Introduction
Public-Private Partnerships (PPP) are projects that have received much impetus in the infrastructure industry both in developing and developed nations in the recent past. That is has been the case in the international scene involving developing and developed countries. Analytically, PPP projects are characterized by a partnership between the private sector and the government in a collaborative venture whose aim is to optimize the efficient allocation and use of resources.
These partners, however, are critically vetted in a laid-down procurement procedure. The procurement process is informed by the information availed from responses received from private consortia. At the procurement stage, bidders are invited to submit their proposal while remaining part of the invitation to negotiation (ITN) partnership.ITN is characterized by clearly stated instructions for each of the bidders with specifications that serve as a standard measure of the desired outputs. The document details the proposed terms and conditions of the contract, the evaluation criteria for bidders, and a final statement that requires all bidders to submit a document that is deemed to be the best and the final document.
These projects are also characterized by several compelling opportunities that act as the driving force behind motivating firms to get involved in infrastructure development partnerships. These opportunities demand that different types of PPP projects characterize these partnerships. These projects, however, suffer from several risks and uncertainties associated with these partnerships.
Definitions
It has been argued in both industry and academic disciplines that the PPP approach provides the key to resolving the problem of resource constraints, efficiency in the provision of public services, management of public resources, and appropriate allocation of resources for their efficient utilization (Osborne, 2000). On that basis, therefore, different authors propose different approaches and descriptions for PPP projects.
However, it is worth the argument that PPP is defined as “innovative methods used by the public sector to contract with the private sector who bring their capital and their ability to deliver projects on time and to budget, while the public sector retains the responsibility to provide these services to the public in a way that benefits the public and delivers economic development and improvement in the quality of life” (Osborne, 2000), thus, characterizing PPP with innovation, long service provisions, shifting of risks to the private sector, and contractual agreements between legal entities and the public entities.
On the other hand, PPP has been defined elsewhere as “long-term arrangements in which the government purchases services under a contract either directly or by subsidizing supplies to consumers. In other PPPs, the government bears substantial risks – for example, by guaranteeing revenue or returns, on projects that sell directly to consumers” (Fiscal Affairs Department, 2004), thus, combining the best that can be gained from the private sector such as managerial skills, technical skills, efficient financial analysis and management skills, and regulatory skills in the public sector for the best interest of the public.
Others keenly define PPP as “a long-term, contractually regulated cooperation between the public and private sector for the efficient fulfillment of public tasks in combining the necessary resources (e.g. knowhow, operational funds, capital, personnel) of the partners and distributing existing project risks appropriately according to the risk management competence of the project partners” (Webb & Pulle, 2002). However, another PPP definition is a “contractual arrangement between a public sector agency and a for-profit private sector developer, whereby resources and risks are shared for delivery of a public service or development of public infrastructure” (Jean-Etienne, Ross &Thomas, 2004).
However, elsewhere PPP is defined as “cooperative venture between the public and private sectors, built on the expertise of each partner, which best meets clearly defined public needs through the appropriate allocation of resources, risks, and rewards” (Webb & Pulle, 2002). Due, therefore, to the risks and uncertainties associated with PPP projects, the need for competent partners in the public-private partnerships is important, demanding for the partners to be thoroughly vetted through a rigorous procurement process as discussed below.
PPP Procurement Process
The procurement process for PPP projects has been viewed as a competitive approach to achieving value for money (VFM). In addition to that, it is viewed as an effective approach of transferring risks and uncertainties prone to public infrastructure projects calling for a thorough procurement process in the PPP partnership (Zhang & Kumaraswamy, 2001).
Fitzgerald (1998) reinforces the argument that the procurement process has to be, both theoretically and in practice, the next step after a business case has been developed after the project planning stage. The procurement stage is further based on the information availed from responses received from private consortia. At that point, bidders are invited to submit their proposal while remaining part of the invitation to the negotiation (ITN) group (Fitzgerald, 1998).
The key elements that characterize ITN include clearly stated instructions for each of the bidders, specifications that serve as benchmarks for the desired outputs, proposed terms and conditions of the contract, clearly defined criteria to use to evaluate bidders, and a final element that requires all bidders to submit another document that is deemed to be the final document (Fitzgerald, 1998).
