Public-Private Partnerships: They’re Not Just About the Money, But the Performance
Posted in P3s

The need to spend significant dollars on the repair and expansion of the nation’s public infrastructure is a major concern expressed by many.  Even the two presidential candidates for the major political parties, who don’t seem to agree on anything else, agree that a commitment to repair and rebuild the nation’s infrastructure is critical to economic productivity and opportunity for its citizens.

In a recent paper published by the Center for American Progress, a public policy and research organization, entitled Assessing Claims About Public-Private Partnerships, the author concludes that public-private partnerships (P3s) are an alternate approach to infrastructure procurement that has as a key benefit: the ability to transfer risk…  This is achieved by transferring some or all of the project development, design, construction, operational and revenue risk to a private entity.  This is particularly the case for large complex projects (though the author doesn’t specify a dollar amount or discuss what he means by complex).

I am generally in agreement with the conclusion of the paper; however, most of the article is spent taking issue with public-private partnership supporters who are promoting P3s not as a delivery method that appropriately allocates project risks, incentivizes high quality operation and maintenance, provides budget certainty and encourages innovation, but as a financing scheme.  Specifically, the author accuses Wall Street of peddling high cost equity capital as the reason to do a P3.  The author also spends a fair amount of time critical of the assertion that these so-called P3 supporters make about the role of public pension investors in P3 transactions.

I recognize the role of private finance in these transactions, as well as the recent involvement of public pension funds as investors in P3 transactions, but to be clear: P3 is not all about the money—it’s about the performance and the value provided to the public sector and taxpayers of the transfer of design, construction and maintenance risk to the private sector.  I would like to have seen the author spend more time writing about what he concludes are the benefits of a P3 – that it is first and foremost a delivery method.  The private financing aspect of these transactions is not a magic source of liquidity for public infrastructure but can be an important driver of the overall value to be derived from a P3 approach.

  • Barney A. Allison
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    For more than 30 years, clients have relied on Barney Allison for practical and strategic guidance in the public finance and infrastructure fields.

    Barney offers public agencies unique expertise with specialized finance issues in ...

Nossaman’s 30-plus infrastructure attorneys offer clients, colleagues, strategic partners and industry media a wealth of practical experience, insider insight and thoughtful analysis here on Infra Insight. We blog about what we know best, from industry-leading procurements to local and national policy developments that affect the market and our clients.

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