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1.1 What is a PPP: Defining “Public-Private Partnership”

The introduction to this Reference Guide provided a broad definition of a PPP:

A long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance.

This section fleshes out this definition with more detail, describing PPP contract types (Section 1.1.1 - PPP Contract Types and Terminology), the terminology used to describe them; and clarifying related types of partnership between public and private sector parties to which the definition and guidance material in this Reference Guide would generally not apply (Section 1.1.2 - What PPP is Not: Other Types of Private Involvement).

1.1.1 PPP Contract Types and Terminology

This section describes in more detail the range of PPP contract types under the definition of PPP used in this Reference Guide; and some of the common terminology used globally to describe PPPs.

Most PPP projects present a contractual term between 20 and 30 years; others have shorter terms; and a few last longer than 30 years. The term should always be long enough for the private party to have an incentive to integrate service delivery costs considerations into the design phase of the project. This includes maintenance considerations as well, in order for the trade-offs between initial investment cost and future maintenance and operation costs to be optimized. The “whole-life” approach, considering whole-life costs and whole-life benefits, maximizes the efficiency of service delivery. It is at the core of the rationale for using PPPs for the delivery of public services. The precise length of the contract depends on the type of project and policy considerations. Policymakers need to satisfy themselves that the demand for the services delivered by the project will be sustained over the whole-life 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 PPP contract.

PPP Contract Types

Throughout the Reference Guide, PPPs are described in terms of three broad parameters: first, the type of asset involved; second, what functions the private party is responsible for; and third, how the private party is paid.

Many PPPs involve new assets—often called greenfield projects. For example, the United Kingdom’s PPP program—the Private Finance Initiative (PFI)—involved private companies in financing, building, and managing new public assets, from schools and hospitals to defense facilities. PPPs can also be used to transfer responsibility for upgrading and managing existing assets to a private company—or brownfield projects. In either case, a key feature of a PPP is that the assets or services provided are specified in terms of outputs rather than inputs—that is, defining what is required, rather than how it is to be done.

A central characteristic of a PPP contract is that it bundles together multiple project phases or functions. Nonetheless, the functions for which the private party is responsible vary and depend on the type of asset and service involved. Typical functions include:

• Design (also called engineering work)—involves developing the project from initial concept and output requirements to construction-ready design specifications.
• Build or Rehabilitate—when PPPs are used for new infrastructure assets, they typically require the private party to construct the asset and install all equipment. Where PPPs involve existing assets, the private party may be responsible for rehabilitating or extending the asset.
• Finance—when a PPP includes building or rehabilitating the asset, the private party is typically also required to finance all or part of the necessary capital expenditure, as described further in Section 1.3 - How PPPs Are Financed.
• Maintain—PPPs assign responsibility to the private party for maintaining an infrastructure asset to a specified standard over the life of the contract. This is a fundamental feature of PPP contracts.
• Operate—the operating responsibilities of the private party to a PPP can vary widely, depending on the nature of the underlying asset and associated service. For example, the private party could be responsible for:
• Technical operation of an asset and providing a bulk service to a government off-taker—for example, a bulk water treatment plant.
• Technical operation of an asset, and providing services directly to users—for example, a PPP for a water distribution system.
• Providing support services, with the government agency remaining responsible for delivering the public service to users—for example, a PPP for a school building that includes janitorial service

• For the provision of these services, the private party typically creates a PPP company, a Special Purpose Vehicle (SPV). A dedicated SPV allows for the segregation of all assets and liabilities linked to the private provision of services.

  The PPP payment mechanism is a third defining feature. The private party can be paid by collecting fees from service users, by the government, or by a combination of the two—with the common, defining characteristic that payment is contingent on performance. The options for a payment mechanism can depend on the functions of the private party:

• Under user-pays PPPs, such as toll roads, the private party provides a service to users and generates revenue by charging users for that service. These fees (or tariffs, or tolls) can be supplemented by government payments—for instance, complementary payments for services provided to low-income users when the tariff is capped, or subsidies to investment at the completion of construction or specific construction milestones. The payments may be conditional on the availability of the service at a defined quality level. The social returns generated by user-pays PPPs may benefit the broader population, not only those who directly use the asset. For example, the value of real estate near the PPP project may rise as economic activity increases in the area. Non-users are then free riding unless property taxes are adjusted.

