Public-Private Partnership (PPP) can be broadly defined as a contractual agreement between the

Government and a private firm targeted towards financing, designing, implementing and operating
infrastructure facilities and services that were traditionally provided by the public sector. It embodies
optimal risk allocation between the parties minimizing cost while realizing project developmental
objectives. Thus, the project is to be structured in such a way that the private sector gets a reasonable
rate of return on its investment.
PPP offers monetary and non-monetary advantages for the public sector. It addresses the limited funding
resources for local infrastructure or development projects of the public sector thereby allowing the
allocation of public funds for other local priorities. It is a mechanism to distribute project risks to both
public and private sector. PPP is geared for both sectors to gain improved efficiency and project
implementation processes in delivering services to the public. Most importantly, PPP emphasizes Value
for Money focusing on reduced costs, better risk allocation, faster implementation, improved services
and possible generation of additional revenue.

Elements of Public-Private Partnership

Strategic mode of procurement

A contractual agreement between the public sector and the private sector
Shared risks and resources
Value for Money
Outcome orientation
Acceleration of infrastructure provision and faster implementation

Generally, there are two common forms of PPP structure: availability and concession-based PPPs. The
two forms could be distinguished from each other based on what the public or private parties assume
within the partnership, e.g. rights, obligations, and risks.
1. Availability PPP
A form of PPP wherein the public authority contracts with a private sector entity to
provide a public good, service or product at a constant capacity to the implementing
agency (IA) for a given fee (capacity fee) and a separate charge for usage of the
public good, product or service (usage fee). Fees or tariffs are regulated by contract
to provide for recovery of debt service, fixed costs of operation and a return on
equity.
While there are no usage fees in this project, an example is the PPP for School
Infrastructure Project (PSIP) Phase I wherein the private sector is responsible for
making available classrooms (consisting of design, financing, construction and
maintenance) for a contract fee with the Department of Education (DepEd).
2. Concession PPP
A form of PPP wherein the government grants the private sector the right to build,
operate and charge public users of the public good, infrastructure or service, a fee or
tariff which is regulated by public regulators and the concession contract. Tariffs are
structured to provide for recovery of debt service, fixed costs of operation, and return
on equity.
An example of a concession PPP is the Ninoy Aquino International Airport (NAIA)
Expressway (Phase II) wherein the Department of Public Works and Highways (DPWH)
granted the private sector the right to build and operate the expressway. Under the
contract, the private sector was given the right to collect a toll (user charge) from the
users of the expressway.

There are various PPP contractual arrangements reflecting how risks are shared and the roles between
the government and the private proponent. Build-operate-and-transfer (BOT) projects and its other
variants
can
be
structured
as
either
a
concession
or
availability
agreement.

Partnership between the government and private sector for infrastructure and development projects can
be made possible through a broad spectrum of modalities. The following are the contractual
arrangements which may be undertaken under the amended Philippine BOT Law and its Revised
Implementing Rules and Regulation:

Build-and-transfer (BT)
Build-lease-and-transfer (BLT)
Build-operate-and-transfer (BOT)
Build-own-and-operate (BOO)
Build-transfer-and-operate (BTO)
Contract-add-and-operate (CAO)
Develop-operate-and-transfer (DOT)
Rehabilitate-operate-and-transfer (ROT)
Rehabilitate-own-and-operate (ROO)

The enumeration of contractual arrangements in the BOT Law is not exhaustive. Other forms of
contractual arrangements may qualify as a PPP under the BOT Law, provided that such arrangement is
approved by the President. Other contractual modes recognized as PPPs are concession and
management contracts.

The Revised IRR of the BOT Law enumerates the list of activities which may be undertaken under any of
the recognized and valid BOT contractual arrangements (PPP modalities). These include, among others:
1. Highways, including expressways, roads, bridges, interchanges, tunnels, and related facilities;
2. Railways or rail-based projects that may or may not be packaged with commercial development
opportunities;
3. Non-rail based mass transit facilities, navigable inland waterways and related facilities;
4. Port infrastructures like piers, wharves, quays, storage, handling, ferry services and related
facilities;
5. Airports, air navigation, and related facilities;
6. Power generation, transmission, sub-transmission, distribution, and related facilities;
7. Telecommunications, backbone network, terrestrial and satellite facilities and related service
facilities;
8. Information technology (IT) and data base infrastructure, including modernization of IT, geospatial resource mapping and cadastral survey for resource accounting and planning;
9. Irrigation and related facilities;
10. Water supply, sewerage, drainage, and related facilities;
11. Education and health infrastructure;
12. Land reclamation, dredging and other related development facilities;
13. Industrial and tourism estates or townships, including ecotourism projects such as terrestrial and
coastal/marine nature parks, among others and related infrastructure facilities and utilities;
14. Government buildings, housing projects;
15. Markets, slaughterhouses, and related facilities;
16. Warehouses and post-harvest facilities;
17. Public fishports and fishponds, including storage and processing facilities;

18. Environmental and solid waste management related facilities such as, but not limited to, collection
equipment, composting plants, landfill and tidal barriers, among others; and
19. Climate change mitigation and adaptation infrastructure projects and related facilities.

