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Implication of Public-Private Partnerships in Construction

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Submitted:

31 August 2024

Posted:

02 September 2024

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Abstract
Public-Private Partnerships (P3 or PPPs) have been utilized and studied more frequently over the past couple of decades for both infrastructure projects and building development projects. Based upon the records of the outcomes of these projects there is a plethora of data that demonstrates the benefits and challenges that this delivery method poses. As the name suggests, these partnerships allow for public goals to become realized while also providing opportunities for the private sector to gain business success. These two often divergent interests are finding mutual benefit but the process of compromises also comes with some disadvantages that should be understood in order to make decision of whether the risk/reward equation works for all stakeholders. In particular, this paper will focus on how PPPs affect the construction aspects of projects and will assert how to understand the risks and evaluate the benefits from a construction perspective.
Keywords: 
Public-Private Partnerships
;  
Construction
;  
P3
;  
Infrastructure
;  
Building
;  
Public
Subject: 
Engineering  -   Architecture, Building and Construction

Introduction and Scope

Public-Private Partnerships are used to bring complex projects to fruition that serve a public need and they presume to leverage the expertise and efficiency of private businesses and experienced general contractors. Essentially, PPPs were conceived as a way of mitigating the risks to the government entities and granting the private sector various financial or regulatory incentives. On the construction side of PPPs there comes multiple unique factors that bring benefits and challenges that are needed to be understood before taking on these projects. This paper takes on the task of outlining this aspect of these projects by looking at the research that analyzes the structure of these deals as a whole and will extrapolate how this impacts the construction arm in these complex situations. Public-private partnerships offer well-known advantages and disadvantages to the private owners and the public entities but not as much research into the impacts on the general contractor. That is the purpose of this work [1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17,18,19,20,21,22,23,24,25,26,27,28,29,30,31,32,33,34,35].
Existing research into public-private partnerships looks at the history of international infrastructure and building projects as a source of ‘lessons learned’ that can lend wisdom to future endeavors. In addition to the historical knowledge, there is much written about the theoretical underpinnings of these arrangements, goals, and objectives. Digging into this research, this essay will strive to find the issues that affect the construction processes for PPPs. The construction or implementation phase has been given the back seat to a focus on the pre-development, planning, and financial workings of these deals. Likewise, discussions of public-private partnerships often look at infrastructure projects which make up the bulk of precedents (Figure 1) [30,31,32,33,34,35,36,37,38,39,40,41,42,43,44,45,46,47,48,49,50].
However, there is also an abundance of building development projects that should be studied as well. Research studies on these types of building projects were not readily available. Regardless of this distinction between types of projects, the theory and practice of public-private partnerships can be evaluated as a general whole to understand how the relationships work between stakeholders. By breaking apart the various phases of a project, the areas of advantages and disadvantages can be dissected. This article will mention the planning and pre-development segments but will emphasize the aspects that most impact the implementation or construction phase [45,46,47,48,49,50,51,52,53,54,55,56,57,58,59,60,61,62,63,64,65,66,67,68,69,70].
Nonetheless, researchers review the use of public-private partnerships in European countries to create hospitals. This discussion shows mixed results for these complex projects where the government is trying to reduce upfront capital expenditure and the private partner is striving for efficiency and profit. This research will analyze the general structure and implications of PPP relationships and their advantages and disadvantages for the construction arm of the team [50,51,52,53,54,55,56,57,58,59,60,61,62,63,64,65,66,67,68,69,70,71,72,73,74,75,76,77,78,79,80].

Reason for Public-Private Partnerships

PPPs were introduced as a way to deliver large infrastructure projects and complex public developments that pose problems for the public sector to attain on its own. Public entities often do not have the capabilities nor funding to bring to fruition. Government agencies are known for extreme inefficiencies in performing work while private business strives for successful project delivery with a focus on financial success. Private companies specialize in development and have the resources to ensure a more efficient delivery. The concept that underpins many PPPs is known as Value for Money (VFM). VFM is defined as creating a much-needed product at a good price and is embodied in the conception of most PPPs. Traditionally, PPPs have been focused on infrastructure projects such as roadways and waterways. These types of projects tend to be more knowable from a construction perspective and the general contracting group would be more familiar with the intricacies of the scope [60,61,62,63,64,65,66,67,68,69,70,71,72,73,74,75,76,77,78,79,80,81,82,83,84,85,86,87,88,89,90].
More and more, PPPs are also being utilized for building projects. Some take the form of mixed-use public/private facilities such as a train station, food hall, and hotel development for a main street project. Others may include some public financing and tax relief for low-income housing. Examples found in research articles also include schools and prisons. In each case, the local governmental agencies provide financial incentives to help bolster a need or a vision that they could not achieve on their own. Also, governments are not meant to be profit centers as this conflicts with their purpose to serve the public good. Therefore, by partnering with private sector business they can avoid this inherent conflict of interest and still achieve political and social benefits [70,71,72,73,74,75,76,77,78,79,80,81,82,83,84,85,86,87,88,89,90,91,92,93,94,95].
Public-private partnerships take several forms. The delivery methods can be described as Design, Build, Finance, and Maintain (DBFM) or Design, Build, Finance, Operate (DBFO) or Design, Build, Finance, Maintain, and Operate (DBFMO). These various structures demonstrate how the private partner in these deals is able to draw revenue and profit once complete. An example of this would be toll roads where the private group will ultimately operate and maintain the roads and receive the tolls as cash flow [80,81,82,83,84,85,86,87,88,89,90,91,92,93,94,95,96,97,98,99,100].
Another important benefit for adopting the PPP delivery method remains that these projects may hold the key to attaining project feasibility in turbulent economic times – i.e. when traditional financing may not be readily available. This works both ways for both the public and private partners. Governments may look to PPP projects during strong economic times when they don’t have all the capital for these projects while private companies would look to them during challenging times. Being involved in these projects helps to diversify the workload so that you can insulate against a volatile economy [85,86,87,88,89,90,91,92,93,94,95,96,97,98,99,100,101,102].

