{"concept_id":"ALTSS-INFRA-009","slug":"public-private-partnership","canonical_name":"Public-Private Partnership","acronym":"PPP","aliases":["PPP","P3","public private partnership"],"kind":"structure","authority":"regulatory","facets":["VEH","TXN"],"domains":["INFRASTRUCTURE"],"display_title":"Public-Private Partnership (PPP)","search_aliases":["what is a ppp","public private partnership infrastructure","availability payment ppp","dbfom meaning","pfi vs ppp","p3 infrastructure"],"one_sentence_definition":"A public-private partnership (PPP) is a long-term contract under which a private party provides a public asset or service, usually designing, building, financing and operating or maintaining it, bears significant risk and management responsibility, and is paid according to performance.","plain_english":"Instead of paying a contractor to build a road and then running it itself, a government signs one long contract with a private company that builds the road, raises much of the money, and maintains it for decades. The company is paid either by users through tolls or by the government in regular payments that are cut if the road is not available or not maintained to standard. At the end of the contract the asset usually goes back to the public sector.","formal_definition":"The World Bank's PPP Reference Guide (Version 3, 2017) defines a PPP as a long-term contract between a private party and a government entity to provide a public asset or service, in which the private party bears significant risk and management responsibility and its remuneration is linked to performance. The 2012 Recommendation of the Organisation for Economic Co-operation and Development (OECD) describes PPPs as long-term agreements under which a private partner delivers and funds public services using a capital asset and shares the associated risks. Neither is binding law; national PPP statutes and policies set the legal definition in each jurisdiction.","jurisdiction":"INTL","parent_concepts":["infrastructure-investing"],"child_concepts":[],"related_concepts":["availability-payment","concession","project-finance","core-infrastructure","spv-special-purpose-vehicle","infrastructure-debt","greenfield-investment"],"comparison_concepts":[],"not_the_same_as":[{"slug":"concession","distinction":"A concession is a right to operate and charge users for a fixed term; it is the user-pays form of PPP. In some countries the word covers all PPPs."},{"slug":"project-finance","distinction":"Project finance is how a PPP's private capital is usually raised. A PPP is the contract with government; it can exist without private finance (for example a design-build-operate contract)."},{"slug":"availability-payment","distinction":"An availability payment is one payment mechanism used in government-pays PPPs, not the partnership itself."},{"slug":"regulated-asset-base","distinction":"A regulated utility operates under an open-ended licence and periodic price controls; a PPP is a fixed-term contract with specified outputs."}],"formula_ids":[],"worked_examples":[],"sections":[{"heading":"Jurisdiction and status","paragraphs":["PPP law is national. Countries use different statutes, procurement rules and labels, and in federal systems states, provinces or municipalities often have their own frameworks. \"P3\" is common shorthand in North America. In the UK, the Private Finance Initiative (PFI), replaced in 2012 by Private Finance 2 (PF2), was used to fund schools, hospitals and other infrastructure. His Majesty's Treasury (HM Treasury), the UK finance ministry, announced on 29 October 2018 that the government would no longer use PF2, the current model of PFI, for future projects. Existing PFI and PF2 contracts were not ended by the announcement, and it did not affect the devolved administrations, for which capital spending on public infrastructure is a devolved policy area."]},{"heading":"What makes a contract a PPP","paragraphs":["The World Bank definition rests on three features, and practice adds a fourth:","1. **Long term**: the contract typically runs for decades.\n2. **Risk transfer**: the private party bears significant risk and management responsibility, for example construction cost and delay, availability and performance, and sometimes demand.\n3. **Performance-linked payment**: revenue depends on delivering the asset or service to the contracted standard.\n4. **Bundling** (practice): one private party is responsible for several stages, such as design, construction, financing, operation and maintenance, so it bears the long-term cost of its own design and construction choices.","A PPP is not traditional procurement (the government pays a contractor to build and then operates the asset itself), not privatisation (permanent sale of the asset or business), and not a regulated utility licence (an open-ended right to operate under a regulator's price control, see [regulated asset base](/glossary/regulated-asset-base))."]