Mergers and acquisitions Public-private partnership - what is it and what are its types?

A public-private partnership (PPP) is a form of collaboration between a public entity and a private partner, implemented under an agreement, the purpose of which is usually to implement a project aimed at providing public services or developing infrastructure. In the PPP model, a public entity (e.g., a local government unit) and a private entity jointly implement the investment, sharing responsibilities and risks between the public entity and the private partner.

In short:

• A public-private partnership (PPP) is a form of cooperation between a public entity and a private partner implemented on the basis of a contract.
• The aim of PPP is to implement investments or provide public services with optimal use of public funds.
• The private partner may finance and manage the project, and its remuneration depends on the scope of services.
• A key element of PPP is the division of tasks and risks between the public entity and the private partner.
• The PPP formula increases implementation efficiency, supports regional development and enables the implementation of infrastructure projects without excessive public spending.

Public-Private Partnerships are typically regulated by state and local governments, which specify the principles of cooperation between a public entity and a partner, including the selection of a private partner, the remuneration of the private partner, fees or other forms of benefits.

Under a public-private partnership, the private partner undertakes to finance, build, manage, or provide services, while the public sector provides, among other things, rights to use the infrastructure or organizational support.

PPP is a tool that increases the efficiency of public tasks, reduces public spending and supports regional development by leveraging the competences of the private sector.

In practice, a public-private partnership involves a public entity contracting a private partner to implement a specific project – most often an infrastructure investment or the provision of public services. A key element is the division of tasks and risks between the public entity and the private partner, ensuring that each party is responsible for the areas in which it operates most effectively.

Under a public-private partnership, the private partner undertakes to design, finance, construct, maintain, or manage the investment, and often also to provide services. The private partner’s remuneration may take the form of a fee from the public entity, the right to collect user fees, or a mixed model. The public partner, in turn, provides, among other things, the asset, access to real estate, and legal and organizational support.

Public-private partnerships can take various forms, depending on the parties’ responsibilities, financing method, and project implementation model. The division of responsibilities and risks between the public entity and the private partner, as well as the method of remunerating the private partner, are crucial here.

The most common type of PPP is infrastructure PPP, in which the private partner is responsible for designing, financing, and constructing the infrastructure, and then maintaining or managing it. The second model is service PPP, focused on providing public services. The third form is investment PPP, which emphasizes investment implementation with limited public funding.

The implementation of a project under a public-private partnership is a multi-stage process and is strictly regulated by law.

The process begins with a public entity identifying the need to implement a specific public service or infrastructure task and analyzing whether the PPP formula will achieve higher implementation efficiency than traditional public financing. The next stage involves project preparation and the private partner selection procedure, conducted in accordance with the regulations.

The parties then conclude a PPP agreement, which precisely defines the division of tasks and risks between the public entity and the private partner, the principles of investment financing, the method of providing services, and the remuneration of the private partner.

Once the agreement is signed, the actual implementation of the investment begins, including financing, construction, maintenance, and project management by the private partner. During this time, the public partner serves as a supervisor, ensuring proper performance and achievement of project objectives.

This model allows for the effective implementation of public tasks with optimal use of the resources of both sectors.

Public-private partnerships increase the efficiency of public investment and service delivery through a rational division of tasks and risks between the public entity and the private partner. The public sector retains control over the implementation of public tasks, while the private sector contributes capital, know-how, and experience in financing, construction, and project management.

Thanks to the PPP formula, the public entity can reduce the one-time expenditure of public funds by spreading costs over time or linking them to the actual provision of services. The private partner, on the other hand, is incentivized to ensure high-quality implementation, as their remuneration often depends on the availability of infrastructure or the level of public service provision.

What is a public-private partnership?
A public-private partnership is a model of cooperation between a public entity and a private partner, in which the parties jointly implement an investment or provide public services, sharing tasks and risks based on a PPP agreement.

Who can be a public partner and a private partner?
The public partner is a public sector entity, including central and local government bodies. The private partner may be an entrepreneur or other private entity selected through a private partner selection procedure.

How is the private partner remunerated in PPP?
The remuneration of the private partner may take the form of a fee from the public entity, the right to collect fees from infrastructure users or a mixed model linked to the quality of service provision.

What are the main benefits of PPP for the public sector?
PPP allows for the reduction of public spending, transfer of some risks to the private partner and increase the efficiency of investment implementation by leveraging the competences of the private sector.

How does Virtual Data Room support PPP processes?
VDR in PPP processes allows the public promoter to efficiently manage extensive documentation and communication with multiple bidders in one place, minimizing delays, information chaos, and legal and corruption risks. Using a VDR system accelerates the due diligence process, increasing investment opportunities and significantly reducing capital acquisition costs.