• In government-pays PPPs, the government is the sole source of revenue for the private party. Government payments can depend on the asset or service being available at a contractually-defined quality (availability payments)—for example, a free highway on which the government makes periodic availability payments. They can also be volume-based payments for services delivered to users—for example, payment from hospital care effectively delivered.

  These characteristics can be combined in various ways to create a wide range of PPP contracts. These contracts can be thought of as a continuum between public and private provision of infrastructure—transferring increasing responsibilities and risk to the private sector. Hybrid PPPs (see Box 1.16, Viability Gap Funding, RFB and Hybrid PPPs) are specific PPP structures in which government payment made during the construction phase, the operational phase, or both are combined with user fees to improve the project’s affordability and to allow it to proceed as a PPP.

  The payment mechanism should be structured in such a way that the net remuneration of the private party is linked to performance. For the private party to have the right incentives to deliver services at the performance levels intended by the procuring authority, its remuneration, net of costs, should increase when approaching these levels. Additionally, sustained significant deviations from the intended performance levels should lead to contract cancellation, with termination payments designed so that quitting the project is never an easy solution for the private party. For details regarding the payment mechanism see also Section 3.4.2 Payment Mechanism.

  PPPs are not the only way the private sector can be involved in infrastructure. These adjacent arrangements are described further in Section 1.1.2 - What PPP is Not: Other Types of Private Involvement.

  PPP Terminology

• This Reference Guide uses the term PPP to describe the wide range of contract types, regardless of the terminology in any specific country or jurisdiction. While PPP contracts can be categorized using the parameters above, there is no consistent, international standard for naming and describing these different types of contracts.

• This varying terminology can create confusion when comparing international experience.

  Some governments define PPP in their PPP policies or laws to mean a specific range of contract types, as described in Section 2.1- PPP Policy. Other terms are sometimes used as synonyms for PPP or refer to particular types of PPP—either in law or in common usage. For example:

• Brazilian law distinguishes between user-pays and government-pays projects—the Concessions Law governs PPP projects fully paid for by users; other PPP projects are governed by the PPP Law. Accordingly, only the latter are commonly referred to as PPPs. In France, the term PPP is restricted to government-pays contracts implemented under the PPP Law; user-pays contracts are referred to as concessions.
• In the United Kingdom, government-pays PPPs for new assets are known as Private Finance Initiative or PFI projects, while PPPs for existing assets (such as hospitals or railways) are some- times known as franchises.
• In some jurisdictions, the term concession is used to refer to specific types of PPPs. For example, in Brazil, a concession is a fully user-pays PPP. In Chile, all PPPs are called concessions and implemented under the country’s Concessions Law.

• The process of entering into a PPP is sometimes referred to as privatization, or for the resulting assets to be termed private—although this Reference Guide makes a distinction between PPP and privatization, as described further in the following section.

  In some cases, PPPs are described by the functions transferred to the private party. For example, a Design-Build-Finance-Operate-Maintain, or DBFOM contract would allocate all those functions to the private party. Other nomenclatures such as Build-Operate-Transfer (BOT) focus instead on the legal ownership and control of assets.

  The asset may be property of the public or private partner—usually decided by the legal constraints in place in any given country. The relevant factor for PPPs is not who the legal owner of an asset is, but who holds the economic rights to exploit that asset. The SPV may use an asset as collateral or simply use the flow of funds generated by the operation of the asset. Therefore, a BOT may not be significantly different from a BTO, in which transfer occurs immediately after construction. For example:

• In France, the roles governing the domanialité (defining the public domain) stipulate that the public domain can never be sold, seized by a tribunal, or subject to statutes of limitation. Consequently, the assets built on public land belong to the public authority, although the private partner in a PPP can be grant- ed specific economic rights to those assets.
• In other countries, public land can be leased to private operators who built and own the asset on that land until its ownership is transferred to government at the end of the contract. The ownership is not significant for accounting and statistical purposes—IPSAS, the International Public Sector Accounting Standards focuses on who controls the use of the infrastructure instead of who owns it to determine whether the asset should be consolidated on the government’s balance sheet.

• The 2016 Eurostat Guide to the Statistical Treatment of PPPs (EPEC 2016) states that asset ownership does not influence statistical classification—but ownership of the asset following the expiration of the PPP contract may.

