Public-Private Partnerships: Why Isn’t the U.S. More Experienced With Them?

Public Private Partnerships are a reliable method of conducting various types of business on the local, state, and federal levels. Also known as PPPs, 3Ps, or P3s these types of models allow the public and private sectors to apply the strengths and resources of each sector. P3s may be more difficult to execute than other types of agreements, however, they are worth the effort and time.

P3S: 

• Address shrinking public budgets, financial constraints, or reduced workforce
• Allow for the private sector to incorporate professional knowledge and expertise
• Enable service delivery without additional taxpayer expense
• Valuable option for offering a reasonable project ROI
• May create jobs, depending on the project or service being offered
• Beneficial method of completing expensive projects or subsidizing necessary infrastructure work
• Requires a contractual agreement for both sectors
• Each sector and partners also shares in potential risks and rewards
• Accelerates project completion due to provision of access to additional capital

There have been many successful P3 projects in various states, such the High Occupancy Toll Lanes in Virginia surrounding the Washington, D.C. beltway area,Union Station in Washington D.C., James F. Oyster Bilingual Elementary School in Washington D.C., as well numerous other case studies that can be researched through the National Council for Public-Private Partnerships’ site . These case studies include energy, operation and management/ maintenance, public works, public safety, economic development and real estate, technology infrastructure, water/ wastewater infrastructure, and transportation infrastructure. However, according to the NCSL, many states do not have legislation regulating P3s and whether P3 business is to be conducted. Statutes enabling P3 agreements are a necessary precursor to P3 implementation. Without the legislation, it is impossible for states to begin the development of the business. These laws set conditions that promote or prevent P3s, guide the development of state P3 programs, provide the foundation for the necessary contractual agreements and affect the risks entailed for all parties. P3 laws acknowledge key issues regarding project selection and approval, the proposal review process, funding restrictions and requirements, acquisition, and project management.

So with all of the benefits and successful projects completed why isn’t there more legislation and utilization of P3s in the U.S?

Several concerns and controversies have been identified, which may explain as to why this is. For example:

Lack of public control and adaptability: There have been critics that have warned that P3 agreements which may last for several generations inhibit the government’s capability to make further policy decisions that affect those who consume or utilize the services of the project. Noncompete clauses within P3 agreements raise concerns about the potential loss of public control.

Private profits at the public’s expense: Concerns have also been expressed that the private sector may be seeking profits at the expense of the public sector. Examples of such are skimping on necessary maintenance and repairs to advance profits or producing excessive profits through high fees. Some stakeholders, however, believe that contractual limitations on any fees may combat the raising of any rates or fees.

Risk of Bankruptcy or Default: Some stakeholders have expressed concerns over how default by a private partner could affect the public, especially within long-term lease agreements. Generally, financial risk and the payment of debts is addressed within the P3 contractual agreement.

Transparency and Accountability: This may be the most important reason as to why P3s are so underutilized. If elected officials or the public do not understand the contractual agreement or its implications, it may be viewed as a lack of transparency, which further derives negative feelings. It is vital to protect the public interest, which is the most vulnerable within the process of implementation.

Labor concerns: P3 contracts should include employment protections in order to address any questions of application of current employees or the necessity to hire additional employees, any wages, benefits, pensions, working conditions, and any collective bargaining rights.

Ultimately it is up to each individual state and its elected officials to educate the public about P3s and the benefits. However, it is important for elected officials to have an adequate understanding of how P3s can assist in project completion and public financing of large projects. Without the fundamental information, the current misconceptions will continue to advance and erode any possibility of evolving P3s into the future.