That is keenly followed by an evaluation of each of the submitted final documents to qualify a bidder into the second bidder level. At this point, tests are done on PPP and PFI to evaluate the effectiveness of the bids in terms of value for money, desirable risk transfer modes, and the ability to afford the project in terms of designated project demands (Grahame, 2001).
It is important to note that a risk allocation scheme is provided to the private partners by the public client accompanied by the project tender documents. A detailed description of risk transfer mechanisms is provided at this stage, where risks can simply be listed in a clear risk allocation framework (Tah & Carr, 2000).
Gradually, the risk allocation mechanism spells the final stage where the tender with the appropriate contractual agreement is signed hence giving it the binding and the force of law. Thus, parties to the agreement are bound by the terms and conditions of the contract (Tah & Carr, 2000). Research has shown that any type of PPP project is bound to the procurement process discussed above (Tah & Carr, 2000).
Types of PPP
Different approaches to viewing PPP provide overall information about the types of PPP projects and PPP models. Defined by either joint partnerships or contractual partnerships, PPP projects have been modeled into several categories. Joint venture PPPs are defined by the sharing of risks in addition to being characterized by long-term project attributes. On the other hand, contractual partnerships are defined by a concessionary model where a facility is developed by the private sector and run by the same sector for some time before being handed over to the public. However, in both models, users ultimately pay the stakeholders for their usage of the facility (Ehrhardt & Erwin, 2004).
One of the PPP models is the build, operate, and Transfer (BOT) model. In the BOT model, the different partners take different roles. The private partners take the role of designing the specific project, building the infrastructure as stipulated in the contract document, operate the facility before transferring it to exclusive ownership and operation by the private sector. In this arrangement, the public sector rents the facility while the private sector provides the necessary finance to construct the facility besides incurring maintenance costs (Tah & Carr, 2000).
On the other hand, Least, operate, and Transfer (LOT) is another PPP model. The LOT model is characterized by the transfer of an already existing facility to the private sector while it is functionally operational. However, the transfer is effected under a mutual agreement or contract between the public and the private sector. one key element of the model is that gradually, the asset is transferred back after a long time in the hands of the private sector partner. The contract stipulates the terms and conditions of transfer of the asset to the private partner (Fitzgerald, 1998).
Another model that falls under the category of PPP projects is the Build, Own, Operate, and Transfer commonly referred to as BOOT. Despite this model is a variation of the BOT model, under this model, the facility that is constructed under the resource allocations of the private sector remains the property of the private partner until the contract period expires. However, terms and conditions of purchasing products and services offered by the facility are spelled in the terms and conditions of service of the project. That categorically implies that the property is transferred back to public or government ownership with a residual value inherently characterizing the asset (Ehrhardt & Erwin, 2004).
Another model is defined by joint venture characteristics, thus commonly referred to as a Joint Venture (JV). Here, a joint venture company is formed where the public shareholder’s minimum shares in the partnership. Each partner plays a critical role in the PPP project with the private sector largely charged with the design of the infrastructure project besides providing the expertise required in its construction (Williamson, 1980).
It is also important to consider other PPP models in the discussion. One other such model is the design, build, finance, and operate model (DBFO). Under this model, the private partner the algorithm that holds is that the entire project responsibilities including the design of the architecture of the project framework in terms of the design, construction of the complete infrastructure, provision of the required project finance, and operation of the completed project within the period provided for concessionary adjustments.
On the other hand, the public sector is specifically concerned with providing guarantees to financiers of the project. In addition to that, statutory requirements are provided for by the public sector besides helping to procure necessary assets such as land and clearances particularly about the impact of the project on the environment (Williamson, 1980).
International PPP in Developed and Developing Countries
International PPP in developing countries differs from those in developed countries in the approach and thinking of partnerships. In developing countries, international PPP relies heavily on international agencies and development partners such as USAID for funding while in developed countries international PPP largely relies on international partners for channeling funding, besides providing technical expertise and technologies for development. Developed countries are characterized by superior and proven technological advances and better institutional management practices. In addition to that, developed countries have superior resource pooling mechanisms such as the USA which developing countries are adopting to their advantage (Tah & Carr, 2000).
