Public-Private Partnerships refers to the long-term contract signed between the government organizations and private partners for the provision of public assets or services. In the PPP relationship, the private party always bears risks and payment issues. They also take the management responsibilities related to the performance. In the construction industry, the PPP is goal-oriented to ensure that private parties meet the needs of the new infrastructure projects. They often provide beneficial opportunities to the contractors to continue learning about the benefits and faults of PPP in construction. This paper discusses the various types and forms of PPP, the advantages as well as disadvantages. It also discusses PPP as a learning mechanism, and finally, PPP in the construction and infrastructure industry.
Types and Forms of PPP
There are different types of PPP. These forms are categorized based on the type of project involved, the level of investment, and the level of risk relocation, and the anticipated results (Geng et al., 2019). The first type is Build-Operate-Transfer (BOT). The model is utilized during the development of a discrete asset instead of an entire network. It is a simple structure that provides great liberty for the partnership with the private sector in construction. In this type of contract, equity risk is incurred by the public sector. In Build-Own-Operate (BOO), the ownership of the constructed entity is not transferred to the public sector. Transactions in BOO may be suitable for tax-exemption. Often, it is used during the construction of facilities used as power plants or the treatment of water.
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Another form of PPP is Build-Own-Operate-Transfer (BOOT). In this form of PPP, the private sector constructs and owns the facility during the period of construction to recoup the construction costs during the operational phase. The facility is given to the government after the development. In this case, commercial risks during the contraction remain with the private sector. It is often applied to the construction of schools and hospital facilities (Yang & You, 2019). Another type of PPP is Design-Build. In this form, the private partner has the accountability of designing and building the facility meant to deliver performance requirements in the PPP contract. Usually, the partnership help in saving time and money. It also offers stronger guarantees and also allocates additional project risks to the private sector.
In the Design-Build-Finance, the private sector is responsible for the construction and financing cost of the asset during the construction period. BDF is in different categories, including Design – Build – Finance – Operate (DBFO), Design-Build – Finance – Maintain (DBFM), and Design-Build – Finance – Maintain – Operate (DBMFO). After designing, building, financing, and even operating the assets, the public sector leases the facilities back to the government. Design – Construct – Maintain – Finance (DCMF) requires the private entity to design and create a facility based on the specification given by the government entity. This form of PPP constructs includes prisons. Private partners lease back the facility to the government.
The last form of PPP is O & M (Operation & Maintenance). Private operators operate and maintain facilities on behalf of the public, but on a specific level of obligation agreed between them. The projects are often subcontracted to the maintenance companies to manage.
Benefits of PPP
After the financial crisis in 2008, there was a renewed interest in PPP in both the developing and developed countries. Substantially, the private sector is considerably grown as the alternative source of funding to meet the financial gap investments. Some of the benefits that get the government to consider the private sector are that PPP is the best way for the government to introduce technology and the invention of the private sector in the public sector. Rashed et al. (2017) assert that integration aims to ensure excellent public services by improving operational efficiency. The partnership helps in incentivizing the public sector to ensure that all public projects are completed within the set budget and time set. In this case, it is critical to ensure efficiency in project delivery. Also, it promotes budget certainty by the setting of the present and future cost of the infrastructural projects over time.
Another benefit is that PPP is a way of progressively revealing the enterprises owned by the state and government to increased participation levels from the private entities. PPP is structured in ways that it promotes skills transfer, thus leading to national champions that can operate their own and eventually export expertise by bidding for projects (Tan, 2012). PPP promotes the economy by making the country productive in promoting infrastructural projects as well as boosting the business and infrastructure industry at large. Private entities get the opportunity to showcase their capabilities as well as enhance quality and timely structural building. Private partners facilitate excellent service delivery by ensuring that projects are completed without delay.
Disadvantages
Despite PPP being quite beneficial, it also has the obstacles that might hinder its effectiveness upon application in the construction industry. First, the services delivered by PPP could be expensive. PPP involves a lot of risk for the private participants who agree to be compensated for taking those risks, thus increasing the governments' costs. The higher the risk that the private parties assume, the greater the cost payable by the government (Rashed et al., 2017). The profit obtained from the project varies based on the presumed project risks, the level of rivalry, and the complication. In a case where the services are limited to low competition, there is a likelihood that the expenses for completing. In this case, the government incurs high costs. High risks mean that the government is required to pay higher for the project hence reducing the profit earned from the project. In PPP, the expertize lies heavily on the private side. For that reason, the administration is at an inherent hindrance. The government might not be able to assess the projected expenses of the project appropriately while it is under private management.
PPP as a Learning Mechanism
Public-Private Partnership brings together the expertise of both the public and private sectors, allowing each area to do what is considered best to deliver the most efficient projects and services. The cooperation between experts brings a pool of skills and knowledge on the implementation of a successful project. The partnership helps people learn the importance of project preparation to ensure its success (Hodge, Greve, & Biygautane, 2018). Usually, detailed studies conducted for PPPs during the initial preparation stages act as the success factors for deviations in the future. PPP enables the management to learn the importance of preparing to avoid economic, financial, and social risks that may be associated with future projects.
Besides, PPP is a source of knowledge on the organization. Essentially, tapping into the local expertise and presence helps to capitalize on domestic capabilities and resources. Individuals learn the importance of monitoring and developing standardized methods for information gathering. The organization during the PPP projects enables one to learn on how to overcome issues related to developing useful and conducting ex-post assessments like drawing of unsubstantiated conclusions regarding the state of the power-level indicators.