Risks in PPPs

Risks involved in PPPs include technical, operating, financial, regulatory and political, force majeure, environmental, and construction. Of these, the construction team is more susceptible for only a handful. The technical risk stems from the architectural design and engineering of a project and the contractor having experience and expertise in the type of project and procurement methods. Regulatory and political risks can arise from a change in elected officials or changing governmental policies that could alter or kill a project. The contractor suffers when they have invested time in a project only to find the terms and scope have changed. Construction risk obviously affects the general contractor but this is the one that they are most equipped to handle [70,71,72,73,74,75,76,77,78,79,80,81,82,83,84,85,86,87,88,89,90].
Public Private Partnerships are intended to improve the value for money for public projects. This proposition is contingent upon the ability of each entity in the partnership to work efficiently and bring the project to a successful conclusion. The general contractor becomes responsible for turning the planning into a reality through effective construction processes. PPPs do not represent a traditional delivery method throughout each phase of the project and the expectation is that there will be better schedule and cost performance. General contractors involved in the team should have experience in this area or they should feel comfortable adopting new methods outside of the norms of traditional construction [100,101,102,103,104,105,106,107,108,109,110,111,112,113,114,115,116,117,118,119,120].
PPPs strive to create a more efficient process which includes a shorter planning phase and improvement in construction scheduling as well. Given this assumption going in, the contractor must have a realistic grasp of the scope and timeline for the project. The construction schedule will be the sole responsibility of the general contractor [105,106,107,108,109,110,111,112,113,114,115].

Impacts and Considerations of PPPs for Construction

Along with the advantages of teaming up with the local government, such as regulatory fast-tracking and prioritization, there comes multiple hardships as well that impact the construction team. Contractors in these partnerships often have a good reputation and a good relationship to either the public sector entity or the private business partner in the deal. This is not an essential necessity, but it is very beneficial for all parties. Unfortunately, due to the complexity of these projects, only a select few contractors are considered or qualified to participate [115,116,117,118,119,120,121,122,123,124,125,126,127,128,129,130].
Authors spell out various interactions between stakeholders as it relates to infrastructure projects in the Netherlands. One of the pressures that the contractor faced was due to time pressures and getting the municipal district to approve the structural design without missing their schedule. This occurs even though the municipality is a partner in the project. Secondly, due to the structure of stakeholders' involvement in the deal, the construction arm became stuck in conflict amongst the other interested groups involved (especially the citizen contingent) with environmental concerns, traffic disruptions, and noise during the construction process. Finally, they identify the ‘project culture’ to be a factor in the roadway project whereas the public partner felt that they were transferring the responsibility to the private partners after the contract was executed. This created additional stresses on the general contractor and made their work more strenuous in dealing with the public oversight as opposed to their expectation of less difficulty in this aspect [120,121,122,123,124,125,126,127,128,129,130,131,132,133,134,135,136,137,138,139,140].
Public-private partnerships require a different mindset from traditional project delivery methods. Standard ownership situations often create disconnects between the owner and the contractor. In PPP arrangements, the relationship becomes more aligned with delivering a successful end product. Project controls are more set up to create a positive rhythm between parties instead of creating competing interests and strained relationships. Responsibilities are more clearly defined [130,131,132,133,134,135,136,137,138,139,140,141,142,143,144,145,146,147,148,149,150].
Factors that may cause unique hardship for the construction team in a PPP project would include the additional requirements brought on by multiple ownership interests and governmental oversight. For instance, the agreement for these projects often includes additional consultants and additional inspections to meet the requirements of the local jurisdiction. Also, projects that involve public funds will trigger more stringent rules that govern the construction process [145,146,147,148,149,150,151,152,153,154,155,156,157,158].

Conclusions and Recommendations

Understanding the theory and history of PPPs is crucial for all parties to be abreast of as they consider participation in these projects. As it relates to construction groups, studies have not focused on their interests related to their participation in these teams. Additionally, fewer sources are found that focus on building development projects than those focused on infrastructure projects.
For construction companies, it is advisable that they enter into these partnerships through existing relationships with private ownership and possibly with local governments. Knowing that all parties will act cooperatively towards like-minded objectives will help to avoid conflicts and risks in PPP projects.
Partnering with local government agencies along with a private ownership interest gains the contractor advantages with regards to schedule and regulatory approvals. Maintaining a positive relationship is crucial. An understanding of the specific objectives and requirements of the public and private ownership will benefit the contractor.
PPPs may also experience a preferred procurement process whereas they would see an advantage in buying contracts with the subcontractor market and this may also be true with the buyout of products and materials. Working within the PPP framework helps to protect against economic turbulence and these projects can help sustain a business in these difficult times.

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Preprints 116854 g001
Figure 1. Methodology Schematic.
Figure 1. Methodology Schematic.
Preprints 116854 g001
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