Public-Private Partnerships (PPP) – The U.S. Department of Transportation (DOT) defines a “public-private partnership” as “a contractual agreement formed between public and private sector partners, which allows more private sector participation than is traditional. The agreements usually involve a government agency contracting with a private company to renovate, construct, operate, maintain, and/or manage a facility or system. While the public sector usually retains ownership in the facility or system, the private party will be given additional decision rights in determining how the project or task will be completed.” – Partners in Transportation Workshops, Final Report Abstract, June 17, 2005. http://www.fhwa.dot.gov/ppp/061705wkshp.htm (532 KB) 2. A merging of public and private resources to achieve an end result or product that would be difficult to achieve through public or private activity alone. May refer to the delivery of services, such as childcare or to the construction of buildings, such as cultural facilities. – City of Scottsdale, Arizona, Planning, Building and Zoning Reference Guide Glossary. http://www.scottsdaleaz.gov/generalplan/Glossary.asp 3. Under a public-private partnership, sometimes referred to as a public-private venture, a contractual arrangement is formed between public and private-sector partners. These arrangements typically involve a government agency contracting with a private partner to renovate, construct, operate, maintain, and/or manage a facility or system, in whole or in part, that provides a public service. Under these arrangements, the agency may retain ownership of the public facility or system, but the private party generally invests its own capital to design and develop the properties. Typically, each partner shares in income resulting from the partnership. Such a venture, although a contractual arrangement, differs from typical service contracting in that the private-sector partner usually makes a substantial cash, at-risk, equity investment in the project, and the public sector gains access to new revenue or service delivery capacity without having to pay the private-sector partner. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Types of Public-Private Partnerships Build-Own-Operate (BOO) – Under a BOO transaction, the contractor constructs and operates a facility without transferring ownership to the public sector. Legal title to the facility remains in the private sector, and there is no obligation for the public sector to purchase the facility or take title. A BOO transaction may qualify for tax-exempt status as a service contract if all Internal Revenue Code requirements are satisfied. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Build/Operate/Transfer (BOT) or Build/Transfer/Operate (BTO) - Under the BOT option, the private partner builds a facility to the specifications agreed to by the public agency, operates the facility for a specified time period under a contract or franchise agreement with the agency, and then transfers the facility to the agency at the end of the specified period of time. In most cases, the private partner will also provide some, or all, of the financing for the facility, so the length of the contract or franchise must be sufficient to enable the private partner to realize a reasonable return on its investment through user charges. At the end of the franchise period, the public partner can assume operating responsibility for the facility, contract the operations to the original franchise holder, or award a new contract or franchise to a new private partner. The BTO model is similar to the BOT model except that the transfer to the public owner takes place at the time that construction is completed, rather than at the end of the franchise period. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Buy-Build Operate (BBO) - A BBO transaction is a form of asset sale that includes a rehabilitation or expansion of an existing facility. The government sells the asset to the private sector entity, which then makes the improvements necessary to operate the facility in a profitable manner. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Contract Services Operations and Maintenance – A public partner (federal, state, or local government agency or authority) contracts with a private partner to provide and/or maintain a specific service. Under the private operation and maintenance option, the public partner retains ownership and overall management of the public facility or system. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Operations, Maintenance, and Management - A public partner (federal, state, or local government agency or authority) contracts with a private partner to operate, maintain, and manage a facility or system providing a service. Under this contract option, the public partner retains ownership of the public facility or system, but the private party may invest its own capital in the facility or system. Any private investment is carefully calculated in relation to its contributions to operational efficiencies and savings over the term of the contract. Generally, the longer the contract term, the greater the opportunity for increased private investment because there is more time available in which to recoup any investment and earn a reasonable return. Many local governments use this contractual partnership to provide wastewater treatment services. