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Some type Government involvement and regulation, Nguyen (2009) asserts, proves critical to helping ensure the private sector r thrives. Many of world's leading economies concur that Governments must be involved to best manage their country's economy.
Control, however, needs to extend beyond the control and regulation of the private sector per se. For the country's overall development, the better process includes the synergies of both private and public sectors being harnessed. The private sector, for example trials the government in wind power and solar power projects. Government authorities, albeit, cannot finance these efforts on their own. As the quote introducing the review of literature asserts, when the public and private sector partner, this proves to be the way forward.
The basic premise behind public-private partnerships is a division of resources and expertise. One sector alone might not be able to handle a particular project on its own, which calls for a combination of financial and other resources to implement it.
The process minimizes delays, cuts costs and offers both sectors to share their knowledge and experience for the country's benefit.
Public-private partnerships are also evident in telecom, health, education and infrastructure development. Many private sector companies are also engaged in corporate social responsibility programs through the Government (Public-private…, 2009, ¶ 7-8; ¶ 10).
A number of risks link to public-private highway partnership agreements. In the journal article, "GAO Report Warns of Risks in Public-Private Partnerships," Eric Miller (2008), Staff Reporter, explains that a February 8, 2008 Government Accountability Office (GAO) study finds that risks range from the implementation of higher tolls, to traffic diversion to inflexible political opposition to potential tax losses. "Highway public-private partnership agreements are not 'risk free,' and concerns have been raised about how well the public interest has been evaluated and protected" (Public-private…, 2009, ¶ 2). The GAO office contends that although highway public-private partnerships prove positive for state and local governments, with benefits like acquiring new facilities and value from existing facilities without having to utilize public funding - no "free" money exists in public-private partnerships. PPPs involve a number of potential costs and trade-offs.
Components of Public-Private Partnership (PPP)
Jeffrey N. Buxbaum and Iris N. Ortiz (2009), both with the National Research Council (U.S.). Transportation, define PPP in the publication, National Cooperative Highway Research Program, American Association of State Highway and Transportation Officials, United States. Federal Highway Administration. The U.S. DOT's report to Congress states: A PPP comprises "a contractual agreement formed between public and private sector partners, & #8230;[allows] more private sector participation than… traditional. The agreements usually involve a government agency contracting with a private company to renovate, construct, operate, maintain, and/or manage a facility or system" (Buxbaum & Ortiz, p. 7). The public sector generally retains ownership in the facility or system. The private party receives supplementary decision rights to determine how managers will complete the project or task. Table 1 shows a number of definitions relating to a number of various approaches to infrastructure development when operating a facility or system.
Table 1: Alternative Approaches to Infrastructure Development (Buxbaum & Ortiz, p. 8).
Traditional Approach (non-PPP)
The traditional method of project delivery in which the design and construction are awarded separately and sequentially to private firms..
Combines the design and construction phases into a single-fixed fee contact, thus potentially saving time and cost, improving quality, and sharing risk more equitably than the DBB method.
Private Contract Fee Services/Maintenance Contract
Contracts to private companies for services typically performed in-house (planning and environmental studies program and financial management, operations and a maintenance, etc.)
Construction Manager @ Risk (CM @ R)
A contracted construction manager (CM) provides constructability, and pricing, and sequencing analysis during the design phase. The design teammate is contracted separately. The CM stays on through the build the base and can negotiate with construction firms to implement the design.
Design-Build with a Warranty
A DB and project for which the design builder guarantees to meet material workmanship and/or performance measures for a specified period after the project has been delivered.
Design-Build- Operate-Maintain (DBOM), Build- Operate-Transfer (DOT), or Build- Transfer-Operate (BTO)
The selected contractor designs, constructs, operates, and maintains this facility for a specified period of time meeting specified performance requirements. These delivery approaches increase incentives for high quality projects because the contractor is responsible for operation of the facility after construction. In the public sector retains financial risk, and compensation to the private partner can be in the form of availability payments.
Design-Build- Finance (DBF), Design- Build- Finance-Operate (DBFO) or Design-Build-Finance- Operate-Maintain (DBOFM)
DBF, DBFO, and DBFOM are variations of the DB or DBOM methods for which the private partner provides some are all of the project financing. The project sponsor retains ownership of the facility. Private sector compensation can be in the form of tolls (both traffic and revenue risk transfer) or through shadow tolls (traffic risk transfer only).
Long-Term Lease Agreement/Concessions (brownfield)
Publicly financed existing facilities are leased to private sector concessionaires for specific time periods. The concessionaire may pay eat an upfront fee to the public agency in return for revenue generated by the facility. The concessionaire must operate and maintain the facility and may be required to make capital improvements
Design construction, operation, and maintenance of the facility are the responsibility of the contractor. The contractor owns the end facility and retains all operating and revenue risk in surplus revenues for the life of the facility. The Build-Own-Operate-Transfer (BOOT) method is similar, but the infrastructure is transferred to the public agency after a specified time.
Public entity fully transfers ownership of publicly financed facilities to the private sector indefinitely.
Expressions such as BOT, BTO, DBFO as well as variations of these acronyms, primarily reflecting the point when legal ownership of the Facility transfers from the Project Company to the Public Authority, or, if the Project Company never legally owns the Facility, the nature of its legal interest, like a property lease or simply a right to operate E.R. Yescombe (2007) asserts in the book, Public-private partnerships: principles of policy and finance, that one may classify PPPs "by the legal nature of private-sector involvement in the Facility, using such distinctions are legal technicalities and do not affect the commercial and financial reality that PPP facilities are public-sector assets with cannot normally sold off to the private sector (p. 13). It proves more beneficial to classify PPPs, albeit, on the service and risk transfer nature inherent in the PPP contract. Based on this criteria, one can split PPPs into the following two primary categories:
2. availability-based. (Yescombe, 2007, p. 13)
The availability-based PPPs may be further divided into the following three major sub-categories:
2. equipment, systems or networks, and
3. process plant. (Yescombe, 2007, p. 13)
Table 2 depicts a number of diverse types of PPPs Yescombe (2007) describes.
Table 2: Various Types of PPPs (Yescombe, 2007, p. 12).
Design-Build Finance-Operate (DBFO)
Build-Operate Transfer (BOT)
Private Sector during construction, then Public Sector
Private Sector during Contract, then Public Sector
Public Sector or Users
Public Sector or Users
Public Sector or Users
Private-Sector offtaker Public Sector or users
Who is paid?
Risk comprises a reality, whether in PPPs, or private or public projects. Garry Downs and Hugh Kettle (2008), partners with Bell Gully, purport in the journal article, "Effective risk allocation in infrastructure projects," that "proactive risk identification and allocation is an essential planning tool in the successful delivery of major infrastructure project" (p. 1). Downs and Kettle stress that in PPPs, one needs to "manage the risks and the money will look after itself." (p. 1). This simplification asserts that the quality execution of an infrastructure project, which includes the successful management of risks, embraces one critical key to unlocking the project's success or failure.
Downs and Kettle (2008) explain that when risk materialize, stakeholders must either invest time, cost and resources to restore the project back to previous anticipated outcomes or face having to accept a reduced rate of return of the service delivery level. Risk, according to Downs and Kettle constitutes: The "chance of the event occurring which means actual project outcomes differ from those assumed." Basically optimal risk allocation involves extending confidence to stakeholders regarding the following two considerations.
1. From the sponsor or owner's perspective, that the desired outcomes of the project will be delivered. In a road… PPP this might be commuters having a…[continue]
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