PPP acts as a learning mechanism in enhancing sustained commitment of the government agencies together with the relevant Regional Member Countries. Additionally, it gives an idea of changes likely to influence the role, view, and priority of a partner in the project. It provides participants with insights on project changes that might alter the nature of the Partnership and the impact that the changes might have on private parties. PPP empowers the community and the civils groups to take part in a wide range of projects in the community.
Casady et al. (2020) argue that PPP act as a source of knowledge, expertise, and competence among the participants. Technically, it is a vast stretch for the government. Being a new way of getting the governmental project implemented and completed on a timely basis. It requires employees and other workers to engage in training to learn on various technical supports that are essential for delivering a smooth and robust solution. Training is vital for success in PPP being a complex operation. Several training programs are provided by the World Bank Groups to equip individuals with knowledge that they need to determine the right choice of PPP (Nowosiwsky et al., 2016). The programs are meant to equip learners with managerial and leadership skills to enable them to perform and execute public projects effectively. It polishes skills
PPP allows one to learn and understand the essential factors that promote the success of a project. The Partnership portrays the importance of building trust in enhancing the mindset of the partners. Other lessons learned from the success of the Partnership is the importance of common language between the public and private parties. Language is essential in communication and ensuring that people can come to an agreement on what needs to be delivered through the project (Warsen et al., 2018). Excellent managerial skills are also learned through the flexibility of private leadership in developing an explicit understanding of the parties involved. In PPP, agreements are crucial, especially in discussing the case where the private parties are required to assume the risks. Other knowledge obtained from conducting the PPP project is in regard to resource allocation. This includes the essence of making priorities to ensure that the project's vital activities are accomplished and delivered within the stipulated time. PPP gives the knowledge to view a Partnership as a mindset and not considering it as a system. The relationship provides staff projects to ensure that projects are successful
PPP in the Infrastructure and Construction Industry
According to the National Public-Private Partnership Policy of 2011, PPP is the arrangement between the government and the private sector. The partnership aims at providing the public assets through the investments made and managed by taken by the private sector entity (Sharma, 2012). Usually, the collaboration between private and public entities is for a definite period, with well-defined risk provision between the individual and the civic. At the same time, the former receives payment based on the performance. The partnership always operates under the predetermined performance measurement used to determine the basis of their pay after project completion.
In the construction industry, PPP uses a goal-oriented approach where both the private and public entities work together to meet the needs of the new infrastructural projects. Private parties are responsible for taking risks depending on their participation in the project. Consequently, the role and responsibility of the individual entities are dependent on how much the contractors are involved.
In the partnership, the public entity is represented in the form of the local, federal, or state government. The private entities are responsible for hiring, paying, and supervising contractors who are involved in the implementation of the project. Additionally, the private party of the partnership design, finance, operate and maintain the project in the construction process. However, considering that projects are different in their ways, the role of the private partners change from project to project. According to Ameyaw & Chan (2015), some of the construction and infrastructure projects that the government can give to private parties include building roads, tool bridges, highways, sewerage systems, water, and parking spaces together with facilities.
Despite being created to facilitate a new construction project, PPP is also applicable to during upgrading, maintenance, and repair. The partnership continues to grow popularity in both the developed and developing countries. The government can save millions of dollars, which could have been part of the cost, were it not for the partnership. Technically, PPP changes the style of construction in public works entirely. Instead of the constructor working under the government agency, in PPP, they work under the private agency. Usually, private agencies are considered more flexible as compared to government agencies. For that reason, they are often flexible enough to select the appropriate design and approach that fits the project before asking the contractors to go beyond their usual responsibilities to meet the needs of the project. Necessarily, the owner of the private entities is always responsible for developing an incentive that prevents the risk of failing to deliver the project on time and budget.
The obligations in the project are established and specified using construction bonds such as payment bonds, performance, bonds, and bid bonds. Surety bond offers financial security through the provision of the confidence in the owner that the contractor will surely perform his duties following the settled agreements. These bonds are typically a part of the insurance company. The surety company always runs the extensive contextual and financial checks on the contractor before approving a bond. In case the project abandoned by the contractor, the surety company may replace the contractor. Lastly, the company provides the line of credit to the payment of ant claims on an agreement.
Bid bonds are needed in government projects when there is the authorization of performance or the payment bond. Contractors provide a bid to protect the owner in the case of abandonment by the contractor. The bond gets rid of the unqualified bidders. Performance bid is the second after the bid bond (Hassan & Adnan, 2018). It is after the contractor starts working on the project. It protects the owner from the financial loss in case of a defect from the contractor. A payment bond is also known as the labor and material payment bond. It is an assurance of the financial capability of the contractor who wins the bid in terms of paying their workers, subcontractors, and suppliers. It offers a replacement to the mechanic's lien as fixed for non-payment.
Public and Private Partnership (PPP) is essential for facilitating the integration of creativity and innovation in the public sector. Giving private companies the responsibility of implementing projects and bearing risks on behalf of the government reduces the risks that the public is likely to incur. PPP is highly expensive for the government as it is required to cater to all risks that the private entities assume while implementing the project. Again, PPP promotes timely project delivery as well as effective use of resources. It is an excellent learning mechanism through which leaders acquire most effective management skills and expertise to enhance the project success.
References
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