Determining if PPPs fit

Three basic elements must be present to proceed with developing a PPP:

The public organization also must have the skill set to organize a PPP. This is a different form of procurement and may require outside expertise until a sufficient level of understanding of the process is developed internally. Advisors are used even by public agencies with advanced experience in the development of PPPs, and those advisors often have a significant positive impact on the bottom line for any partnership agreement.

Once cities and counties have decided on the PPP approach, there are a few things to consider before issuing the request for proposals (RFP). If a publicly held asset is going to be used to leverage some of the project funding, an objective market analysis is appropriate. All too often, the perception of value of some assets is actually well below the actual commercial value. Cities and counties also should provide a clear delineation of how the asset will be evaluated because that can be an important factor in the private sector’s decision to offer a proposal. An open and transparent process with a definite timeline for decision is what they will be seeking.

The decision should be made on the basis of best value (looking at the full lifecycle costs of the project), and not lowest price, and that should be spelled out in the RFP. Finally, the RFP should specify performance standards and clear measurable metrics, and leave the specifics of the design to the private sector. This often leads to some surprising responses that prove to not only be the most cost effective but also can satisfy a number of your objectives.

Some cities and counties issue a request for interest (RFI) or request for qualifications (RFQ) to a broad group, which can be narrowed down to a smaller portion that actually receive the RFP. In this way, cities and counties cast a broad net but limit the number of proposals that have to be evaluated.

The next step is another one where an advisor can be most valuable — the actual negotiation of a contract. In this step, risks are allocated to each partner in the most cost-effective way that simultaneously protects the public interest.

Then finally, when the contract has been signed and the partnership is under way, the public sector cannot walk away. Instead, oversight and monitoring is important to assure contract compliance. In a true partnership, this is a cooperative approach, with both sides working to resolve any questions that emerge.

PPPs are not easy, but they can provide great value when applied to the appropriate projects. While PPPs do not work for every project, the ones using a cooperative approach can free up resources for others that do not fit the traditional model.

Rick Norment is the executive director of the National Council for Public-Private Partnerships in Arlington, Va. Contact him at [email protected] or 703.469.2233. Case studies, papers, academic studies and more are available at www.ncppp.org.