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Partnership of private and public sectors

photo:  (sxc.hu)

Public-private partnership and the Czech Republic


PPP is a generally used acronym for the partnership of the public and private sectors, taken from the English term public-private partnerships. You can also see the term private finance initiative (PFI). This term is used in the United Kingdom and refers to a subset of many PPP forms.

PPP is a general term for the cooperation of the public and private sectors, established in order to utilize sources and capabilities of the private sector in securing public infrastructure and public services. Individual PPP variants, if professionally and successfully applied, improve the quality and effectiveness of public services, including the performance of state administration, and speed up implementation of significant infrastructural projects with a positive impact on the development of the economy.

Typical examples of implementation through PPP are projects in the following fields:

  • Traffic infrastructure – highways, tunnels, bridges, high-speed tracks
  • Administrative or accommodation capacities – offices, courts, accommodation facilities, administrative premises, jails
  • Health service – hospitals
  • Educational system – university complexes, residence halls, schools
  • Defense – munitions, special infrastructure
  • Utility – water supply

The PPP principles successfully fulfill projects in most OECD countries. The model for the PPP principles implementation is namely the practice in the United Kingdom.

The substance of a successful PPP project is a presupposition that the higher contribution for public sector (in relation to the amounts incurred by it) can be achieved by utilizing the capabilities and experience of the private sector and distribution of risks between the parties involved, so that either party bears such risk it manages in the best way.

In terms of PPP, service means the complete provision of an asset (e.g. motorway, jail, etc.), including its operation according to pre-agreed contract conditions of quality and quantity. Income of the service supplier directly depends on the extent of performance of these conditions.

PPP usually means a shared part of both sectors in a company specially created for the purposes of project implementation that is governed by the Commercial Code.  

Advantages of PPP

Check-keeping - PPP allows the public sector to fully follow that which it can do best, and implementation of infrastructural projects is left to the private sector, without losing control.

Quality – the public sector gains a higher quality of public services while incurring same or lower costs.

Transfer of risks - PPP transfers significant risks on to the private sector, contract documentation clearly distributes responsibilities for costs and risks between both sectors so that each sector bears such responsibility as it can best control.

Efficient implementation - PPP allows implementation of infrastructural projects earlier, faster and without any risk of exceeding the budget for the public sector.

Transparency – is a professionally accomplished public tender – a project is not divided into a big amount of smaller orders usual at the time of the project's duration.

Bilateral convenience – PPP projects must be convenient bilaterally, both for the public and private sectors.

Motivation – the private sector is motivated with a possibility of long-term incomes. These, however, shall be only acquired upon meeting strict contractual conditions regarding the quality of the service rendered.

What is the process of PPP project?

  • Submitter (customer) is always a public subject who specifies in detail its needs and outputs that are expected from the project.
  • The role of the private sector is to secure public service in as efficient a way as possible, according to the assignment of the customer – the best bid wins – economic convenience is the criterion of evaluation.
  • If the private sector fails to meet contractual conditions, e.g. regarding the quality of service, it endangers its income from the public sector and thus payment of its investments.
  • The public sector pays yearly instalments, for instance, through a fee for service availability, or it allows the private sector to select directly from users of the service.
  • Banks secure project funding of projects (up to 95%) and dispose of special rights.
  • At the end of the project, infrastructure passes to the ownership of the public sector.

Public-private partnership and the Czech Republic

Currently, the government is working toward a legislative environment that would simplify public-private partnerships. First of all, it is based on the license act and related legal regulations, concerning cooperation of public and private sectors in financing and securing certain public services. The purpose of the law is limitation of a completely new legal institute: contractual cooperation between the subject of the public and private sectors.

The effort aims for a common securing of certain services of public concern, which are usually secured by public subjects only. The bodies of the Czech public administration often decide on this form of cooperation in implementation of projects associated with infrastructure, namely in the branches such as traffic, health service, education and defense.

First of all, the Czech Republic expects of PPP the possibility to get around budget limitations, since a partnership allows for necessary financing of the public sector from private sources. Within this cooperation, taxpayers obtain better services at lower costs while also being able to get services that would never be procured to them by the public sector, as it does not have required capacities.

The PPP theme is within the competence of the Ministry for Regional Development.

  • Difference between outsourcing x PPP

Outsourcing is the utilization of external sources. Risks remain on the side of the customer. Public-private partnerships are based on contractual cooperation between the subject of the public and private sectors. Through this cooperation, the risks are transferred on to the private sector, i.e. to subjects that generally have a better ability to control, and thus total risks in providing a public- concern service are limited.



Added: 28.12.2009

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