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INTRODUCTION TO PUBLIC-PRIVATE PARTNERSHIPS.

WHAT ARE THE MAJOR FEATURES OF PROJECT DELIVERY METHODS?

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PPPs are arrangements where private parties participate in (or provide support for) the provision of infrastructure. Four major features that are common to PPPs are: 1) a contract developed by the public sector specifying operating services 2) an initial asset transfer from the public sector to the private (with long-term contracts ranging in length from 20-99 years 3) development by the private sector  4) a final transfer of the property back to the public sector.


WHAT ARE THE RISKS AND RESPONSIBILITIES OF PPPS IN COMPARISON TO OTHER PROJECT
DELIVERY METHODS?

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Project delivery methods differ on the level of responsibility a private entity is given. Typically, a project delivery method that transfers more responsibility onto the private entity also transfers more financial risk. PPPs such as build-own-operate and build-operate-transer are no exception. While these project delivery methods allow the private sector more responsibility in financing, designing, building and operating the project these methods also assign more financial risk to the private sector.


DO PPPS PROVIDE EXTRA VALUE FOR MONEY?

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The risk and responsibility transfer to private entities in PPPs is an attempt by public entities to exchange extra value for money. With more capital at stake, private entities are motivated to resolve solutions quickly and effectively to mitigate financial overruns while still maintaining the value of the project. To that end, value for money in PPPs is driven mainly by the transferal of project risks from the public to the private sector. Thus, value for money is achieved when risk transfer through the PPP outweighs the typically higher base costs, transaction costs, and financing costs associated with the PPP model.

 

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