Models of Public-Private Partnerships
The following terms are developed from commonly used terms to describe PPP agreements in Canada (www.pppcouncil.ca/aboutPPP_definition.asp). Several terms have been added from international experience. This should not be considered a definitive or complete listing and may be augmented.
- Design-Build (DB) or “Turnkey” contract: The private sector designs and builds infrastructure to meet public sector performance specifications, often for a fixed price, so the risk of cost overruns is transferred to the private sector. (Many do not consider DB's to be within the spectrum of PPP's).
- Service Provision (e.g., Specific customer services or operation & maintenance) contract: A private operator, under contract, operates a publicly-owned asset for a specified term. Ownership of the asset remains with the public entity.
- Management contract: A private entity contracts to management a Government owned entity and manages the marketing and provision of a service.
- Lease and operate contract: A private operator contracts to lease and assume all management and operation of a government owned facility and associated services, and may invest further in developing the service and provide the service for a fixed term.
- Design-Build-Finance-Operate (DBFO): The private sector designs, finances and constructs a new facility under a long-term lease, and operates the facility during the term of the lease. The private partner transfers the new facility to the public sector at the end of the lease term.
- Build-Operate-Transfer (BOT): A private entity receives a franchise to finance, design, build and operate a facility (and to charge user fees) for a specified period, after which ownership is transferred back to the public sector. This has been used in telecommunications service contracts.
- Buy-Build-Operate (BBO): Transfer of a public asset to a private or quasi-public entity usually under contract that the assets are to be upgraded and operated for a specified period of time. Public control is exercised through the contract at the time of transfer.
- Build-Own-Operate (BOO): The private sector finances, builds, owns and operates a facility or service in perpetuity. The public constraints are stated in the original agreement and through on-going regulatory obligations.
- Operating License: A private operator receives a license or rights to build and operate a public service, usually for a specified term. Similar to BBO arrangement. This is often used in telecommunications and ICT projects.
- Finance Only: A private entity, usually a financial services company, funds a project directly or uses various mechanisms such as a long-term lease or bond issue.
The following table provides a further description of the features of some of the above:
The diagram below shows several familiar build and service arrangements, from a pure contract for professional services (i.e. low private sector investment or risk) to assumption of full project risk (i.e., a concession or licence) where government’s role is at most to provide a subsidy or payment for service.