Typical examples are India and the USA. India has applied knowledge in PPP from the USA to pool resources for the development of water and sanitation projects in India in an escrow account under the management of a private partner. However, it is important to note that these partnerships are largely different at the domestic level as discussed below (Tah & Carr, 2000).
Domestic PPP in Developing and Developed Countries
In developed countries, more and more funding is from the private sector as governments find it increasingly resource-constrained. On the other hand, in developing economies, funding comes principally from the government through the taxes raised from the public. A typical example of domestic infrastructure includes Nigeria. In Nigeria, public-private partnerships are influenced by various procurement levels (Webb & Pulle, 2002). PPP is on the rise in infrastructure development, lack of a statutory framework, and the promulgation of new infrastructure development laws. On the other hand, in developed countries, already established legal frameworks public-private partnerships have steadily been developed as is the case with Japan.
Developed nations enjoy established procurement standards that have been tested with time while developing nations lack such standards. In Nigeria, property planning is a new development without regulatory constraints, where the government plays the role of loss payee. However, the case with developed countries like Japan is that PPP is well developed, and regulatory constraints have been developed with experience and time (Webb & Pulle, 2002).
Public-Private Partnerships (PPP) in Infrastructure Development
In the recent past, a new approach in the development of public infrastructure has gained momentum. That has been particularly due to several benefits that have been realized with PPP partnerships. Among the benefits include innovation, efficiency in management, risk aversion, shifting of risks to different parties, and other benefits that characterize either of the parties in such partnerships. However, further discussions on the advantages and disadvantages of PPP projects are detailed elsewhere in the paper (Tan, 2004).
The main objective of PPP projects is to commit the private sector to employ the abilities characteristic of the private sector to design and implement public sector infrastructure projects on time. In addition to that, it has been argued that the private sector is keen on implementing and financing such projects without putting into jeopardy the welfare of any community. In addition to that, it has been realized that PPP projects are cost-effective and affordable to the public, making the partnership all too popular.
Webb and Pulle (2002) rigorously note that theoretical and practical evaluations of PPPs indicate that these partnerships provide accelerated delivery of public services characterized by quality with a keen usage of available resources. Countries in the developing world need infrastructure to accelerate the pace of development. That is also reinforced by the fact that the public sector is limited in the ability to mobilize capital and the challenges of managing financial resources that are committed to the development of public infrastructure. In addition to that, developed countries also need PPP projects to sustain their levels of development besides tapping on available opportunities in the developed nations (Office of the Auditor-General, 2006).
Tan (2004) and Ehrhardt and Erwin (2004) argue that it is important, however, for the management of PPP projects to ensure that risk does not impede on the ability of the private sector to secure appropriate returns on investment. Researchers indicate that one driving element in assuring the private sector of reliable returns on investment is the quality of services that the private sector offers to the community and other users of the public infrastructure, the ability to offer services at affordable costs, and endear the government with the assurance of procuring returns on investment for the invested tax money (Ehrhardt & Erwin, 2004) and (Ehrhardt & Erwin, 2004).
An analysis of various researches that have been conducted into PPP projects reveals that several issues in developing and developed nations are critical in the implementation of PPP projects. These include institutional issues and appropriate planning methods, appropriate legal frameworks and regulatory issues, characteristics of PPP project contracts, desirable support by the governments, operational forecasts of functional projects, structural financial frameworks, and desirable involvement of project financiers and in the developing nations, donor support. To bring into effect all these, typical PPP frameworks and models have been identified to be critical elements specific to the specific environment where PPP projects are run (Webb & Pulle, 2002).
It has been proven in theory and practice that these models are keenly informed by private finance initiatives (PFI) where the relationship between the public and private sectors are distinguished by the services that are offered by either of the sectors. In addition to that, other defining characteristics of these models include joint venture mobilization of resources to implement PPP projects, companies that form partnerships with legislation aimed at partners companies acquiring a specific amount of shares, and franchise that is characterized by private capital investments within the concession periods (Zhang & Kumaraswamy, 2001)
Financing
The financial framework, the underlying objective and motivating force to a successful PPP project is the critical determining factor to success. Financial instruments must be judiciously selected to optimize available financial resources for a successful PPP project. Sufficient financial incentives must be made available to reinforce optimality in financial resource acquisitions (Zhang & Kumaraswamy, 2001).
