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Public-private partnerships involve government agencies sharing resources and revenue with non-governmental companies to fulfill niche requirements. Projects must have unmet needs, revenue opportunities, shared responsibility, and no clear government accountability. The government provides goods and services that benefit the community, while private companies generate profit. Legal agreements are complex and allocate responsibilities to avoid unexpected bills or unfinished projects.
A public-private partnership occurs when government agencies share resources and revenue with a non-governmental company. These partnership agreements are used to fulfill niche specific requirements and are legally binding. The ideal project types for a public-private partnership vary, but they have four things in common: unmet need, revenue opportunity, shared responsibility, and no clear government accountability.
The term public-private partnership is used too little in the media to cover any arrangement where private companies are working exclusively with a specific government agency. In fact, this type of partnership has a very clear structure that defines the role of the private company, the government and the ultimate responsibility. All public-private partnerships must be vetted and approved at the senior management level before they can begin.
In very broad terms, the government’s role is to provide goods and services that provide a benefit that cannot be limited to paying members. A great example is a lighthouse. Lighthouse benefits are freely available to all and meet a real need in the community. No private company will build a lighthouse because there is no way to recoup the costs. That is the government’s role.
In a public-private partnership, the government has the responsibility to provide a specific service, but lacks the technology, resources, or political will to meet that need. If market forces were able to meet customer needs, a private company would be formed to do so. In scenarios where this is not the case, the two work together.
Private companies exist to generate profit, which requires a revenue stream. The only projects that can be turned into public-private partnerships are those with a clear revenue stream. A great example is a toll road. It is the government’s responsibility to provide roads, but they can form a partnership to reduce construction costs. A portion of the revenue goes to the company for a specific period of time.
The legal agreement required to form this type of partnership is thick and complex. The most important part of the contract is the allocation of responsibilities. This deals with quality of workmanship, cost overruns, natural disasters, revenue shortfalls and other related issues. All of these items have the potential to derail the partnership and leave citizens with an unexpected bill or unfinished project. The popularity of these projects is increasing as a way to increase services at a reduced cost.
Asset Smart.
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