Long-Term Infrastructure Partnerships: Contracting Risks and Risk-Reduction Strategies

Abstract

Long-term commercial contracts between governments and private companies to design, build, finance, and/or manage infrastructure projects, often labeled ‘‘public-private partnerships,’’ offer the potential to improve project quality and cost-effectiveness. However, the success of these contracts from the public’s perspective depends upon government’s capacity to capture these potential benefits. While some long-term infrastructure contracts have met their performance and cost-saving objectives, the failure of other high-visibility infrastructure contracts demonstrates that the long-term viability of these complex arrangements is far from guaranteed. This essay examines the heightened contracting risks posed by long-term infrastructure partnerships, provides illustrative examples of flawed contracting practices, and offers a series of recommendations to public owners for practical measures to reduce the public’s exposure to risk in these contracts, thereby enhancing the prospects for success.