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Design-Build-Operate (DBO) - In a DBO project, a single contract is awarded for the design, construction, and operation of a capital improvement. Title to the facility remains with the public sector unless the project is a design/build/operate/transfer or design/build/own/operate project. The DBO method of contracting is contrary to the separated and sequential approach ordinarily used in the United States by both the public and private sectors. This method involves one contract for design with an architect or engineer, followed by a different contract with a builder for project construction, followed by the owner’s taking over the project and operating it. A simple design-build approach creates a single point of responsibility for design and construction and can speed project completion by facilitating the overlap of the design and construction phases of the project. On a public project, the operations phase is normally handled by the public sector or awarded to the private sector under a separate operations and maintenance agreement. Combining all three phases into a DBO approach maintains the continuity of private sector involvement and can facilitate private sector financing of public projects supported by user fees generated during the operations phase. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Developer Financing - Under developer financing, the private party (usually a real estate developer) finances the construction or expansion of a public facility in exchange for the right to build residential housing, commercial stores, and/or industrial facilities at the site. The private developer contributes capital and may operate the facility under the oversight of the government. The developer gains the right to use the facility and may receive future income from user fees. While developers may in rare cases build a facility, more typically they are charged a fee or required to purchase capacity in an existing facility. This payment is used to expand or upgrade the facility. Developer financing arrangements are often called capacity credits, impact fees, or exactions. Developer financing may be voluntary or involuntary depending on the specific local circumstances. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Enhanced Use Leasing (EUL) - An EUL is an asset management program in the Department of Veterans Affairs (VA) that can include a variety of different leasing arrangements (e.g., lease/develop/operate, build/develop/operate). EULs enable the VA to long-term lease VA-controlled property to the private sector or other public entities for non-VA uses in return for receiving fair consideration (monetary or in-kind) that enhances VA’s mission or programs. (See 38 U.S.C. § 8161, et seq.) – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Lease/Develop/Operate (LDO) or Build/Develop/Operate (BDO) - Under these partnership arrangements, the private party leases or buys an existing facility from a public agency; invests its own capital to renovate, modernize, and/or expand the facility; and then operates it under a contract with the public agency. A number of different types of municipal transit facilities have been leased and developed under LDO and BDO arrangements. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Lease/Purchase - A lease/purchase is an installment-purchase contract. Under this model, the private sector finances and builds a new facility, which it then leases to a public agency. The public agency makes scheduled lease payments to the private party. The public agency accrues equity in the facility with each payment. At the end of the lease term, the public agency owns the facility or purchases it at the cost of any remaining unpaid balance in the lease. Under this arrangement, the facility may be operated by either the public agency or the private developer during the term of the lease. Lease/purchase arrangements have been used by the General Services Administration for building federal office buildings and by a number of states to build prisons and other correctional facilities. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Sale/Leaseback - A sale/leaseback is a financial arrangement in which the owner of a facility sells it to another entity, and subsequently leases it back from the new owner. Both public and private entities may enter into sale/leaseback arrangements for a variety of reasons. An innovative application of the sale/leaseback technique is the sale of a public facility to a public or private holding company for the purposes of limiting governmental liability under certain ... to operate it. – General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Tax-Exempt Lease - Under a tax-exempt lease arrangement, a public partner finances capital assets or facilities by borrowing funds from a private investor or financial institution. The private partner generally acquires title to the asset, but then transfers it to the public partner either at the beginning or end of the lease term. The portion of the lease payment used to pay interest on the capital investment is tax exempt under state and federal laws. Tax-exempt leases have been used to finance a wide variety of capital assets, ranging from computers to telecommunication systems and municipal vehicle fleets. - General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf Turnkey - Under a turnkey arrangement, a public agency contracts with a private investor/vendor to design and build a complete facility in accordance with specified performance standards and criteria agreed to between the agency and the vendor. The private developer commits to build the facility for a fixed price and absorbs the construction risk of meeting that price commitment. Generally, in a turnkey transaction, the private partners use fast-track construction techniques (such as design-build) and are not bound by traditional public sector procurement regulations. This combination often enables the private partner to complete the facility in significantly less time and for less cost than could be accomplished under traditional construction techniques. In a turnkey transaction, financing and ownership of the facility can rest with either the public or private partner. For example, the public agency might provide the financing, with the attendant costs and risks. Alternatively, the private party might provide the financing capital, generally in exchange for a long-term contract to operate the facility. - General Accounting Office (GAO) Public-Private Partnerships Glossary http://www.gao.gov/special.pubs/Gg99071.pdf