Why the Future Depends on Public-Private Partnerships?

A railroad station in Indonesia. Public-Private Partnerships can continue to connect the small island to the outside world through ports, railings, and other infrastructure projects.

A railroad station in Indonesia. Public-Private Partnerships can continue to connect the small island to the outside world through ports, railings, and other infrastructure projects.

Throughout history, individuals have looked for governments to provide safe avenues for upward mobility and peaceful bridges of progress. With these paths, individuals will be able to bring their gifts and resources to the world. It is not enough for individuals to cast down their buckets where they are, if the buckets land on muddy roads of hopelessness and tracks of endless poverty. However, Pubic-Private Partnerships provide a beacon of light at the end of the tunnel where the financial resources of the private world are combined with the natural land of the government. Pubic-Private Partnerships planned correctly will benefit countries in primarily two ways: 1) the country may not have to pay to build the infrastructure project and 2) after roughly 20 years, the infrastructure project can be transferred to the country. In this paper, we discuss some of the legal advantages of Pubic-Private Partnerships and how all parties can minimize risk to ensure everyone benefits.

I. What is a Public-Private Partnership?

While the Pubic-Private Partnership definition varies, E.R. Yescombe offers a good definition: 

A Pubic-Private Partnership is a long-term contract between a public-sector party and a private-sector party; for the design, construction, financing, and operation of public infrastructure by the private-sector party; with payments over the life of the PPP Contract to the private-sector party for the use of the Facility, made either by the public-sector party or by the general public as users of the Facility; and with the Facility remaining in public-sector ownership, or reverting to public-sector ownership at the end of the PPP Contract.

Many developing countries have limited funds for infrastructure investments, yet these countries face pressure to increase spending and improve the quality of public services. Public-Private Partnerships are a great way to improve the quality of the infrastructure. In most cases, the Governments do not use public funds for construction because the Private-Sector finances the construction of the infrastructure project. Once the infrastructure is constructed, the Private-Sector is either paid by the general public that uses the infrastructure (e.g. tolls on roads) or through routine payments from the Government over the length of the Public-Private Partnership Contract. Public-Private Partnerships seek to bring value while bringing accountability and innovation from the private sector. 

Both the Governments and the Private-sector sign a Public-Private Partnership Contract that typically lasts at least 20 years. It is important that the infrastructure maintain value over a long time. After the Public-Private Partnership Contract ends the infrastructure project is traditionally transferred to the ownership of the Government, if it is not already in the Government's possession.

Workers on a Tea Plantation in East Africa. Public-Private Partnerships can help facilitate the creation of roads and ports to help farmers bring their tea to the international markets.

Workers on a Tea Plantation in East Africa. Public-Private Partnerships can help facilitate the creation of roads and ports to help farmers bring their tea to the international markets.

Workers on a Tea Plantation in East Africa. Public-Private Partnerships can help facilitate the creation of roads and ports to help farmers bring their tea to the international markets.

What is not a Public-Private Partnership?

It is important to understand that not every project between the government and the private sector is a Pubic-Private Partnerships. Pubic-Private Partnerships primarily involve infrastructure projects that last at least 20 years.

Projects based on the following are not Pubic-Private Partnerships:

  1. Public infrastructure that is acquired or managed by the Private-Sector without making a major upgrade or large investment into the existing infrastructure,

  2. Most joint-venture investment projects between the public and private sectors because a Pubic-Private Partnership Contract is typically not apart of the joint-venture,

  3. Private-sector operating of soft infrastructure, (e.g. hospitals, financial institutions, and schools) that involves no significant investment in fixed assets because the fixed assets have been built, and

  4. Technology projects because technology changes too quickly.

II. How is the Private Sector Paid from Public-Private Partnerships?

Private-Sector businesses finance and build infrastructure projects; and in exchange for building these projects, the Private-Sector business is paid through either the Private Finance Initiative Model or Concession Model.

Private Finance Initiative Model

The Private Finance Initiative Model involves the Government paying the Private-Sector for building infrastructure that will be used by the Government. The payments are regularly made throughout the life-cycle of the Public-Private Partnership Contract.

An example of a Private Finance Initiative Model would if the private sector builds a public hospital or prison. The Government would in return make regular payments to the private sector over roughly 20 years.

Concession Model

The Concession Model is where the Private-Sector builds the infrastructure project and charges the user or general public for using the infrastructure project.

A classic example of the Concession Model is when a road is constructed and drivers pay a toll fee to use the road. The road is transferred to the Government after the Private-Sector either recoups the agreed amount or once the Public-Private Contract ends.

Both the Private Finance Initiative Model and Concession Model follow one of the four types of Public-Private Partnership Operating Models.

III. The Four Business Models of Public-Private Partnerships

Public-Private Partnerships are generally constructed, financed, operated, and owned based on one of the four predetermined business models:

Fisherman at Sea. Public-Private Partnerships can help facilitate the creation of ports to help fishermen sell and export their seafood at the local and international markets.

Fisherman at Sea. Public-Private Partnerships can help facilitate the creation of ports to help fishermen sell and export their seafood at the local and international markets.

  1. Design-Build-Finance-Operate (DBFO)

  2. Build-Transfer-Operate (BTO)

  3. Build-Operate-Transfer (BOT)

  4. Build-Own-Operate (BOO)

    Once the parties agree to a particular model, the terms of the model are clearly written into the Public-Private Partnership Contract.


A DBFO allows the Private-Sector to design, build, finance, and operate the infrastructure project. However, the Government will actually own the infrastructure. The Private-Sector is paid either through regular payments from the Government during the term of the Public-Private Partnership Contract or from fees from the general public that uses the infrastructure.


