P3s an infrastructure development tool to evaluate with caution.

• Author: Watkins, J. Ben

Public-private partnerships (P3s) are transactions that involve a wide variety of activities or enterprises. P3s generally involve an agreement between a public-sector entity and a private company, and the "partnership" is reflected in complex legal documents detailing the rights, responsibilities, and obligations of the public and private participants. A complete and thorough understanding of the details contained in the partnership agreement is critical in protecting the public participants' interests and ensuring the benefits of a P3 arrangement.

P3 agreements can take various forms, from contracts to operate a concession (e.g., a service contract for a vendor to operate food services on a university campus), to bundling design and construction with a single private firm (e.g., a design-build contract), to procuring a private concessionaire to design, build, finance, operate, and maintain public infrastructure under a long-term agreement (e.g., a concessionaire agreement to design, build, finance and operate a toll bridge). Public-sector entities have traditionally used P3s for outsourcing services where the private sector could operate more cost effectively. Recently, however, P3s have evolved as an alternative to using traditional tax-exempt bonds to finance infrastructure and as a way to address a public entity's budgetary pressures by receiving an upfront payment in exchange for the sale or lease of a public sector asset (e.g., parking garages, toll roads, or utility systems). When used as an alternative delivery mechanism for financing infrastructure, the P3 method usually involves selecting a private party, or the concessionaire, to design, build, finance, operate, and maintain a project for the public sector's constituents.

The evolution of P3s as an alternative delivery mechanism for developing and financing infrastructure has generated significant interest in the public sector under the premise that the private sector can deliver capital assets more efficiently and cost effectively. However, this generally only works in the public sector's interests when it provides adequate safeguards, ongoing oversight, and maintains control over important elements of the transaction and subsequent operations. Therefore, public-sector participants must carefully and thoroughly evaluate any project with a proposed P3 delivery method. P3 proposals should be approached cautiously and only executed after carefully evaluating alternatives and...