},{"heading":"User-pays and government-pays","paragraphs":["The World Bank guide distinguishes PPPs by who pays the private party:","- **User-pays**: the private party charges users, such as tolls on a road or fares on a railway, and keeps demand risk. These are often called [concessions](/glossary/concession).\n- **Government-pays**: the government pays the private party. Payments are commonly [availability payments](/glossary/availability-payment), made when the asset is available at the contracted quality and reduced by deductions for unavailability or poor performance. The private party carries performance risk but little or no demand risk.","Hybrids exist, for example shadow tolls paid by government per vehicle, minimum revenue guarantees, or capital grants towards construction. For an investor, which party carries demand risk is usually the first fact to establish about a PPP."]},{"heading":"Contract types by the functions transferred","paragraphs":["PPPs are commonly labelled by the functions the private party takes on. Naming varies by country and no international standard fixes the labels.","| Label | Private party is responsible for |\n|---|---|\n| Design-build (DB) | Design and construction only (usually classed as procurement, not PPP) |\n| Design-build-operate (DBO) | Design, construction and operation; public finance |\n| Design-build-finance-maintain (DBFM) | Design, construction, finance and maintenance; the public sector operates the service |\n| Design-build-finance-operate (DBFO) or design-build-finance-operate-maintain (DBFOM) | Design, construction, finance, operation and maintenance |\n| Build-operate-transfer (BOT) or build-own-operate-transfer (BOOT) | Construction and operation, with (ownership and) transfer back at the end of the term |\n| Build-own-operate (BOO) | Construction, ownership and operation with no transfer back; often treated as privatisation rather than PPP |","Including *finance* matters for investors: it is what creates a project company with equity and debt to invest in."]},{"heading":"How PPPs are financed","paragraphs":["A PPP with private finance is normally delivered through [project finance](/glossary/project-finance). The winning consortium sets up a [special purpose vehicle](/glossary/spv-special-purpose-vehicle) that signs the PPP contract, the construction contract and the operating contract, and raises sponsor equity and senior debt sized on the PPP payments. Government-pays PPPs suit long, low-margin senior debt because revenue depends on availability rather than traffic. Once construction is complete and payments are flowing, the equity in an availability-based PPP is often sold to investors who buy [core infrastructure](/glossary/core-infrastructure)."]},{"heading":"Public-sector governance: value for money and affordability","paragraphs":["The OECD's Recommendation on Principles for Public Governance of Public-Private Partnerships (adopted 4 May 2012) sets 12 principles in three groups: a clear institutional framework; selecting PPPs on value for money; and using the budget process transparently. Among them:","- The decision to invest should be separate from how the project is procured and financed, with no accounting or institutional bias for or against PPPs (principle 4), and a procurement option pre-test should precede a PPP (principle 5).\n- Risk should go to the party that can prevent or bear it at least cost (principle 6).\n- Value for money should be maintained when renegotiating; only if conditions change because of discretionary public policy actions should the government consider compensating the private party (principle 8).\n- The central budget authority should confirm affordability, and budget documents should disclose all PPP costs and contingent liabilities (principles 10 and 11).","The OECD's 2020 Recommendation on the Governance of Infrastructure extends this to the whole life cycle of public infrastructure, from planning and prioritisation to operation and monitoring."]},{"heading":"What investors look at","paragraphs":["- **Payment mechanism**: availability vs user-pays; deduction regime and caps.\n- **Grantor credit**: the government entity's ability and willingness to pay over decades.\n- **Termination**: compensation on early termination for grantor default, contractor default, force majeure or voluntary termination.\n- **Change in law and renegotiation risk**, the issue behind the OECD's principle 8.\n- **Hand-back conditions**: the state the asset must be in at expiry, which drives late-life maintenance spending.