In general, governments tap public-private partnership (PPP) for the following reasons:
1. PPPs encourage the injection of private sector capital.
o National Budget and official development of assistance are limited and are
subject to government prioritization. Private sector funding, on the other
hand, is readily available. It may be tapped to augment ODA funds and the
government budget to implement critical government projects.
o In the case of big ticket infrastructure projects, PPPs utilize the financial
capital of the private sector. Through it, project construction and service
delivery is accelerated. For example, the NAIA Expressway Phase II project will
be financed through private sector funding. On top of this, the government
has received an upfront payment of 11 billion pesos even before the actual
project construction.
2. PPPs make projects affordable.
o Government spending will be less if the project is undertaken as a PPP, since
the private sector funds their share of the project (including operation and
maintenance) during the duration of the concession. PPP projects consider the
whole of life costing approach (whole lifecycle costing) which ultimately lowers
capital and operating costs.
o All PPP projects undergo a competitive, transparent bidding. PPP project
proponents usually provide the most cost-effective capital goods necessary for
the project.
3. PPPs deliver value for money.
o Value for money (VfM) is achieved when the government obtains the
maximum benefit from the goods and services it both acquires and provides.
It is the best available outcome after taking into account all the benefits,
costs, and risks over the entire project life, which may not necessarily be the
lowest cost or price.
o For the PPP for School Infrastructure Project (PSIP) Phase 1, the PPP scheme
was identified as the most optimal financing option available for the
government to address the current classroom backlog in the country. Under
this scheme, the government will be able to deliver the needed classrooms in
the shortest time possible.
4. In PPPs, each risk is allocated to the party who can best manage or absorb it.
o In PPPs, risks are assumed by the party that is best able to manage and
assume the consequences of the risk involved.
o PPPs enable the government to take on fewer risks due to shared risk
allocation. Generally, the private sector takes on the projects life cycle cost
risk, while the government assumes site risks, legislative and government
policy risks, among others.

5. PPPs force the public sector to focus on outputs and benefits from the start.
o Project preparation activities are more rigorous in public-private partnerships.
This ensures that the project is highly bankable and can stand public scrutiny.
Better project preparation and execution will result in adherence to project
design within the agreed timelines.
o In PPPs, the government focuses on providing quality infrastructure and
services by setting each projects minimum performance standards and
specifications (MPSS).
6. With PPPs, the quality of service has to be maintained for the entire duration of the
cooperation period.
o In PPPs, project execution will be more rigorous as project ownership belongs
to the project proponents. The public sector only pays when services are
delivered satisfactorily.
o During the implementation stage, an independent consultant is hired to
ensure that both public and private parties adhere to the terms of the
contract/ concession agreement. This is true in the case of projects presently
undergoing constructionthe PSIP Phase 1 and the Daang Hari- SLEX Link
Road project.
7. PPPs encourage innovation.
o PPPs maximize the use of private sector skills. It utilizes higher levels of
private sector efficiency, specialization, and technology.
o In the case of the PSIP and the Daang Hari-SLEX Link Road projects, private
proponents were given flexibility in coming up with the project design that is
most efficient, taking into consideration the MPSS set by the government.

Solicited
proposal
A solicited proposal refers to projects identified by the implementing agency (IA) from the list of their
priority projects.
In a solicited proposal, the IA formally solicits the submission of bids from the public. The solicitation is
done through the publication of an invitation for interested bidders to submit bids, and selection of the
private proponent is done through a public competitive process.
Unsolicited
proposal
In an unsolicited proposal, the private sector project proponent submits a project proposal to an IA without
a formal solicitation from the government. An unsolicited proposal may be accepted for consideration and
evaluation by the IA, provided it complies with the following conditions:
1. It involves a new concept or technology and/or it is not part of the list of priority projects in the
Philippine Investment Program (PIP) [Medium Term Public Investment Program, Comprehensive
and Integrated Infrastructure Program (CIIP)] and the Provincial/Local Investment Plans;
2. It does not include a Direct Government Guarantee, Equity or Subsidy;
3. It has to go to ICC for the determination of reasonable Financial Internal Rate of Return (FIRR)
and approval to negotiate with the Original Proponent; and
4. After successful negotiation, proceed to publication and request for competitive proposals
according to Swiss Challenge Rules.