Source: adapted from US Department of Transportation, Federal Highway Administration (2007) Financing Freight Improvements, Publication #FHWA-HOP-06-108.
The main forms of Public / Private Partnerships (PPP) include:
- Design-Bid-Build. In the first stage, a contract is awarded to an engineering design firm to set a clear guideline in terms of the potential costs, materials and equipment required to complete a public works project. Then, private contractors are invited to bid on the proposed specifications, which are reviewed by the public entity. The bid winning contractor then undertakes the construction phase and once completed, management and maintenance will be performed by the public sector. All steps are financed by the public sector.
- Private Contract Fee Services. A common contract structure where the public sector transfers the responsibility of specific services, such as operation and maintenance of public infrastructures, to the private sector. There exists a variety of private firms that have specialized in providing services to transport infrastructure, particularly in terms of maintenance, repairs and upgrades.
- Design-Build. Similar to the design-bid-build partnership with the exception that they are combined a single contract. As usual, the public sector owns the infrastructure as well as bearing the responsibility for its financing, operation and maintenance.
- Build-Operate-Transfer. While the public sector is responsible for the financing of the infrastructure, a private entity provides for construction and operation. It is also known as a “turnkey” PPP since after a specified amount of time, the public sector takes over the infrastructure. It can be decided to extend the operation contract to the same operator or have it up for bid.
- Design-Build-Finance-Operate. The responsibilities for designing, building, financing, and operating the infrastructure fall in the hands of the private sector, but ownership remains public. There is however some flexibility in the PPP as of the respective shares of the financing could come from a pool of public and private interests. The flexibility also takes form in terms of the nature of the financing, which can be capital or in kind (e.g. land). The expectation is that the contracted debt used to finance transport infrastructure will be recovered by future revenues, which implies that user fees will be applied and that debt (such as bonds) is leveraged by future revenues.
- Build-Own-Operate. The design, development, financing, building, operation and maintenance of an infrastructure fall completely under the responsibility of the private sector and this for the duration of the concession, which is dominantly long term. Public sector involvement is limited to the general regulatory framework and assuring compliance to the terms of the contract.
One of the purposes of PPP is to share risks about a capital-intensive project.