Public-Private Partnerships | Center for American Progress

Understanding the Difference Between Procurement and Finance

A public-private partnership, or P3, is an alternative approach to infrastructure procurement for large-scale, complex projects that allows a private entity to exercise greater control and decision-making authority than it would be able to under a traditional procurement arrangement. A P3 approach allows the public sector to transfer some or all of the project development, design, construction, operational, and revenue risk to a private entity. When structured properly, a P3 agreement can leverage contractual penalties and rewards to increase the likelihood that the private entity will complete the project on time and on budget. Additionally, a long-term P3 deal may result in higher maintenance standards, since the contract obligates the state and concessionaire to uphold their responsibilities to the facility even when adverse economic or political conditions would otherwise lead to deferred maintenance and neglect.

Public-private partnerships exist on a spectrum with more or less private control depending on how the government structures the agreement. On the low end, a P3 approach may simply combine project design and construction into one contract. On the high end, the government may choose to grant additional responsibilities beyond design and construction to the private firm, such as operations, maintenance, and rehabilitation over 30 years or more.

A public-private partnership may or may not involve private financing. The most common forms of private financing are proceeds from a private-activity bond issuance and equity capital. Typically, private-activity bond proceeds cover a significant share of total project costs, while equity capital—the most expensive source of financing available—covers much less of the total cost.

Find more, including a link to the Public-Private Partnerships report, from the Center for American Progress.

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