Theoretical and practical evaluations of financial sources target several elements specific to providing the necessary finance for implementing PPP projects. One key component that characterizes infrastructure projects is the debt element. However, it is noted that the equity element is provided by the project promoter, the government as a critical stakeholder, and infrastructure funds that are designated for development.
In addition to that, financing of debts in the PPP partnership is commercial banks. Besides, capital markets get involved in debt repayments and national banks. One has to note that other stakeholders play a critical role in debt repayments besides those mentioned above. These include entrepreneurs, institutional investors, and equipment supplies among others. However, evaluations of the funding provided by the above stakeholders are diversely different from each other (Kettner & Martin, 1989).
Providing the prerequisite finance for investing in any PPP projects is characterized by several funding strategies. Several issues are inherently specific to the financing strategies. Typically, the engineering experts and other experts provide consultancy submitted technical and financial bids under the leadership of a financial advisor. Sanguine project managers realize that financial packages should be characterized by low capital costs with high creditability.
In addition to that, project sponsors should be exposed to minimum financial risks characterized by a reduced burden on servicing debts from generated revenue. It is important to understand and incorporate all elements that inform partners when strategizing with clearly understood market needs, the rate and average maturity of the securities used in the partnership financing, and a determined gearing ratio in respect of the capital structure (Kettner & Martin, 1989).
Risks in Public-Private Partnership
Tah and Carr (2000) notably argue that Public-private partnerships are prone to risks that are critical in the partnership’s argument. Arguments indicate that political risks are critical as uncertainties associated with political changes are unpredictable. Partnerships are sometimes prone to concessions getting discontinued the adverse effect of initiating fear and distrust besides loss of confidence in the partnerships in an unstable political environment. Industry discussions indicate that fears of rising taxes are prone to reduce the overall profitability gains by private partners compelling such firms to enter into losses where projected profits end up being diminished.
Partners are also keen to identify other types of partnership risks such as the failure by the enforcing government or agency to implement tariffs while adjusting the tariffs inappropriately to be out of tune with contractual agreements and projections. In that case, there is a rich possibility of the risks to qualify to be tagged as the inability by the designated government and other enforcement agencies to enforce appropriate government policies (Tah & Carr, 2000).
Tah and Carr (2000) identify constructions risks as being in the fold of partnership risks. One of the partners in the PPP project may provide an inappropriate product design. Such a design may translate into a costly undertaking and adversely impact the project work implementation period. On the other hand, redesigning such projects gradually leads to project delays, a risk that has an overall impact on the total project costs.
Analytically, sometimes, projects are failed by contractors, thus impacting adversely on the final expectations of the public on the project milestones and failure to meet the expectations of the public. Such risks adversely affect the relationships between project partners and those who have financed such projects and other partners in the project (Kettner & Martin, 1989).
On the other hand, industry stakeholders agree to a large extent that partners in PPP projects should be well equipped with the technology and techniques to operationally manage such projects for the benefit and to the expectations of the public. Such risks are particularly evident when the quality of PPP projects is poor and the management framework and personnel are incompetent. Thus, poor quality projects are bound to create an environment of incompetence and higher project costs with time (Kettner & Martin, 1989).
One can agree that it is important to note that risks due to legal implications particularly targeting contractual documents prone and ridden with errors as vital. Such risks are critical since the possibility of creating a lack of confidence and conflicts with partners is likely to impede project progress and overall project performance and failure to meet project expectations (Kettner & Martin, 1989).
On the other hand, risks due to inaccurate projections on the rate of return on investments are another contributing factor for the lack of confidence in such projects. It is important to note that other risks can be associated with environmental factors such as weather and war besides natural calamities that may impede the progress of a project in a PPP partnership (Tah &Carr, 2000).
However, it is important to note that sometimes risks that are likely to get into the way of these partnerships vary from one environment to the other. That is also the case with developed and developing countries (Thomas, Kalidindi & Ananthanarayanan, 2003).
