The joint project shall be defined as any public project with an economic nature, in which the private sector contributes through finance, management, and at least one of the following processes (establishment, construction, development, restoration, preparation, maintenance, rehabilitation, and operation). Accordingly, any contract entered into by the Federal Entity and not including operations listed above shall not be considered a PPP.
Theoretically, there is no standard definition of the public-private partnership, however, and based on the different definitions, it might be defined as a contract between a party from the public sector and a party from the private sector, under which the private party performs a public service or project. The risk distribution and outputs determination are the pillars of the PPP.
• Risk Sharing
Considering PPP in terms of risk sharing helps to define the partnership as a borderline between the management contracts on one hand and the privatization on the other. Traditional management and operation contracts do not involve any transfer of risks to the private sector, while privatization, especially full privatization (the sale of a public project) transfers all risks to the private sector.
Risk Sharing between the public and private partners is the key element of this partnership, so each party shall bear the risks it can handle and manage. For example, the private sector shall bear risks associated with development, design, construction, operation, exploration, inflation and fluctuations of currency or oil prices, while the public sector shall bear environment, regulation and economic development risks. Both parties may bear the risks relating to force majeure, supply and demand, personnel relations, profit and loss and technological development.
• Output Identification
The outputs of partnership contract shall be identified through tendering, where the Federal Entity shall identify specifications to be obtained from the project without specifying the way of handover. Therefore, the bidder shall have full flexibility in how to obtain these specifications. This allows utilizing all the benefits the private sector can add to the project by making all variables, not just the price, subject to auditing.
Joint projects differ from the traditional outsourcing in which the Federal Entity identifies the inputs, so all project variables will be fixed, except the price based on which the project winner is determined.
Moreover, the concept of partnership differs from procurement, delivery of service and work carried out as per the Cabinet Resolution No. (32) of 2014, where no deal can be made unless the necessary financial provision is available in the budget. In some partnership contracts, the private partner finances the project without including all investment expenses needed for the project in the budget of the first year, but they are distributed over the contract term in form of payments paid to the private partner. Payments are usually variable according to the size or quantity of the output.