Structuring Public-Private Infrastructure Joint Ventures
A public-private partnership has to satisfy a commercial board and a public procurement review. Deals structured for only one of them stall.
Two standards at once
A commercial joint venture answers to its partners' boards, and returns, risk allocation and control are negotiated between them. A public-private infrastructure partnership adds a second audience, because the public authority must show that the partner was chosen fairly, that the terms represent value and that public interests are protected.
Neither audience can be treated as secondary. A structure the private board rejects will not be financed, and a structure that fails procurement review will not be approved.
Where commercial-only structures stall
Private partners and their advisers are practiced at commercial negotiation, so it is common for the parties to agree terms between themselves and then submit the result for public approval. That is the point at which it stops.
Procurement reviewers ask how the partner was selected, whether others had the chance to compete and whether the authority's decision rights are adequate. If those questions were not built into the negotiation, the answers are unsatisfactory and the terms have to be reopened.
Exhibit 1: What each side of a public-private partnership needs from the structure.
| Element | Commercial partner needs | Public authority needs |
|---|---|---|
| Partner selection | Confidence the opportunity is real | A fair, documented and defensible process |
| Returns | A risk-adjusted return its board accepts | Evidence of value for public money |
| Decision rights | Enough control to manage delivery risk | Reserved powers over matters of public interest |
| Information | Protection of commercially sensitive data | Transparency consistent with disclosure rules |
| Risk allocation | Risks it can price and manage | No return of transferred risk to the public side |
| Exit and step-in | Clear terms for transfer or sale | Continuity of the public service |
Introductions under agreement
Early conversations carry their own exposure. A private party shares commercial information and an authority shares plans that could affect a later competition, so both have reason to be careful.
Each counterparty introduction, and any exchange of verification documents or counterparty details, takes place under an executed Non-Circumvention Non-Disclosure Agreement (NCNDA). It protects the private party's position and the integrity of the authority's process.
In one composite engagement, a logistics operator needed a terminal partner for a new corridor. Candidates were qualified and introduced under a signed NCNDA, and the partnership was established with no new capital for terminal capacity. Read the partner introduction case study.
Sequence both together
- Qualify private partners on commercial capability and on their record of delivering with public bodies.
- Design decision rights that give the commercial board what it requires and keep the authority’s reserved powers.
- Address procurement approval requirements in parallel with commercial terms, before a term sheet is signed.
- Document the selection process as it happens, so it can be shown later.
A partner with no public-sector experience may be commercially strong and still struggle with reporting duties, disclosure requirements and the pace of public decisions, which is why that experience is worth weight in selection.
Applicable procurement law differs between jurisdictions and levels of government, and specialist advice is needed on each transaction. The principle holds generally, which is to build for both audiences from the first draft.
Once a venture is formed, the authority still has to supervise delivery, as described in contractor oversight for publicly funded programs and capital prioritization for infrastructure authorities.
Key takeaways
- Bring the authority’s procurement and legal advisers into structuring discussions from the first session.
- Screen private partners for public-sector delivery experience as well as commercial strength.
- Put a signed NCNDA in place before any counterparty details or documents are exchanged.
- List every decision the venture will take and agree which party holds it.
Structure your partnership for both sides
We can qualify partners, manage introductions under NCNDA and help design a structure that meets commercial and public requirements.
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