Public-Private Partnerships

Abstract

Public-private partnerships (PPPs) are agreements between the public and private sectors for the provision of assets and/ or services such as power, water, transportation, education, and health. Unlike traditional procurement contracts, PPPs allocate risks between the partners and create efficiency incentives for the service provider by linking payments to specific performance criteria. For example, a PPP for road maintenance specifies a target road surface quality to be maintained over a given period of time. In contrast, a traditional road maintenance contract provides for payment against a number of potholes or kilometers of road resurfaced. In the traditional model, the risks remain with the purchaser, and there are few efficiency incentives. In the PPP model, if the contractor does not ensure that road surfaces are maintained to the standards specified in the maintenance contract, payment could be withheld.