  Table 1.1 - Infrastructure Contract Nomenclature explains common PPP terminology, and how each relates to the description by asset type, functions, and payment mechanisms described above.

  The following resources provide more information on PPP contract types and nomenclature:

• The Global PPP Certification Guide (APMG 2025, Chapter 1, Section 2) gives an overview of various forms of private sector involvement in the development, financing, and management of infrastructure and related approaches. It provides detailed information on the types of contracts that can be regarded as PPPs as well as those that do not qualify together with the respective nomenclature.
• Delmon’s paper on understanding options for PPPs in infrastructure (Delmon 2010) provides the most detailed discussion. Delmon classifies PPPs by five factors similar to the characteristics described above: (1) whether the PPP is a new or existing business or asset; (2) the responsibility of the private party for construction; (3) the level of private finance involved; (4) the nature of the project company’s service delivery obligations (bulk supply or retail level); and (5) the source of revenue stream.
• Yescombe and Farquharson chapter “What are Public-Private Partnerships” (Yescombe and Farquharson 2018, Chapter 2) also describes the range of PPP structures and how these are classified.
• Farquharson et. al. chapter “Defining Public-Private Partnerships” (Farquharson et al. 2011, 9–14) focuses on how PPPs differ from privatization and management contracts; and describes user-fee and availability-based PPPs.
• The World Bank explanatory notes on key topics in water sector regulation (Groom et al. 2006, Note 4) describe common contract types for managing existing assets in the water sec- tor: concession, lease or affermage, and management contracts.
• Engel, Fischer and Galetovic’s book The Economics of Public-Private Partnerships: A Basic Guide (2014) provides a concise overview of PPP contract types and key lessons from academic literature and real-world experience. It highlights when governments should choose PPPs, how to implement them effectively, and the appropriate governance structures.

• The World Bank’s Public-Private Partnership Resource Center website (PPPRC 2025) provides information on a range of PPP types, categorized by the extent of private sector participation and the specific contracting models used (Legal Framework/Contracts Agreements).

  Section 3.3 - Structuring PPP Projects provides guidance and hyperlinks on PPP contract structures, and how governments can decide which to use for a particular project.

Table 1.1 Infrastructure Contract Nomenclature

Figure 1.1 Examples of PPP Contract Types

Extent of private sector participation

1.1.2 What PPP is Not: Other Types of Private Involvement

Besides defining the essence and the main features of PPPs, it is also helpful to clarify what they are not. This is useful to help us understand why the various features of the PPP model all contribute to generating efficient, affordable, and sustainable projects, and why deviation from the standard PPP model can cause project failure. This does not mean that projects and contracts developed as variants of the PPP model are not useful. On the contrary, they may be very useful in certain circumstances; however, often, when projects and contracts that are structured as a PPP fail, the cause(s) can be tracked to deviations from the defining characteristics of a PPP. This can, for example, be seen in the UK Audit Office’s report on the failure of a PPP to upgrade London’s underground transportation infrastructure (NAO 2009a). The IADB report Bringing PPPs into the Sunlight – Synergies Now and Pitfalls Later? also underscores this point. It provides case studies (e.g. from Lesotho, Peru, and Portugal) that illustrate how the departure from defining characteristics of PPPs, such as proper risk analysis and allocation, the absence of competitive bidding, or a lack of a stable PPP framework with reliable institutional responsibilities and robust fiscal risk management, can lead to PPP project failure (Reyes-Tagle et. al. 2018).

Other types of contracts for providing public assets and services

Governments enter into a wide range of contracts with private companies. Some of these contract types share some of the typical PPP characteristics—such as being long-term, output based, or performance-related—but they are not PPPs as defined above. For example, these include:

• Management contracts do not share the long-term characteristic of PPPs, the significant private capital investment, and the high level of responsibility for long-term performance brought by investment in infrastructure assets. However, they typically include similar performance indicators and requirements to PPPs.

Performance incentives are created primarily through payment and penalties schemes. Being performance-based, they have a role to play where the private sector is not willing to invest, or where government is not willing to make a long-term commitment. The World Bank’s explanatory notes on water regulation (Groom et al. 2006, 36–42), for example, describe how management contracts are used in the water sector. Operations and Maintenance (O&M) and performance-based maintenance contracts may also fall outside the definition of PPP where they are of short duration and lack substantial investment by the private operator.

