Public-Private Partnerships

Utilities are increasingly pressured by competition and demands for increased efficiency, while providing better service, meeting stringent regulations, and maintaining reliable systems. Utility managers must now show that construction programs and operations are cost-effective and achieve high performance standards. Public-private partnerships use the strengths of government and business to construct projects, operate systems, and create jobs to achieve peak performance by letting each sector do what it does best. The arrangements used to implement these partnerships include:

• Managed competition
• Lease-develop-operate agreements
• Operational efficiency contracts
• Sale-leasebacks
• Operations and maintenance contracts
• Tax-exempt leases
• Turnkey design-construction
• Privatization
• Build-operate-transfer agreements
• Lease-purchase/operating leases
• Municipal development authorities and corporations

Each form of partnership has advantages and disadvantages that must be managed to achieve community goals while allowing the private sector the freedom to deliver services efficiently.

The advantages the private sector can provide include off-balance sheet financing, transfer of risks, efficiency savings, specialized services not available in the public sector, higher quality services, faster and more efficient construction, and shorter implementation periods. The public sector partner provides leadership and the need for the service, and may provide assistance with permitting and land-use approvals, land, tax-free financing, and exemptions from sales and property taxes.

The disadvantages for a particular public-private partnership may include:

• Implementation may require regulatory or statutory action.
• Need to develop new procurement policies.
• Difficulties in evaluating performance-based procurements.
• Loss of control.
• Quality is under control of contractor.
• Permit compliance in under control of contractor.
• Unscheduled service interruptions.
• Rate increases may be controlled entirely by contractor's efficiencies.
• Contractor may be unable to perform due to bankruptcy.
• Contractor may not be able or willing to assume risk.
• Some forms of partnership may not comply with IRS regulations.
• Some policy requirements may be difficult to transfer to the private sector.
• Employee resistance to transfers and change.

ERG staff have assisted communities throughout the United Sates with the financing, procurement and management of public-private partnerships. We offer the proven ability to help a community define the right goals; select the best form of public-private partnership for those goals; develop procurement documents consistent with goals, public policy, and statutory requirements; identify the best contractors; implement the partnership; and monitor performance.

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