\n- **Contract end**: cash flows stop at expiry, so equity value depends entirely on the remaining term."]}],"classification_rules":["Classify a contract as a PPP when it is long-term, transfers significant risk and management responsibility for a public asset or service to a private party, and links the private party's pay to performance. If ownership transfers permanently, it is privatisation; if the private party only builds, it is procurement."],"calculation_rules":[],"common_mistakes":["Calling any cooperation between government and business a PPP. The term implies a long-term contract with risk transfer and performance-based pay.","Assuming every PPP uses private finance. Design-build-operate contracts transfer operation but not financing.","Assuming PPP revenue carries no demand risk. Only government-pays (availability) PPPs largely remove it; user-pays concessions keep it.","Describing PFI or PF2 as the UK government's current model for new projects. In October 2018 the government announced that future projects would not use PF2, the model that had replaced PFI in 2012.","Treating availability payments as equivalent to government bonds. Deductions, termination provisions and performance failures can reduce or end them."],"edge_cases":["Build-own-operate projects never revert to the public sector; some definitions exclude them from PPP.","Unsolicited proposals, where a private party proposes the project, raise competition and value-for-money questions; principle 9 of the OECD Recommendation calls for sufficient competition through a competitive tender process.","A PPP terminated early for grantor default usually pays compensation that covers senior debt and some equity, so recovery depends on the contract's termination schedule."],"external_standard_mappings":[{"standard":"World Bank PPP Reference Guide v3","reference":"Definition of PPP; user-pays and government-pays PPPs","relation":"equivalent","source_id":"SRC-WB-PPP-REFERENCE-GUIDE-3"},{"standard":"OECD/LEGAL/0392","reference":"Principles 1-12 for public governance of PPPs","relation":"related","source_id":"SRC-OECD-PPP-GOVERNANCE-2012","note":"Governance principles for governments; describes PPPs in its background note rather than defining them in the operative text."}],"source_ids":["SRC-OECD-INFRA-FINANCING-TAXONOMY-2015","SRC-OECD-INFRA-GOVERNANCE-2020","SRC-OECD-PPP-GOVERNANCE-2012","SRC-UK-HMT-PFI-PF2-BUDGET-2018","SRC-WB-PPP-REFERENCE-GUIDE-3"],"citations":[{"source_id":"SRC-WB-PPP-REFERENCE-GUIDE-3","pinpoint":"Definition of PPP; government-pays and user-pays PPPs","supports":"PPP definition; user-pays vs government-pays; availability payments","source":{"source_id":"SRC-WB-PPP-REFERENCE-GUIDE-3","title":"Public-Private Partnerships Reference Guide, Version 3","authors":"World Bank Group with multilateral partners","publisher":"World Bank","document_type":"guidance","url":"https://ppp.worldbank.org/sites/default/files/2024-08/PPP%20Reference%20Guide%20Version%203.pdf","year":2017,"publication_date":"Version 3, 2017","jurisdiction":"intl","status":"Current edition; online version maintained on the PPP Knowledge Lab","last_verified":"2026-10-01"}},{"source_id":"SRC-OECD-PPP-GOVERNANCE-2012","pinpoint":"Background Information (adoption 4 May 2012; PPP description; 12 principles in three groups); Section I principles 4, 5, 6, 8, 9, 10, 11; About the OECD (Recommendations are not legally binding)","supports":"PPP description; value for money, risk allocation, renegotiation, competition, affordability and budget transparency principles; adoption date","source":{"source_id":"SRC-OECD-PPP-GOVERNANCE-2012","title":"Recommendation of the Council on Principles for Public Governance of Public-Private Partnerships (OECD/LEGAL/0392)","publisher":"OECD","document_type":"guidance","url":"https://legalinstruments.oecd.org/api/print?ids=275&lang=en","publication_date":"Adopted 4 May 2012 on the proposal of the Public Governance Committee","jurisdiction":"intl","status":"In force","last_verified":"2026-10-01"}},{"source_id":"SRC-OECD-INFRA-GOVERNANCE-2020","pinpoint":"Ten governance dimensions","supports":"Life-cycle governance of public infrastructure","source":{"source_id":"SRC-OECD-INFRA-GOVERNANCE-2020","title":"Recommendation of the Council on the Governance of Infrastructure (OECD/LEGAL/0460)","authors":"OECD Council","publisher":"OECD","document_type":"guidance","url":"https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0460","year":2020,"publication_date":"Adopted 17 July 2020","jurisdiction":"intl","status":"In force","last_verified":"2026-10-01"}},{"source_id":"SRC-UK-HMT-PFI-PF2-BUDGET-2018","pinpoint":"Budget 2018 brief (PDF), summary bullets and paras 1-3","supports":"UK no longer uses PF2 for future projects; PF2 replaced PFI in 2012; existing PFI and PF2 contracts