• Affermage contracts are contracts under which a government delegates management of a public service to a private company in return for a specified fee. For example, in an affermage contract in the water sector, the remuneration of the operator is a fixed amount per cubic meter of water sold, although this amount can be adjusted over the years based on inflation and the operator’s performance. Affermage contracts also have no infrastructure investment by the private operator—again, they have been the solution when appetite for investment is low, or when government is able to invest and does not wish to transfer so much management responsibility to a private party.
• Design-build or turnkey contracts include similar output-based specifications; however, as shorter-term contracts that do not include maintenance or operation, they do not create the same long-term performance incentives as PPPs. For complex infrastructure, these contractual requirements in a design-build contract may not result in optimal design, allowing contractors to cut corners, leading to additional maintenance and operational costs. Design-build contracts are short-term contracts, with no long-term responsibilities allocated to the private party. They are commonly used for simple projects, or for projects where the performance is credibly expected to keep at the same level with proper maintenance, and therefore corner-cutting is not relevant.

• Financial lease contracts are long-term contracts for providing public assets. However, these contracts transfer significantly less risk to the private party than PPPs because government maintains a larger proportion of risk than it normally would in a PPP. Financial lease contracts do not transfer significant responsibility for management and performance to the private party. They are not expected to produce significant improvements in service performance, or to reach efficiency savings.

  While the material in this Reference Guide focuses on PPP arrangements, the references provided in this Guide may also be useful for governments considering these related contractual arrangements; conversely, some references concerning these contract types may provide applicable lessons for PPPs. However, practitioners should bear in mind that differences in risk allocation will likely trigger differences in bidding and operational behavior from the private party.

Other concepts of “public-private partnerships” 
The expression public-private partnership is commonly used for several other types of arrangements between public and private entities—all of which differ significantly from the contracts we discuss in this Reference Guide.

A few examples of arrangements not covered in this Guide:

• Public-private partnerships for innovation—the U.S. Food and Drug Administration (FDA) and the University of Rochester initiated a so-called public-private partnership to improve pain treatment called Analgesic Clinical Trial Innovations, Opportunities, and Networks (ACTION) in 2011—this multiyear initiative aims to promote and accelerate the development of novel analgesics by identifying faults in the design of clinical trials.
• Public-private partnerships for environment protection—the petroleum industry has a long history of so-called public-private partnerships aimed at finding cooperative solutions to environmental, educational, and community issues—these partnerships are voluntary activities aimed at ensuring that oil and natural gas companies are perceived as an integral and contributing part of society and the communities in which the industry operates.
• Public-private partnerships for public health or against neglected diseases—in 2010, COTCO, the oil firm that operates the Chad-Cameroon pipeline in Cameroonian territory, initiated a so-called public-private partnership project to control malaria (a major public health problem in the area) along the pipeline corridor. These collaborations leverage resources, expertise, and community engagement to improve health outcomes. Such partnerships are increasingly recognized for their potential to address public health crises, particularly in response to COVID-19 and other endemic health issues. For example, the U.S Departments of Health and Human Services (HHS) and of Defense (DOD) collaborated with pharmaceutical companies and non-profit organizations to accelerate the development of vaccines and treatments, particularly evident during the COVID-19 pandemic with initiatives like Operation Warp Speed (GAO 2021).
• Public-private partnerships for terrorism insurance—in the aftermath of the 9/11 attack, the Terrorism Risk Insurance Act, also known as TRIA, was approved, creating a so-called public-private partnership with the purpose of stabilizing the insurance market, ensuring that private terrorism coverage would be widely available and providing for an orderly recovery in the event of future catastrophic losses. Under the program, insurers would have to absorb significant losses—approximately $30 billion in industry-wide deductibles—before the government would step in to provide additional coverage.
• Public-private partnerships against health care fraud—a voluntary, collaborative partnership between U.S. federal and state governments, private health insurance organizations, and health care anti-fraud groups designed to share information and best practices to improve fraud detection, prevent payment of fraudulent health care billings, and find and stop scams.
• Public-private partnership against terrorism—the United Nations Global Counter-Terrorism Strategy encourages “public-private partnerships”; the G8 launched a Global Forum for Partnerships between States and Businesses to Counter Terror- ism (Moscow 2006) which resulted in the G8 Strategy for Partnerships between States and Businesses to Counter Terrorism.