Practice and theory point out feasibility as one of the risks likely to be incurred in PPP projects. That is typically about the rate of return on investment, projections on demands that are placed on the project, and cash flow particularly when a PPP project is operational. However, it has been agreed that such risks are typically linked to the government as one of the partners in the PPP project (Thomas, Kalidindi & Ananthanarayanan, 2003).
Another risk is about the acquisition or mobilization of the required finance and the arrangements on the rate of repayment of the principal sum that has been borrowed from financial institutions or funding agencies. Raising funds are risks that are specific to the private sector, as they are transferred from the government to the appropriate private sector. It at times becomes difficult to determine the amount of concession for a specific financial and accumulate costs on a specific project. That overly implies that the government gradually gets a share of the risks associated with project financing and other capital investments in the event or face of project contingencies and failures (Thomas, Kalidindi & Ananthanarayanan, 2003).
Another critical risk associated with PPP partnership is construction risks. Construction risks are related to delays and other changes that may be a result of inefficient planning and other inefficiencies that may arise in the project implantation process due to design and innovation constraints. It is important to audit such projects to verify if they measure to the expected standards and project milestones remain consistent with project goals and objectives (Thomas, Kalidindi & Ananthanarayanan, 2003).
In addition to the above risks, another risk inherent in PPP partnerships is revenue risk. Revenue risks stem from diminished demand with adversely consequent impact on the private sector to opt-out of a partnership if future projections are grim. That accumulates the grim prospects of the private sector losing out on any potential income from the partnership and investments (Thomas, Kalidindi & Ananthanarayanan, 2003).
Others are risks due to stochastic variables such as natural disasters, changing political environments, and changes in technological innovations. In addition to that, termination risks due to the failure of project partners and other stakeholders to complete a project due to bankruptcy, management incompetence, poor performance, and failure to meet debt and financing obligations. That, of course, might have been due to improper procedures for identifying partners and other related issues. On the other hand, residual risks arise due to the transfer of a project to the public or the designated party (Thomas, Kalidindi & Ananthanarayanan, 2003).
A document needs to be prepared when an audit of risks and uncertainties projected to be incurred is being identified and evaluated. That, in particular, is due to the concessionaries, project financiers, and providers of the requisite technology for the construction of the civil engineering public infrastructure projects. That applies to PPP projects in both developing and developed nations. However, further discussions below will bring out the difference between PPP projects in developing and developed nations (Thomas, Kalidindi & Ananthanarayanan, 2003).
PPP in Developing and Developed Nations
Developed and developing nations show a clear difference in PPP projects It is evident that developed countries like Germany comparatively evaluate PPP projects based on the value for money in comparison with the traditional procurement approaches. It essentially involves an intense evaluation of the PPP projects based on net present value (NPV) techniques which cover the costs incurred in the development of PPP projects. In addition to that, other costs incurred that are factored in the NPV calculations include insurance costs, the cost of designing such projects, maintenance of such projects, and the cost of financing PPP projects (Rumelt, 1984).
On the other hand, in developing nations, PPP projects are run by expertise from developed nations. Bidding is competitively done by international infrastructure companies and the partnerships are prone to political risks as discussed elsewhere.
Advantages
Civil engineering projects are characteristically capital intensive besides placing demands on the need to invest skills and other technical requirements reinforced by a widely cultivated experience in the construction industry. However, these projects are worth investing in due to a range of benefits that endear the public and the private sector to invest in PPP projects. In addition to that, it is important to note that such advantages are the driving force behind the justification to invest in PPP projects (Soetanto & Proverbs, 2004).
Given risks associated with civil engineering projects with particular emphasis on efficiency in gains due to the partnerships, the government as a major stakeholder is freed from the responsibility of providing funds for project implementation, thus relieving the government of such expenditure from its balance sheet. In addition to that, PPP invites the advantage due to competition, making services offered of desirable quality (Rumelt, 1984).
On the other hand, industry arguments indicate that managerial practices that characterize the private sector are critical in being exploited to the benefit of the government in the efficient allocation and use of resources. However, other authors argue that the private sector provides models for restructuring the public sector to tailor it for efficient delivery of services to the expectations of the public (Rumelt, 1984).
Research on the driving and motivating force behind the adoption of PPP projects is the efficient and sustainable use of public savings with the underlying element of efficiency as a critical element.
