A PPP is a contract between a public entity and a private party in which the private party provides a public service or project and assumes a substantial financial and operational risk in the project. This agreement between the government and the private sector is usually associated with the provision of public services or infrastructure. It’s a way of bringing together public needs and wants with the skills and talents of the private sector, thus relieving the government of the burden of large capital expenditure, and transferring the risk of cost overruns to the private partner. In other words, government and businesses work together to provide the services that are required by the public.
Typically, a private-sector consortium forms a “special purpose vehicle” (SPV) to develop, build, maintain, and operate the asset for a contracted period of time. This SPV company usually includes a contractor/developer, a maintenance company, and a lender. The SPV signs a contract with the government and the subcontractors, builds the facility, and then maintains it through the term of the contract or lease.
For example, in the wonderful city of OZ, there’s a dilapidated courthouse that is not only inadequate but dangerous for the people of OZ. The wizard of OZ would like to build a new facility for the community but has no money so he calls upon Mr. Money Bag. Money builds the new courthouse on a beautiful parcel of land in downtown OZ and then leases the property back to the city at an amount that the city can afford.
Over the last forty years, and especially recently, there’s been a pressure for many countries to change the standard model of public procurement due to concerns regarding the public debt (imagine that).
To sum this up: governments at all levels don’t have any money and therefore need “help” from the private sector!
Let’s look at a few related headlines;
“White House hoping to avoid shutdown, but has contingency plans
By Sam Youngman – 02/22/11 12:41 PM ET
The administration is ready with contingency plans in the event of a government shutdown, the White House said Tuesday.”
I don’t see whey anyone should panic; the projected U.S. deficit this year is only $1.65 TRILLLLLLLLIONNNNNN.
And closer to home in Arizona (from AZcentral.com):
“The State’s uncertain budget outlook has prompted Moody’s Investor Service to downgrade Arizona’s debt outlook to “negative” from “stable.” Moody’s, a rating agency, kept the state’s overall debt rating at Aa3, which is in the “excellent” category, but cautioned that uncertainty over the looming 2012 fiscal year darkened its view of the state’s outlook. Specifically, the agency cited the loss of federal stimulus dollars, which expire at the June 30 end of this fiscal year, as well as the State’s reliance on a Medicaid waiver to balance its budget. There is no guarantee that the waiver, which Gov. Jan Brewer officially requested last month, will be granted. If not, Arizona must find $541 million to balance its 2012 budget, which already faces a projected deficit of $1.1 billion.”
Do you see any opportunities here?
PPPs have been around for a while and have proven to be very successful. The British Government has used PPPs to finance the building of schools, hospitals, for defense contracts, and specific capital projects such as the Channel Tunnel Rail Link, the National Air Traffic Services, and improvements to the London Underground.
Over the past two decade,s more than 1,400 PPP deals were completed in the European Union, which represented a capital value of approximately 260 billion euros.
Governments all over the world have come to rely on public-private partnerships as a means for the delivery of long-term infrastructure assets and related services.
If you are interested in finding out more about PPPs and/or getting involved in one, feel free to call or email me. FBN
Mark T. Belsanti, CCIM is owner/agent of da Vinci Realty, LLC. He can be reached at 928-779-3800 Flagstaff, 928-254-1770 Sedona, ” email@example.com.
You can view da Vinci Realty’s website at www.davincirealty.com to view his listings and read past articles.