This Reference Guide does not address these types of contracts. Their characteristics and properties are too different from the PPPs referred to in the Guide. In particular, they do not exhibit the link between high capital investment and strong performance commitments that we witness in the PPPs we are addressing—some of those agreements do not have significant capital investment, others do not have any kind of credible commitment on performance, but simply a commitment to apply an entity’s best efforts towards a certain goal.

1.1.3 How PPPs Are Used: Sectors and Services

PPPs have been used in a wide range of sectors to procure different kinds of assets and services. In all cases, the PPP project contributes to the provision of public assets or services; and it involves long-life assets.

The definition of public services may vary across countries, and over time. The material presented in this Reference Guide is neutral to this definition; considering as a public service any service that the government considers its responsibility to provide or ensure is provided. The focus on long-term assets highlights the long-term nature of a PPP contract. PPPs generally involve fixed assets, but projects may also include related long-life assets that are purpose or site-specific, such as train rolling stock. Table 1.2 - PPPs by Sector—Examples and Resources provides a few examples of the types of assets and services that can be procured by PPPs together with some references providing more in-depth analysis on the range of worldwide experiences with PPPs.

Some countries focus their use of PPPs on certain sectors only, as described in Section 2.1 - PPP Policy. The rationale for such narrow focus can include the desire to support the government's investment priorities; to improve service delivery; or give precedence to sectors in which PPPs are expected to be most successful. 
Conversely, some countries define certain sectors or services with- in sectors, for which PPPs may not be used. These are sometimes called core services—that is, services that should be provided exclusively by the government. The definition of core services varies across countries, depending on local preferences and perceptions. For example, in the healthcare sector in the United Kingdom, PPPs have been used to construct hospitals and provide ancillary services such as maintenance, but the core medical services remain publicly-run (McKee et al. 2006). On the other hand, in a PPP hospital project in Lesotho, the private operator provided the full range of health- care services.

Useful resources providing cross-sector overviews of PPP experience in developing countries include:

• The World Bank's Private Participation in Infrastructure (PPI) database records data related to private sector investment commitments in infrastructure projects in low and middle-income countries across sectors. It includes PPP case studies across regions and sectors in the section Resources.
• The Uongozi Institute’s case studies on PPPs in Sub-Saharan Africa (Yescombe 2017) present projects in the water, road, rail, energy, health, and accommodation sectors.
  The Caribbean PPP Toolkit (Caribbean 2017) includes references to projects in a broad range of sectors across the region, utilizing various PPP models.
• Yong’s chapter on PPPs in Commonwealth countries (Yong 2010, 87–104) includes 11 case studies in the water, transport, power, and health sectors in Africa, Asia, and the Caribbean
• A paper by Farlam on PPP experience in Africa (Farlam 2005) presents lessons learnt from eight PPP projects in the transport, prisons, telecommunications, water, power, and tourism sectors.
• The World Bank’s review of lessons learned from Output-Based Aid projects (Mumssen et al. 2010) summarizes the experience accumulated to date from infrastructure projects involving private sector participation and output-based aid provisions—including PPPs —in the communications, roads, energy, water, health, and education sectors.
• The Asian Development Bank’s scoping study on irrigation and drainage (Varma et al. 2013) identifies the areas where private sector participation can be envisaged in consonance with India’s policy framework.
• The PPIAF/Global Infrastructure Hub (GIH) Knowledge Hub, along with the “Sectors” section on the PPPRC website, offers access to case studies and other resources on PPPs across various infrastructure sectors. These materials can be searched by sector and sub-sector.
• The IFC’s PPP website also showcases cross-sectoral PPP projects where IFC’s Transaction Advisory helped governments design and implement PPPs that deliver essential infrastructure and high-quality services.
• For more information on how PPPs have been used in developed markets, see the European Investment Bank’s Report Public-private partnerships financed by the European Investment Bank from 1990 to 2024 (EIB 2025) which offers an overview of the EIB's involvement in financing PPPs over more than three decades with a focus on European countries.

Table 1.2 PPPs by Sector - Examples and Resources

Key References: What is a PPP?