responsibility of the concessionaire. It also offers control of pre-agreed service criteria such as maintenance. Regulation can help in many times to provide with the general principles of contract administration and the provision of an independent body to receipt and investigate complaints, environmental issues, and social harms. In sum it provides a liaison between stakeholders and project's management. The difficulty to introduce a regulator is that authority may undermine the commercial integrity of the original financial transaction established during the tender process.
As a final remark, in the presence of agency costs and renegotiation, ex ante transparency stipulated in contracts is also subject to incentive problems. For instance, while a sponsor may learn about his preferred design for a highway by making the right surveys and developing models that will take into account the evolution of economic variables like the cost of petrol, the growth of urban population, and the effect of corporate taxes on the location of firms and industries, these studies are expensive and time consuming. The sponsor may then decide to wait and negotiate a change in design rather than invest ex ante with a view to giving more information to the potential contractors.