By Angela W. Adolph

In today’s political and economic environment, in which public resources available for infrastructure development and maintenance are increasingly scarce, Public-Private Partnerships (PPPs) offer a welcome alternative to traditional financing and operation models. A PPP is a contractual agreement between a public agency (federal, state or local) entity and a private sector entity to deliver a service or facility for public use. The Louisiana Supreme Court has recognized the public benefits of PPPs, finding that “public-private partnerships that take advantage of the special expertise of the private sector are among the most effective programs to encourage and maintain economic development, and that it is in the best interest of the State and its local governments to encourage, create, and support public-private partnerships.” See Board of Directors of Indus. Devel. Bd. of City of Gonzales, Louisiana, Inc. v. All Taxpayers, Property Owners, Citizens of City of Gonzales, 938 So.2d 11, 17 (La. 2006).

Generally, PPPs entail a public entity, which has an infrastructure or service deficiency, forming a relationship with a private entity, which undertakes logistical and mission-critical functions like design, construction, financing, operation, and maintenance of a particular facility. Private partners may also provide capital to bolster public resources. In most PPPs, private partners stand to gain revenues from “direct user fees”—like tolls on a toll road—or other revenue sources, which are used in order to operate the facility, repay debt incurred in developing the facility, and reap a profitable return on investment. PPPs are commonly implemented to provide transportation, water, urban redevelopment, energy, financial management, and education services.

PPPs differ from joint service agreements in several key respects. Because private partners share in the potential benefit of a project and in the risk of a project’s failure or deficiency, they have a strong incentive to limit costs, avoid delays in construction, and efficiently maintain the facility. Studies suggest that traditional contract-driven projects may be more subject to delays and overruns, whereas PPPs result in greater on-time and on-budget completion. PPPs reward efficiency, innovation, and creativity in the development new facilities. In return, private partners are able to rely upon the broad perspectives, personnel, knowledge of public needs, legal authority, financing resources, and procurement policies that are unique public partners.

Public and private partners must be mindful of several issues when crafting a successful PPP: statutory authority, public commitment to the project, community perception, revenue stream, corporate and public organization structures, and partner compatibility. They must develop a business plan that clearly delineates the responsibilities of each partner and addresses the competing expectations of each partner’s constituents. Clear objectives, consistent benchmarks, and effective management and communication are essential.

PPPs offer many practical advantages to public and private entities: maximizing each sector’s strength, reducing risk, reducing capital investment, sharing resources, improving efficiency, facilitating environmental compliance, and improving cost-effectiveness. When properly structured, PPPs provide clear win-win situations for both private and public actors.