Public-private partnership contracts

For our two hundred and fiftieth Space Law article on Space Legal Issues, we have decided to concentrate on public-private partnership contracts. Public-private partnership contracts involve collaborations between government agencies, and private-sector companies, used to finance, build, and operate projects, such as public transportation networks, parks, and convention centres. Financing projects through public-private partnership contracts can allow projects to be completed sooner, or make them a possibility in the first place.

Recently, NASA has announced nineteen public-private partnership contracts to accelerate Moon and Mars programs. In the beginning of August 2019, the U.S. space agency announced nineteen partnerships with U.S.-based businesses to not only further its own goals, but those of businesses looking to embark on space adventures of their own.

The selected companies range from small businesses to massive aerospace corporations, yet all will be able to avail themselves of NASA’s expertise, facilities, hardware and software at no cost. The selections weren’t necessarily made based on specific needs that NASA has. It seems the intent of the partnerships is to advance the U.S. space sector as a whole, whether commercial or otherwise.

What are public-private partnerships?

There is no consensus about how to define a public-private partnership. The public-private partnership phrase can cover hundreds of different types of long term contracts, with a wide range of risk allocations, funding arrangements, and transparency requirements. The advancement of public-private partnerships, as a concept and a practice, is a product of the new public management, and globalisation pressures.

We could define a public-private partnership (sometimes referred to as “PPP”, “3P” or “P3”) as a cooperative arrangement between two or more public and private sectors, typically of a long-term nature. A public-private partnership typically involves a private entity financing, constructing, or managing a project, in return for a promised stream of payments directly from government, or indirectly from users over the projected life of the project, or some other specified period of time. They are primarily used for infrastructure provision, such as the building and equipping of schools, hospitals, transport systems, water or sewerage systems.

India has defined a public-private partnership as “a partnership between a public sector entity (sponsoring authority) and a private sector entity (a legal entity in which fifty one percent or more of equity is with the private partner/s), for the creation and/or management of infrastructure for public purpose, for a specified period of time (concession period), on commercial terms, and in which the private partner has been procured through a transparent and open procurement system”.

A city government, for example, might be heavily indebted and unable to undertake a capital-intensive building project, but a private enterprise might be interested in funding its construction in exchange for receiving the operating profits once the project is completed. Public-private partnerships typically have contract periods of twenty-five to thirty years or longer.

Financing comes partly from the private sector, but requires payments from the public sector and/or users over the project’s lifetime. The private partner participates in designing, completing, implementing, and funding the project, while the public partner focuses on defining and monitoring compliance with the objectives. Risks are distributed between the public and private partners according to the ability of each to assess, control, and cope with them.

Public-private partnership contracts

Public-private partnership contracts have been highly controversial as funding tools, largely over concerns that public return on investment is lower than returns for the private funder. It is closely related to concepts such as privatisation, and the contracting out of government services. The lack of a shared understanding of what public-private partnership contracts are, makes the process of evaluating whether public-private partnerships have been successful, complex.

When talking about public-private partnership contracts, one is referring to the contractual documents which govern the relationships between public and private parties to a public-private partnership. In practice, the public-private partnership contract may comprise more than one document. For example, a public-private partnership to design, build, finance, operate, and maintain a new power plant. Public-private partnership contract are at the centre of the partnership, defining the relationships between the parties, their respective rights and responsibilities, allocating risk, and providing mechanisms for dealing with changes.

Most public-private partnership projects present a contractual term between twenty and thirty years; others have shorter terms; and a few last longer than thirty years. The term should always be long enough for the private party to adopt a whole-life costing approach to project design, and service management, guaranteeing service performance at the lowest cost. The term depends on the type of project, and on policy considerations; the project should be needed over the term of the contract, the private party should be able to accept responsibility for service delivery over its term, and the procuring authority should be able to commit to the project for its term. The availability of finance, and its conditions, may also influence the term of the public-private partnership contract.

A well-designed contract is clear, comprehensive, and creates certainty for the contracting parties. Because public-private partnerships are long-term, risky, and complex, public-private partnership contracts are necessarily incomplete; that is, they cannot fully predict future conditions. This means the public-private partnership contract needs to have flexibility built in to enable changing circumstances to be dealt with as far as possible within the contract, rather than resulting in renegotiation or termination.

Some countries have made efforts to standardise elements of public-private partnership contracts so as to reduce the considerable time and cost frequently involved in preparing and finalising a given public-private partnership contract. They have developed standardised contractual provisions, or even complete standardised public-private partnership contracts. Public-private partnerships have been used in a wide range of sectors to procure different kinds of assets and services. In all cases, the public-private partnership project constitutes or contributes to the provision of public assets or services; and it involves long-life assets.

Towards Mars?

In August 2019, NASA selected ten U.S. companies for nineteen partnerships to mature industry-developed space technologies. As NASA prepares to land humans on the Moon by 2024 with the Artemis program, commercial companies are developing new technologies, working toward space ventures of their own, and looking to NASA for assistance.

NASA centres will partner with the companies, which range from small businesses with fewer than a dozen employees, to large aerospace organisations, to provide expertise, facilities, hardware and software at no cost. The partnerships aims to help advance the commercial space sector, and help bring new capabilities to market that could benefit future NASA missions.

NASA’s proven experience and unique facilities are helping commercial companies mature their technologies at a competitive pace” said NASA. “We’ve identified technology areas NASA needs for future missions, and these public-private partnerships will accelerate their development so we can implement them faster”.