Analytically, governments in the developed and developing nations see the savings due to PPP projects as a driving and motivating force towards the adoption of PPP projects. That has also been identified to be supportive of the fact that gains that are efficiently delivered are due to the transfer of risks particularly to the private sector, the nature of contracts that are long term, performance-based payments, incentive structures, services specifications that are based on outputs, competitive bidding for available projects, procurement processes that rely on incorporate feedback, administrative and other minimal costs, and managerial functions that are polished due to private sector competence (Zhang & Kumaraswamy, 2001).
On another hand, private sectors are characterized by commercial disciplines that inhibit such risks as cost overruns, a comparatively smaller size of project personnel who are efficiently vetted to their positions in terms of knowledge, skills, and experience, thus drawing heavily on their productivity in factoring efficiency in PPP projects and partnerships (Zhang & Kumaraswamy, 2001).
Analytically, a keen evaluation of public-private partnerships indicates that the approach is advantaged as optimization of resources in infrastructure developments leaving the government to concentrate in specific areas where its competence is unrivaled. In addition to that, the government does not invest resources in areas it has little or no expertise. Findings from several types of research indicate that the optimal use of data and proactive use of intellectual property rights engender productivity and complete utilization of available resources for the provision of quality services. Based on the economic benefits and associated advantages inherent in public-private partnerships, several opportunities have been identified by investors in the field of infrastructure development (Rumelt, 1984)
Opportunities
Investors are always keen to identify available opportunities for investment purposes. That is the case with international and domestic partners in addition to considering such opportunities in developing and developed countries.
However, partners in PPP projects have individual interests at heart. Financiers are interested in typical project risks while private partners show more interest in the available opportunities and the associated benefits. It has been sanguinely argued that opportunities available in developing and developed nations include the shifting of funding from the government as the major stakeholder in the public service to the private sector. Such an opportunity affords the government not to appreciate taxes to the public that may be necessitated to raise the necessary capital. That leads to the improvement of the public sector services and due to the competent attributes of the private sector (Williamson, 1980).
Probability and observations indicate that PPP projects are prone to certain kinds of risks that have to be mitigated before project commencement and completion besides risks associated with the implementation process. However, it has been noted that such projects experience a transfer of risks and uncertainties to appropriate stakeholders and the possibility for incentives being provided by the public sector for involvement in such projects defines critical opportunities about the latter variable (Rumelt, 1984).
One of the key elements that define opportunities in the infrastructure industry defined by a partnership approach includes the construction of major road networks. Such capital-intensive projects attract several bidders from the international and domestic firms in developing and developed nations (Delmon, 2000).
Another opportunity is available in the development of hospitals. Here, standardized documents are provided to bidders in the procurement process to ensure fair play. That is the case with competitive bidding for the construction of hospitals in British Columbia. However, it is worth noting that despite the opportunities in British Columbia for the construction of hospitals, many liabilities had been incurred where hospitals were completely unable to secure appropriate coverage. Despite that, the Government of Canada has over the years demonstrated its commitment to PPP in developing the much-needed infrastructure projects (Thomas, Kalidindi & Ananthanarayanan, 2003).
One can critically argue that emerging economies provide a strong base of opportunities for the development of infrastructure because much of the infrastructure is now under development. However, the downside of these economies is the risks associated with the unpredictable changes of governments and political instabilities (Delmon, 2000). However, these problems or disadvantages associated with PPP projects can only afford a further discussion to clearly understand their impact on PPP projects. Therefore, despite the number of advantages and opportunities highlighted above, practitioners agree that PPP sometimes comes with several disadvantages (Thomas, Kalidindi & Ananthanarayanan, 2003).
Disadvantages
These disadvantages can either be universal or localized depending on the area of application. Detailed research has shown that procurements in tendering and negotiation are a complicated issue due to the provision for possible contingencies commonly evident in contractual agreements that last for long periods during project implementation. Noteworthy are the facts that resources are spent on project design and evaluation to study the feasibility of the project. On the other hand, PPP suffers from high legal charges when conducting negotiations. Experience has shown that 3% of the total costs end up paying for tendering costs while traditional procurement methods only consume 1% of project costs. One other approach to tendering costs includes both successful and unsuccessful tendering (Rumelt, 1984) and (Delmon, 2000).
