Public-Private Partnerships: Help or Hype?
An Interview with Stephen T. Graham, P.E., CFM and
Daniel Harper, President, Southampton Properties, Inc.

Public-private partnerships are a hot topic among agencies looking for ways to meet increasing demands with limited resources. PBS&J Highlights asked representatives from both the public and private sectors for their perspectives on the subject. Stephen T. Graham, P.E., CFM, director of Watershed Management for the San Antonio River Authority (Texas), is developing software that holds great potential for public-private development. Daniel Harper is president of Southampton Properties, Inc., a commercial real-estate developer based in Orlando, Florida. His work nationwide has brought him into public-private partnership ventures over the past two decades.

The National Council for Public-Private Partnerships defines the public-private partnership (PPP) as a contractual agreement between a public agency (federal, state, or local) and a private sector entity, wherein each party shares not only resources, but also the risks and rewards potential in the delivery of the service or facility. Do you see a trend toward greater use of PPPs?

Graham: PPPs are happening more and more in Texas, especially within the highway system. We’re seeing private entities constructing toll roads at their cost, then recovering the investment through fees. This lets the state build more quickly without incurring debt.

Harper: Definitely. These arrangements didn’t exist at all when I started working (46 years ago), and in the last 20 years, with the population explosions, they’ve become almost a forced issue because of the cost savings to government and the time savings to both sectors.

Can PPPs help governments achieve more with less? What’s needed for successful collaboration?

Graham: In a system where the state doesn’t have to put out much, if any, capital, many more public works projects are going to get done. Staffing and maintenance costs are also eliminated.

Any agency looking to enter into a PPP needs to research its laws. Some forms of government restrict financial collaboration with private entities because of the bid process. Projects that have clear-cut capital construction and professional services components are easy; you solicit separate bids. The problem comes in with hybrids. Maintenance, for example, is a capital construction cost, while design comes under professional services, and a project that combines both takes careful construction of the request for proposal process.

But it’s pretty clear that the law has to catch up. We just have to figure out the best way to merge respectful spending of public funds and the public-input process with private-sector efficiencies.

Harper: Unquestionably, yes. For government, a PPP is an amazing tool: they don’t have to go into tax dollars to pay for what’s needed, since there’s no manpower or construction costs to budget for. Overall, risk to the state or public agency is substantially less.

From my perspective, a clear understanding of what is expected from us, and what we expect from the public side, is very important. This needs to be clearly and distinctly documented. Most public works projects take years to complete. As we go forward three or four years, the people who initiated the project may give way to a newly elected team. Good documentation will capture the original thought process and intention for the project, and can help avoid misunderstandings that lead to delays and extended costs.

What challenges are inherent in forming these kinds of partnerships? Is there a built-in conflict between the goals of a for-profit concern and those of a public agency?

Graham: A for-profit business eyes the bottom line. Government focuses on public service. These are two different perspectives, so yes, there is an inherent conflict.

Harper: I don’t believe there is a conflict of goals. The desire of each side is to create a better community, and both parties are, in my experience, very goal-oriented. A public-private partnership works best over the long term, however, when there’s a clear understanding of everybody’s activities and what they’re supposed to be doing.

That said, time can be an issue for the private-side partner. Losing control of time means losing control of costs. When delays occur, the private side risks losing money in interest payments, for example, which can run thousands of dollars a day. Timing is also important from the standpoint of markets—they rise and fall. A developer stuck in a time warp can go completely through a market cycle and end up at the tail end when he should have been at the beginning or middle. This can be devastating in the private sector, whereas by its nature, government doesn’t have to worry about market conditions or interest on financing.

What needs to be in place and what qualities should the PPP partners have in order to be successful?

Graham: Because of their inherent differences, an agency needs to team with a private firm committed to customer service—one that will go the extra mile to help that particular agency deliver on the expectation of good service. There needs to be a clear understanding of where government wants to be.

On the public side, elected officials must be willing to delegate authority to a private entity and have confidence in that entity’s ability to deliver. A private company, many think, will “bare bones” a service—electric or roads, for example. They want accountability. To make a PPP work, you need to start with an elected leader who is, first, willing to take a risk; second, willing to work with a private entity to hammer out expectations; and third, persuade the community to try something different.

Harper: PPPs come about, in most cases, because there’s an immediate need. The public agency has a problem that needs to be solved, and the private sector, which oftentimes is impacted by that problem, can provide a solution while realizing a profit. So for the most part, you can normally structure a deal that makes sense to both sides.

The critical success factor is that expectations are clearly defined and agreed to from the beginning, and documented. That way, there are no misunderstandings over time.

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