This article, co-authored by Martha Amram, PhD, and CEO of WattzOn, Inc., uses examples of several P3 contracts to illustrate their role in shifting risk and increasing collaboration between the public and private sectors. Because of sustained budget woes over the coming years, we expect P3s to increase, and to provide significant business opportunities and steady financial returns. For the private sector, P3s are the upside of the government’s fiscal strains.
The first U.S. P3s began over 200 years ago. These contrac- tual arrangements between government entities and private companies for the delivery of services or facilities have long been used for water/wastewater, transportation, urban devel- opment, and delivery of social services. Today, the average American city works with private partners to perform 23 out of 65 basic municipal services. The use of such partnerships is increasing because they provide an effective tool for meet- ing public needs, maintaining a high level of public control, improving the quality of services, and increasing the cost- effectiveness of traditional delivery methods. According to a report published by the National Council for Public-Private Partnerships, studies have shown that governments trading with the private sector to provide services is up 20-50%. There are now thousands of P3s in the U.S. and the number is growing quickly.
How does a P3 differ from simply outsourcing to cut costs? P3s are a solution when public funds are not available. When funds are available, services can be performed in-house and improved as needed; or if funds for infrastructure invest- ment are available, delivery of the service can be outsourced to reduce costs. But when public funds are not available to maintain the infrastructure, the private partner in the P3 provides the funding in exchange for a steady rate of return to the private company.
Read more: Journal of Applied Corporate Finance, Jun 2011. “The Upside to Fiscal Challenges: Innovative Partnerships Between Public and Private Sector”. PDF