The main types of PPP identified
Although PPPs can take many forms, it is possible to draw up a non-exhaustive list of the best-known contract types by category.
The public service delegation (DSP) model, France
Public service delegation, which is regulated by France’s Sapin Law of 29 January 1993, can take various forms: concession, service concession (affermage), or incentive-based management contract (régie intéressée). It enables the concession-granting authority to work with public or private partners over the long term, assigning them such tasks as financing and/or design-build and/or operation and maintenance.
Remuneration for this kind of PPP is based largely on the infrastructure’s operation, with the demand risk assumed for the most part by the concession operator.
Under this model, investment subsidies may be granted to make the infrastructure’s operation economically viable for the partner.
Although much used, DSP presents the disadvantage of not being applicable to certain sectors (defence, police, prisons, healthcare) in which it is difficult to envisage operation-based remuneration. The authorities responsible for these sectors have therefore launched complementary forms of PPP to carry out specific major programmes (Plan Hôpital 2007 for hospitals; a programme to build 18 prisons, some under PPP contracts; a programme to build gendarmerie and police facilities).
Contrary to popular belief, remuneration based largely on the infrastructure’s operation does not necessarily mean that the user pays directly. This interpretation is too restrictive and French jurisprudence leaves open the possibility of other methods of performance-related remuneration in the case of public service delegation contracts.
The PFI model
The PFI model, created in the United Kingdom about 20 years ago, consists of a comprehensive contract that covers all or some of the tasks necessary to complete a project (design, build, finance, operate; design, build, finance; or merely operate on its own). The advantage of this model is that it can be applied to a wide range of public infrastructure.
Under this model, the public authority generally pays a regular fee (availability payment) to the concession operator. Operation is therefore not always based on payment by the user. Remuneration depends on a certain number of predefined criteria (performance of the facilities, quality and continuity of the service provided, delivery schedule, maintenance, etc.).
The PFI model is governed by Common Law and regulated on a case-by-case basis by contract. Such contracts are not, as in France, subject to specific legislation. As a result, there is greater flexibility for contractual and financial innovation, but there is also the disadvantage of higher – and sometimes prohibitive – project development costs, especially those associated with legal aspects of the contract.
Other types of PPP
The use of PPPs is increasing elsewhere in Europe in accordance with national legislation and regulations. This is the case, for example, in Germany, Hungary and Romania, which have enacted specific laws. All these other types of PPP have similar characteristics to the French DSP model: they are comprehensive contracts awarded to private companies, with remuneration paid either by the user or directly by the public authority when tolls are not permissible. In Hungary, for example, motorway users pay a special tax and concession operators receive direct payment from the government.
Subsidies, particularly in the construction phase, may be granted.