Local governments often desire upgraded infrastructure or new facilities. However, risk of failure and lack of upfront capital are impediments to getting started. Too often, the rainy day fund is depleted and governmental staff have been reduced significantly. To pursue projects, local governments are beginning to explore the concept of investment for infrastructure, as opposed to spending. Investment can be achieved through leveraging governmental assets, shifting the risk of going forward to the private sector and revenue sharing. To explore the concept of investment, governments are becoming more performance-oriented in collaboration with private entities.
Even a loosely defined project can be submitted to contractors, designers, and concessionaires to solicit their degree of interest. The goal is to obtain the project with a minimum of capital outlay. In other words, how much will a contractor, designer, or concessionaire provide of its own capital or private borrowing to obtain the project while awaiting repayment until after its completion? This type of procurement is a public-private partnership (P3) and is a very effective way to get projects started. A P3 is a contractual relationship between a governmental entity and the private sector to provide a building and/or a service from private capital.
There are many examples of public-private partnerships where the upfront commitment of capital has been supplied by the private sector to obtain the land, and design and construct the building, in exchange for periodic payments once the project is complete. In Michigan and nationally, public-private partnerships utilizing the above methodologies have succeeded in obtaining the desired end result. After the expression of interest has occurred, the next step is for the experts to draft a request for proposal that will include a unique design-build contract, a concession agreement, operation and maintenance agreement, and a request for proposal (RFP) for financing. Governments often engage experts to develop agreements with enforceability terms, requirements of performance, and to match the various experts the private sector will engage for the P3 project.