This article was first published in Fraser Forum, a Fraser Institute review of public policy in Canada, July/August 2013. It is copyright to the Fraser Institute and authors Charles Lammam and Hugh MacIntyre. The article is republished here with permission, January 2014.

Editor's Note | Introduction | How P3s Work 
Profit and Risk | P3s in Canada | References

How P3s Work

In the conventional way of providing infrastructure, the government manages and procures each phase of the project separately. The government typically hires a firm to build the infrastructure based on a prescriptive design and then assumes responsibility for operating and maintaining the infrastructure, perhaps outsourcing some aspects of care to private companies.

In P3s, the government partners with the private sector to share the risks and rewards of providing public infrastructure. The government agency involved in the project establishes the project goals and desired outcomes (without being prescriptive about the means) while a consortium of private companies takes on the task of achieving them. A single private partner assumes stewardship of the project and responsibility for multiple tasks. Table 1 summarizes the key differences between P3s and the conventional method.

Table 1: Key differences between public-private partnerships and conventional procurement

Public-Private Partnerships (P3s)

Conventional procurement

Integration of multiple project phases

Each project phase procured separately

Contract sets desired outcomes

Contract dictates means of delivery

Payment conditional on delivery

Regular payments throughout construction

Up-front costs financed mostly by private sector

Up-front costs financed mostly by public sector

Private-sector management

Public-sector management

Source: Adapted from lacobacci (2010)

Consider a hypothetical example wherein a provincial government wants to partner with the private sector to build a highway. The government would decide on strategic matters such as the route, traffic flow, and measurable safety outcomes. The private partner then designs, builds, and usually operates and maintains the highway according to the government's requirements. The private partner gets paid directly by the government or through tolls paid by drivers.

The provincial government still owns the highway and is ultimately responsible for ensuring adequate services. The point of a P3 is to harness the innovative capacity, efficiency, and expertise of the private sector for achieving the public sector's ends.

Introduction  Introduction

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