Another PPP disadvantage is related to performance enforcement. Typically, it has been proven that it is difficult to establish benchmarks for service delivery that suitably meet quality services to meet customer expectations. Such issues impact the overall goodwill of partners and gradually diminish the ability of any contractual partner to obtain contracts in the future. Experience indicates that different stages of PPP projects suffer from different performance specifications and expectations (Webb & Pulle, 2002).
Another disadvantage inherent with PPP projects is political acceptability. Inflation and other financial factors affect the ability to model and calculate with accuracy to calculate financial outcomes with the possible risk of the private partner making exponential profits or ending up becoming bankrupt. Examples abound of such characteristics define the outcome of PPP projects. That was the case with the British government which bailed out the National Air Traffic Services (Williamson, 1980).
Mitigating and Enhancing Public-Private Partnerships
Therefore, the need to mitigate the disadvantages inherent in public-private partnerships is vital. That is partly because of the capital-intensive nature of such projects and other risks that are associated with public-private partnerships in implementing infrastructure projects besides their complexities. One approach for mitigating the risks inherent in such partnerships is establishing contractual agreements that are legally binding to any party involved in the partnership and enforceable by law.
In addition to that, contingency measures need to be factored in the partnerships to ensure risks due to the failure of a partner to play the assigned role in project development shields other partners from the adverse impact of the loss of a partner in the partnership. That implies that conflicts can be averted if participants have a clearly defined and documented conflict resolution procedure (Tah & Carr, 2000).
On the other hand, there should be clearly defined risk transfer mechanisms, clear involvement of insurance companies though insurance premiums are high. In addition to that, measures to cap project interruptions and other risks should be identified and enforced (Zhang & Kumaraswamy, 2001).
It is important to critically evaluate bidders projected to be project participants at earlier stages in the procurement process to ensure competent participants in project implementation progress. That should also be the case with firms interested in international partnerships (Osborne, 2000).
On the other hand, these projects are prone to risks, and mitigating such risks involves conducting risk identification, risk mitigation, and risk assessments to create a typical mitigation approach. To mitigate against these risks and enhance the abilities of participants to minimize the impact their impact, financial packages are critically tailored to address the risks associated with developing infrastructure in developing nations. Based on experience and research, it has been established that risk and financial profiles be established to critically identify financial sources and directly link the sources with each project development lifecycle (Zhang & Kumaraswamy, 2001).
Risk identification, risk assessment, risk mitigation, and risk allocation should be conducted with a well-tailored risk management strategy involving experienced and well-skilled personnel as a collaborative effort between the government and the private partner (Kettner & Martin, 1989).
Developing and developed nations have different risk profiles and the need to conduct thorough risk identification typical of the specific country and infrastructure profile of the target country and the specific infrastructure project provides precise information about the risks associated with each project (Osborne, 2000).
Conclusion
A public-private partnership (PPP) defines the relationship between the private and public sectors, thus, characterizing PPP with an innovative approach to PPP, service provisions that are largely long term, the shifting of risks to the private sector by the government, and contractual agreements between legal private and the public entities. On the other hand, due, therefore, to the risks and uncertainties that PPP projects are prone to, the need for competent partners in the public-private partnerships is critically important thus, emphasizing the need for the partners to be thoroughly vetted through a rigorous procurement process.
PPP projects, therefore, have been the current trend in infrastructure development both in developing and developed countries, though international and domestic PPP differed between developed and developing countries. Partnerships between the public and the private sector have in the recent past has been the way due to the benefits characterizing these partnerships. The benefits are largely the motivating factors behind these partnerships between the private and public sectors.
The private sector sees a myriad of opportunities in PPP infrastructure projects while the government, the sole steward of public services, finds it convenient to transfer the risks and uncertainties inherent in the infrastructure industry. In addition to that, governments are sometimes limited in terms of skilled and experienced manpower and managerial disciplines, besides the ability to mobilize and efficiently use available resources to implement PPP projects. Despite the disadvantages that characterize public-private partnerships, mitigations and enhancement of the benefits lead to better public-private partnerships reinforcing the fact that PPP models are the way to go.
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