2023-023 Public Private Partnerships (P3) March 3,2023 Report No. 2023-023
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
Public Private Partnerships (P3)
BACKGROUND:
Public-private partnership (P3) refers to a cooperative relationship between a public entity and a
private sector entity. P3 involves a long-term contract between these two parties,where the private
sector entity provides a specific service or infrastructure project to the public entity. In exchange,
the private sector entity receives payment, either directly from the public entity or from end-users
of the service or infrastructure.
P3 can take many forms, ranging from the construction of public buildings and infrastructure
projects such as roads,bridges, and airports,to the provision of public services such as healthcare,
education, and waste management. The private sector partner is responsible for designing,
building,financing, and operating the project or service,while the public entity provides oversight
and ensures that the project or service meets public needs and standards.
The advantages of P3 include the ability to leverage private sector expertise and capital,the sharing
of risks between public and private partners, and the potential for greater efficiency and innovation
in the delivery of public services and infrastructure. However, P3s also involve complex legal,
financial, and regulatory structures, and require careful management to ensure that public interests
are protected and that the private partner's profit motive does not compromise the quality or
affordability of public services.
P3 IN TEXAS
Chapter 2267
Chapter 2267 of the Texas Government Code provides the legal framework for P3 in Texas. It
establishes requirements for the procurement, contracting, and performance standards of P3
projects,as well as the roles and responsibilities of the public and private partners involved in these
projects. The chapter outlines financing and payment structures for P3 projects, and includes
provisions related to dispute resolution and other administrative and operational requirements for
P3s in Texas. Overall, Chapter 2267 is a critical component of the legal and regulatory framework
for P3s in Texas, ensuring that these projects are executed in a transparent, fair, and efficient
manner that benefits both the public and private sectors.
Texas Facilities Commission
The Texas Facilities Commission provides guidelines for P3 agreements in Texas. These
guidelines cover best practices,risk management, and legal and financial considerations for P3s in
the state. Overall, these guidelines aim to ensure that P3 projects in Texas are executed in a
transparent, fair, and efficient manner that benefits both the public and private sectors.
The Center for Alternative Finance and Procurement
March 3,2023 Report No. 2023-023
The Center for Alternative Finance and Procurement is a Texas-based organization that provides
guidance and support for the use of P3 methods in the state. The Center provides education and
training programs, technical assistance, and other resources to help public entities navigate the
complex legal and regulatory framework for P3s in Texas. The Center's mission is to help public
entities identify and implement alternative procurement methods that can deliver high-quality
infrastructure projects at lower costs and with fewer risks. The Center works closely with public
officials, private sector partners, and other stakeholders to promote the use of alternative
procurement methods and support their successful implementation in Texas.
P3 STRUCTURES
P3 structure vary depending on the type of project and the level of risk that the private sector
partner is willing to assume. Common P3 structures used in Texas include:
• Design-Build (DB): The private sector partner is responsible for both the design and
construction of the project.
• Design-Build-Operate (DBO): The private sector partner designs, constructs, and operates
the project.
• Design-Build-Maintain (DBM): The private sector partner designs, constructs, and
maintains the project.
• Design-Build-Finance-Operate (DBFO): The private sector partner designs, constructs,
finances, and operates the project.
• Design-Build-Operate-Maintain (DBOM): The private sector partner designs, constructs,
operates, and maintains the project.
• Design-Build-Finance-Operate-Maintain (DBFOM): The private sector partner designs,
constructs, finances, operates, and maintains the project.
• Operate-Maintain (OM): The private sector partner is responsible for the operation and
maintenance of the project,but the public entity retains ownership.
P3 FINANCING IN TEXAS
P3s in Texas are financed through a variety of mechanisms, including tax-exempt bonds, private
financing, and other financial tools and incentives. Tax-exempt bonds are a common way to
finance P3 projects in Texas and can be used on the public portion of the project, as they offer
lower interest rates and longer repayment terms than traditional financing. Private financing is
another option, which may be used in conjunction with tax-exempt bonds or other financing
mechanisms. Other financial tools and incentives, such as tax credits and grants,may also be used
to support P3 projects in Texas.
OPPORTUNITIES
March 3,2023 Report No. 2023-023
P3s offer several opportunities for Texas to improve its public infrastructure and support economic
growth and development, they include:
• Increased efficiency and cost savings: P3s have the potential to be more efficient and cost-
effective than traditional procurement methods,as private partners can bring their expertise
and innovation to the table.
• Faster project delivery: P3s can help accelerate project delivery timelines, as private
partners have a vested interest in completing the project on schedule.
• Improved project quality: Private partners are incentivized to deliver high-quality projects
that meet the needs of both the public and private sectors.
• Leveraging private capital for economic growth: P3s can help leverage private sector
investment to support economic growth and development in Texas.
CHALLENGES
There are also several challenges that must be addressed for P3s to be successful. Challenges
include:
• Legal and regulatory barriers: The legal and regulatory framework for P3s in Texas can be
complex and may pose barriers to their implementation.
• Private funding and financing issues: Securing funding and financing for P3 projects can
be challenging for smaller or less established private partners.
• Public perception and acceptance: P3s are relatively new in Texas and some members of
the public may be skeptical of private sector involvement in public infrastructure projects.
SUMMARY:
Overall,P3 s can be a powerful tool for improving infrastructure delivery and reducing costs while
leveraging private sector expertise and resources. However,they require careful consideration and
management to ensure that public interests are protected and that risks are appropriately allocated
between public and private partners.
ADDITIONAL RESOURCES
1. Texas Government Code - Chapter 2267
2. Texas Facilities Commission - PPP Guidelines
3. The Center for Alternative Finance and Procurement
STAFF CONTACT:
Wayne Emerson, Economic Development