continue; devolved administrations not affected","source":{"source_id":"SRC-UK-HMT-PFI-PF2-BUDGET-2018","title":"Private Finance Initiative (PFI) and Private Finance 2 (PF2): Budget 2018 brief","publisher":"HM Treasury (GOV.UK)","document_type":"policy","url":"https://www.gov.uk/government/publications/private-finance-initiative-pfi-and-private-finance-2-pf2-budget-2018-brief","publication_date":"Published 29 October 2018","jurisdiction":"UK","status":"Current policy statement (not superseded on the page as of 2026-10-01)","last_verified":"2026-10-01"}},{"source_id":"SRC-OECD-INFRA-FINANCING-TAXONOMY-2015","pinpoint":"Table 1, pp. 11-12","supports":"Project finance as a distinct route for infrastructure financing","source":{"source_id":"SRC-OECD-INFRA-FINANCING-TAXONOMY-2015","title":"Infrastructure Financing Instruments and Incentives (Mapping of Instruments and Incentives for Infrastructure Financing: A Taxonomy)","authors":"OECD (R. Della Croce et al.)","publisher":"OECD","document_type":"guidance","url":"https://www.ppiaf.org/documents/4660","year":2015,"publication_date":"September 2015, report to G20","jurisdiction":"intl","status":"Published","last_verified":"2026-10-01"}}],"faq":[{"q":"What is the difference between PPP and PFI?","a":"PFI is a UK model of PPP, used to fund schools, hospitals and other public infrastructure; PPP is the general term. The UK government stopped using PF2, the later form of PFI, for new projects in October 2018; existing contracts continue."},{"q":"Who owns the asset in a PPP?","a":"It depends on the contract and the national law. Often the public sector owns the land or asset throughout and the private party holds contractual rights, or the asset transfers back at the end of the term. Build-own-operate projects stay private."},{"q":"Why do infrastructure investors like availability-based PPPs?","a":"Revenue depends on keeping the asset available rather than on usage, and the payer is a government entity, so operational availability PPPs behave like long-dated contracted cash flows. Performance deductions, grantor credit and termination terms remain risks."}],"seo":{},"first_published":null,"last_reviewed":"2026-10-02","last_modified":"2026-10-02","content_version":"2.0.0","url":"https://altss.com/glossary/public-private-partnership","json_url":"https://altss.com/reference/concepts/public-private-partnership.json","title":"Public-Private Partnership (PPP)","formulas":[],"sources":[{"source_id":"SRC-OECD-INFRA-FINANCING-TAXONOMY-2015","title":"Infrastructure Financing Instruments and Incentives (Mapping of Instruments and Incentives for Infrastructure Financing: A Taxonomy)","authors":"OECD (R. Della Croce et al.)","publisher":"OECD","document_type":"guidance","url":"https://www.ppiaf.org/documents/4660","year":2015,"publication_date":"September 2015, report to G20","jurisdiction":"intl","status":"Published","last_verified":"2026-10-01"},{"source_id":"SRC-OECD-INFRA-GOVERNANCE-2020","title":"Recommendation of the Council on the Governance of Infrastructure (OECD/LEGAL/0460)","authors":"OECD Council","publisher":"OECD","document_type":"guidance","url":"https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0460","year":2020,"publication_date":"Adopted 17 July 2020","jurisdiction":"intl","status":"In force","last_verified":"2026-10-01"},{"source_id":"SRC-OECD-PPP-GOVERNANCE-2012","title":"Recommendation of the Council on Principles for Public Governance of Public-Private Partnerships (OECD/LEGAL/0392)","publisher":"OECD","document_type":"guidance","url":"https://legalinstruments.oecd.org/api/print?ids=275&lang=en","publication_date":"Adopted 4 May 2012 on the proposal of the Public Governance Committee","jurisdiction":"intl","status":"In force","last_verified":"2026-10-01"},{"source_id":"SRC-UK-HMT-PFI-PF2-BUDGET-2018","title":"Private Finance Initiative (PFI) and Private Finance 2 (PF2): Budget 2018 brief","publisher":"HM Treasury (GOV.UK)","document_type":"policy","url":"https://www.gov.uk/government/publications/private-finance-initiative-pfi-and-private-finance-2-pf2-budget-2018-brief","publication_date":"Published 29 October 2018","jurisdiction":"UK","status":"Current policy statement (not superseded on the page as of 2026-10-01)","last_verified":"2026-10-01"},{"source_id":"SRC-WB-PPP-REFERENCE-GUIDE-3","title":"Public-Private Partnerships Reference Guide, Version 3","authors":"World Bank Group with multilateral partners","publisher":"World Bank","document_type":"guidance","url":"https://ppp.worldbank.org/sites/default/files/2024-08/PPP%20Reference%20Guide%20Version%203.pdf","year":2017,"publication_date":"Version 3, 2017","jurisdiction":"intl","status":"Current edition; online version maintained on the PPP Knowledge Lab","last_verified":"2026-10-01"}]}