What are Public Private Partnerships? The basics of PPP…
The idea behind Public Private Partnerships (PPP) is to bring the private and public sectors together on projects where there is mutual benefit for both to do so. According to government figures, PPPs have delivered £56 billion of private sector capital investment in over 700 UK infrastructure projects around the UK. This includes a wide range of different developments, from schools and prisons through to a diverse selection of housing. Although they are not without controversy, PPPs represent what can be achieved when the public and private sectors come together with a single, simple goal.
When were PPPs first developed?
The first PPPs appeared in the 1990s. They were created to bring private sector companies on board where it was thought that the private sector would be able to deliver better value for taxpayers than a public sector organisation would in the same circumstances. The goal of using PPPs is to introduce efficiency and to find ways to deliver better value for money on key projects.
What are the different types of PPPs?
- Concession contract PPPs. This is where a private sector business is brought in to provide a concession on behalf of a public authority. The most obvious example of this would be something like a toll motorway.
- Private Finance Initiatives (PFI) PPPs. This is the most common type of PPP and involves bringing in a private sector business to finance and deliver a public sector service. It is usually only suitable for large-scale projects and has been used for a wide range of developments, including construction and maintenance. The private sector business effectively funds the project and then is repaid by the public authority for the service it delivers. Private Finance 2 is currently the government’s preferred method for PPPs and has already provided £1 billion of capital investment.
- Institutional PPPs. This involves a public authority and a private business entering into a joint venture together in order to provide a public service or complete a project.
How do PPPs help?
The focus of entering into a PPP is delivering better value for money by using a private sector business that may already have the infrastructure or experience to better deliver the project. PPPs also transfer all the risk involved in the project to the private sector business. So, risks related to performance, cost and delivery become the responsibility of the private sector entity involved in the PPP. The impact of this is that the public sector is protected from the kinds of issues that can be costly for any project, including delays, poor performance and budgets that over run. It also means that the private sector business is responsible for the management of the project and for delivering objectives and results. Remuneration for PPPs is often linked to performance so where the private sector party doesn’t deliver on promises there may effectively be a financial loss or penalty as a result.
PPPs have a key role to play in infrastructure development in the UK. Contact us to find out more about these or other projects currently under way.