Since this research paper is going to illustrate the different payment mechanisms in public-private partnerships projects, it is useful to start briefly with some definitions of P3 term. Indeed, P3 can be defined as a long-term contract to provide a public service or maintain a public facility, such as highways, hospitals, and bridges, between the private sector and the government entity . In this contract, the private sector will be taking the risk and the responsibility to maintain, operate, and manage the public facility at high-performance level. Another definition for P3 is that public-private partnerships project is a contractual agreement between the public agency, such as federal government and state government, and the private sector.
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Therefore, public-private partnerships projects were involved in the industry of construction to provide several advantages for the government. First, the government will share the risks with the private entity rather than taking the risk alone. Another advantage to use P3 projects for government is that some governments are looking for utilizing from the financial ability that the private sector has to support the project financially from the design phase till the operation and management phases, which is a finance-based method. Furthermore, other governments need to get the project done by professional contractors who have the sufficient experience to manage and control both of the cost and the schedule of infrastructure projects, which is called a performance-based method. In this method, the contractor will be compensated based on his performance in meeting the quality standard to operate this public facility …show more content…
However, using hybrid payment mechanisms requires flexibility from the governments’ side about the ideas of the project delivery to be compensated based on inputs, services, and usage . In addition, the common payment mechanism that is used in a wide range in infrastructure facilities is usage-based method. Also, bridges with tolls are the most common method to collect revenue from users. In summary, availability payment can stand alone while other payments; such as performance-payment mechanism has to be connected to the availability-based payment
Therefore, public-private partnerships projects were involved in the industry of construction to provide several advantages for the government. First, the government will share the risks with the private entity rather than taking the risk alone. Another advantage to use P3 projects for government is that some governments are looking for utilizing from the financial ability that the private sector has to support the project financially from the design phase till the operation and management phases, which is a finance-based method. Furthermore, other governments need to get the project done by professional contractors who have the sufficient experience to manage and control both of the cost and the schedule of infrastructure projects, which is called a performance-based method. In this method, the contractor will be compensated based on his performance in meeting the quality standard to operate this public facility …show more content…
However, using hybrid payment mechanisms requires flexibility from the governments’ side about the ideas of the project delivery to be compensated based on inputs, services, and usage . In addition, the common payment mechanism that is used in a wide range in infrastructure facilities is usage-based method. Also, bridges with tolls are the most common method to collect revenue from users. In summary, availability payment can stand alone while other payments; such as performance-payment mechanism has to be connected to the availability-based payment