Public private partnerships (P3’s) benefit both the public sector and private sector by combining resources so that both parties see a return on investment. Essentially, the philosophy behind a P3 is if the government cannot afford a project then make the private companies, who will benefit most, pay for it. In many cases, the private sector may have a better pulse on what features and amenities people really want from a project (think of convention centers, stadiums, or airports). This was a huge mindset change for a lot of countries, even the United States, but the transcontinental railroad and the golden gate bridge all have P3 project structures to thank. In this article, we will break down all the basics of what a P3 is, where it is used, why it is used, and how it helps create smart cities.
What does the private sector offer?
P3’s are used most successfully in countries that lack sufficient public sector funds. The combination of private sector money with public sector resources creates our public private partnership (P3); P3’s not only make complex infrastructure projects more cost effective but they also expedite time to delivery. In most cases, even if the public sector didn’t need money from the private sector, they would still need their expertise and ideas. The public sector is not traditionally known for its innovative advancements in transportation or manufacturing; it is not known for being really nimble in decision making or planning. That is where private sector comes in. The private sector is usually years ahead of any public sector with technological advancements and innovative ideas. P3’s are extremely helpful for the financial strain of a large scale project, but the innovative ideas and more advanced project management that comes from the private sector side is just as valuable.
There are more advantages with P3’s than just cost effectiveness, quicker delivery time, and better innovation. P3’s serve as a risk transfer. If something goes wrong then it isn’t public money or time that was lost. The public sector has nothing to lose. This change in mindset has fueled many more projects being launched from the public sector because they now have a partner sharing the responsibility with them if something goes wrong.
What does the public sector offer?
The public sector often initiates P3 projects or has major decision rights over the formation of the project. Projects well suited for a P3 often have to do with broad public utility where pooling of resources and interests is essential. Many government functions are required for successful implementation of a complex P3 such as zoning, regulation, special use taxes, tax incentives, operational funding, land grants, regulations, legislation, and negotiation with utility providers.
P3’s are used most successfully in countries that do not have the funds to finance infrastructure projects through the public sector alone. This is very common internationally, especially in countries like Canada or Australia, who do not have enough population density to bring in taxes to fund big projects. For Canada or Australia to have first world amenities, like the U.S, with substantially less people paying taxes they have to rely on the private sector much more heavily. P3’s are not just used in these situations, though. The U.S. uses P3's to get more infrastructure projects done at a lower price to the taxpayer. Even in situations where local, state, or federal government can fund the project, it’s good business to evaluate a P3 as an option. Many prominent case studies show that adding private sector funds actually increases the price of a project, because many customer focused amenities are added, such as dining and entertainment, parking, access to public transit, housing, office or retail space, and lifestyle amenities.
How does one decide if a P3 is needed or would be useful? There is a simple formula that looks at Value for Money (VFM) and decides whether or not a P3 would be more beneficial than traditional project execution by the public sector. The difference in the cost of Public Sector Comparator (PSC), the traditional delivery by public sector alone, and Public Private Partnerships is known as Value for Money. When VFM is positive the project has a better financial value to be executed as a P3. When the VFM is negative the project has a better financial value being executed as a PSC development. (Source: Public-Private Partnerships: A Guide for Municipalities (November 2011) the Canadian Council for Public-Private Partnerships).
Why Use the P3 Project Model to develop Smart Cities?
Now that there is a clear understanding of what a P3 is, why it works, and where it is best used, we can discuss the vital roles of P3’s in smart city development. As discussed in the article, P3’s are best used for large scale infrastructure projects; if you couple that with private sector innovation you have the perfect breeding grounds for a smart city. Smart cities are all about changing the landscape and creating a better way to live. Transportation, utilities, private businesses, public services, weather, logistics, and household movements can come together in a common format for public data sharing. Any infrastructure in a city that can be “connected” could all be made more efficient and technologically advanced by communicating data in a publicly sharable way; when this happens we have the foundation for a “smart city.”
Next, the data that is being publicly shared must be analyzed and interpreted to create insights. Those insights might help you get to the airport on time, balance out the trash and recycling collection, or help your building automatically optimize electrical consumption based on real-time weather trends. Then arises an issue to which we have already discussed. How does the public sector come up with a plan to create a smart city? How would they fund it? How would they ever accomplish it with the speed to remain innovative? They don’t. They can’t. They won’t.
This is where a P3 comes in to make the magic happen. A smart city P3 will combine public sector resources and private sector ingenuity in a shared risk model. Innovation will transfer at a lower incremental cost, not the price of one city developing the technology all for itself. Cities will be able to set up micro experiments that allow the incorporation of private sector mantras in a traditionally risk averse field, namely; “fail fast”, “fail forward”, “fail cheap”. P3’s are getting adopted all over the U.S. more and more. Infrastructure projects now can be completed quicker and for less money, not to mention the advancement in the infrastructure which will lead to a city becoming “smart.” Private sector companies are jumping at the chance to partner with federal or local governments to fund and manage smart city projects. P3’s are the backbone of any smart city; the more they are used all over the U.S., the more “smart city” innovations we will see.