Public-private partnerships (agreements between government and private or nonprofit
organizations to perform certain functions) have become the new reality in governing. An
increasing number of cities, townships and states are using the concept to enhance
government accountability while protecting their citizens from higher taxes and wasteful
public spending. Entrepreneurial and result-oriented policies help government provide
services successfully. Many determined public servants with vision recognize the value of
outsourcing and govern through the power of contract, competition, and private partners.
Consider a few examples.
The Resource, Recovery, and Recycling Authority of southwest Oakland County used
private sector expertise to build a material recovery facility agency, through competitive
bidding, without public financing. Each participating community and their citizens
now share in the revenues earned by the Authority from the sale of recycled materials.
To raise capital for infrastructure, the city of Franklin, Ohio, sold its wastewater
treatment plant through a competitive process. In doing so, it reduced consumer rates by
14 percent. The earnings from the sale of Franklins treatment plant were used to pay
off Franklins bond and for other infrastructure upgrades. Without city leaders
foresight and recent federal reforms that ease the sale of assets like this, the people of
Franklin would have been saddled with an outdated wastewater treatment plant and no money
to finance improvements.
Another innovative idea used by Franklin city officials was allowing Earth Tech of
Grand Rapids, Michigan, to design, build, own, and operate a five-million-gallon per day
drinking water treatment plant. The entire operation will be financed by Earth Tech. Earth
Tech will recoup its investment via user fees during the two-decade service agreement.
Community employees also benefit from innovative protections of public-private
partnerships. For example, some city workers in Indianapolis became employees of the
citys new privately operated wastewater treatment plant. The employees new
contract provided greater salary and incentives, while the company saved the city $12
million per year. Other communities have similarly provided assistance to their employees
through mandatory employment or employee leasing arrangements with the private sector.
Governments which have used effective public-private partnerships have recognized the
need to assess their own strengths and weaknesses, and those of their private partner. For
instance, the Resource, Recovery, and Recycling Authority of southwest Oakland County used
the strength of its stable revenue stream to obtain a new facility and provide service to
its citizens. Other governments have recognized that their control of a stable revenue
stream (e.g. utility rates) is looked upon favorably by banks, and can be used to finance
improvements or retire debt.
Governments have also learned that private partners often have experience and expertise
in negotiating public-private contracts. Therefore, most government partners hire one or
more consultants to match the abilities of private partners, identify strengths and
weaknesses, assess abilities, and develop and negotiate the public-private partnership.
The consultants typically have technical knowledge of the project, a legal background in
public-private partnerships and the abiltity to construct creative financing arrangements.
Governments have also found consultants essential in analyzing competitive proposals
generated by the request for proposal process.
Franklin, Ohio, leaders recognized that they lacked the expertise to appraise the value
of the citys wastewater treatment plant; the city of Indianapolis was aware that it
lacked the ability to assess the operation of its wastewater treatment plant; and the
Resource, Recovery, and Recycling Authority of southwest Oakland County knew that it
lacked technical, legal and financial expertise to develop and negotiate the
public-private partnership for its material recovery facility. Those communities hired
outside experts to complete deals that improved service and saved millions of dollars for
Public-private partnerships allow communities to control the service or the
facility through the power of contractual terms and conditions.
Public-private partnerships allow communities to control the service or the facility
through the power of contractual terms and conditions. Contract requirements set
performance standards in measurable terms. With modern technology including computer
maintenance programs, real-time reporting of data, and video monitoring, governments can
make sure the private firms meet the performance standards.
For more protection some communities use a) an annual performance review of private
sector operations, b) zero-sum reverter clauses (which allow a municipality to retake
possession of outsourced facilities should a breach of contract occur), (c) indemnity and
hold harmless provisions, and (d) performance bonds or letters of credit. To protect its
citizens, governments have relied on contract provisions which restrict rate increases,
reduce risk, and require a share in revenues from the public-private partnership. The
public partners ultimate protections are contract termination clauses for
convenience or "without cause." However, communities have also recognized the
benefit of a harmonious partnership and have inserted mediation, arbitration, and dispute
review board clauses to resolve disputes efficiently and professionally.
Governments operating through public-private partnerships have institutionalized a new
way of doing business. The process includes
a result-oriented policy,
assessment of the strengths of the governmental unit and private partner,
assessment of the risks,
use of the competitive request for proposal process,
assurances of performance through contractual terms and conditions, and
the use of consultants to assist in the public-private partnership process.
Public-private partnerships can help government officials achieve goals, maintain
control, protect capital, and provide opportunities for their employees. A successful
public-private partnership can provide improved services to more people and at a lower
cost than either organization working alone.