Frequently Asked Questions
What is P3?
P3 stands for public-private partnership. It is an agreement between a public or government entity and a private company or companies to complete a project. These projects typically involve public infrastructure such as roads and bridges, college dorms, waste water treatment plants and parks or arts centers – just to name a few..
How does a P3 project differ from how public projects have been built traditionally?
Under the traditional model, the government or public entity controls all phases of a project: design, construction, finance, operations and maintenance. It may hire contractors to design and build a project.
Under P3, a private-sector entity (possibly a group of private companies) are responsible for any or all phases of the project, depending on how the partnership is structured.
Some people consider the government’s hiring of a private contractor to design and build a project for a set price to be a basic P3. However, P3s can be set up in a variety of ways. The private entity can simply design, build and finance a project, with the government or public entity retaining responsibility for operations and maintenance. Or, the agreement can be structured so the private partner also operates and maintains the project that it designs, finances and builds.
How does P3 financing work? How is it different from how a government typically finances road or other infrastructure projects?
P3 financing typically involves a combination of government funds, federally backed loans and private commercial debt.
The private partner assumes the risk for financing the project, through lenders and/or equity investors. The private partner does not “fund,” or pay for, the project.
The government/public entity then pays the partner, usually from one or more of these sources: federal and/or state funds from taxes collected, user charges such as tolls or transit fares or bonds. With a bond, investors – be they companies, financial institutions or individuals – effectively lend the government money by buying the bonds. Your IRA, mutual fund or pension fund might hold government bonds.
Aren’t private companies less accountable than governments to the public?
The government agencies that hire private companies monitor those companies. The government may set performance benchmarks, require documentation, etc.
Do public employees lose jobs when services are contracted out to private companies?
No. In a 2001 report, the U.S. Department of Labor looked a P3s in 34 cities and counties and found that nearly all the affected public employees were either hired by private contractors or transferred to other government positions.
Don’t private companies take short cuts in providing services to increase profits?
Just like any successful business owner wants to keep customers satisfied, so to do the private partners in a P3. If private partners want to continue to do P3 deals, they must keep their government partners and their constituents (the voting public) happy by delivering value, dependability and high quality. The profits come from increased efficiencies, economies of scale and long-term financing that might not be available to government entities. Many P3 agreements include performance benchmarks, a deterrent to cutting corners.