With a BTO, the private sector builds the infrastructure project. Once the project is completed, ownership is then transferred to the Government while the Private-Sector operates the project. This method benefits the Government and minimizes its risk by only acquiring a completed project. The Government does not have the risks and concerns with hazards and costly delays that often comes with construction projects.


This model allows for the Private-Sector to own the infrastructure project after construction, for the length of the Public-Private Partnership Contract. Once the Public-Private Partnership Contract ends, ownership is transferred to the Government. The Private-Sector is incentivized to build a quality and sustainable project because they will have to maintain the project in working condition throughout the life of the Public-Private Partnership Contract. While the Government transfers much of the risk to the Private-Sector, a department to monitor the infrastructure is typically created to ensure it is maintained in good operating conditions.


While this model is only used for a small number of cases such as the construction of Power facilities, it still remains an option for the Government and the Private-Sector. This is more similar to a concession because the government never takes ownership of the infrastructure.

Once the government determines its planned model to use, it will work the project through the four life-cycle phases of Public-Private Partnership.

IV. What is the Life-Cycle of Public-Private Partnerships?

It is important to follow the best practices to ensure a successful Public-Private Partnership. These best practices generally involve four life-cycle phases:

Worker in a rice field. Public-Private Partnerships can help sell this staple food with the creation of roads, bridges, and ports to export steady supplies to Continental Africa.

Worker in a rice field. Public-Private Partnerships can help sell this staple food with the creation of roads, bridges, and ports to export steady supplies to Continental Africa.

  1. Initial Feasibility

  2. Procurement Phase

  3. Construction Phase

  4. Operation Phase

Initial Feasibility

This stage involves determining which infrastructure project to pursue and whether a Public-Private Partnership would be the ideal method to finance the project. There is a presentation of the project to all needed governmental authorities to ensure there is full support and approval from the Government. The Government then creates the necessary project management structure to manage the process of Public-Private Partnership, beginning with the Procurement Phase.

Procurement Phase

During this stage, bids are requested and received from the general public. After deliberation, a winning bid is chosen. After a winner is chosen, all of the contracts are negotiated and a Special-Purpose Project Company is formed.

The Government completes a thorough due diligence process, prior to closing, to minimize its risk while ensuring the Special-Purpose Project Company has the necessary contracts drafted such as:

  1. Financial Agreements,

  2. Insurance Agreements,

  3. Subcontractors Agreements,

  4. Maintenance Agreements, etc

The Procurement Phase ends with the Financial Closing. At this point, all of the funding requirements and other conditions have been met and construction can begin.

Construction Phase

Construction of the infrastructure involves many parts including subcontractors, financing, and legal compliance specialists to ensure the project is meeting the requirements of the Public-Private Partnership Contract. The Government’s key role is monitoring the infrastructure project to ensure it is completed according to the terms of the Public-Private Partnership Contract and in a timely manner.

Operation Phase

A completed infrastructure project now serves its role according to the Public-Private Partnership Contract. During this stage, the lenders are repaid for any loans and the investors receive a return on their investments. The Government continues to monitor and ensure the project is operated and maintained according to the Public-Private Partnership Contract.

Lawyers play a major role in helping both the Private Sector and Governments during all stages of the Public-Private Partnership.

V. What is the Role of Lawyers in Public-Private Partnership?

Lawyers play a critical role in Public-Private Partnership primarily in 4 categories:

Shepherd watching his flock. Public-Private Partnerships can help bring the sheep’s valuable wool to the world with the creation of roads, bridges, and ports.

Shepherd watching his flock. Public-Private Partnerships can help bring the sheep’s valuable wool to the world with the creation of roads, bridges, and ports.

  1. Contract Drafting

  2. Negotiations

  3. Compliance

  4. Dispute Resolution

Contract Drafting

Whenever there is any significant amount of money involved, a contract needs to be signed. Public-Private Partnerships are no different and there are many contracts that need to be signed. Skilled lawyers draft legal documents such as:

  1. Investor Agreements,

  2. Loan Agreements,

  3. Subcontractor Agreements,

  4. The Public-Private Partnership Agreement, and

  5. Creation of the Special Purpose Project Company


The negotiations typically take place after a winning bidder is chosen to construct the project. When the contracts are drafted, both sides will negotiate the terms of all of the different agreements. The negotiations can last days or even months before everyone agrees to a set of terms. When the contracts are signed by both parties, they must monitor the project to ensure everything complies with the Public-Private Partnership Contract.


Compliance with the Public-Private Partnership Contract term is mandatory. Failure to comply with the Public-Private Partnership Contract can lead to costly fines, penalties, lawsuits, and even rescission of the contract. Compliance is needed at all phases of the Public-Private Partnership.

At the Initial Feasibility Stage, lawyers can help the Governments draft Public-Private Partnership laws and regulations and help the Government to comply with any and all applicable laws. At the Procurement Stage, lawyers can monitor and ensure the procurement is open, honest, fair and transparent. In addition, companies seeking to win Public-Private Partnership bids can use lawyers to help them comply with all procurement regulations. Once all contracts are negotiated and signed, both the Government and the Private-Sector need to comply with the Public-Private Partnership Contract in order to avoid lawsuits and disputes.

Dispute Resolutions

Reasonable minds may differ on issues and sometimes a party may violate contract terms. This will lead to disputes and litigating issues can be very expensive. Lawyers will be needed to find Alternative Dispute Resolutions to help minimize the cost of the disputes and ensure the Public-Private Partnership pursues the ultimate goal of bringing value to the public.

VI. Conclusion

Without the light of possibility, the dark clouds of despair and defeatism will hover over entire communities. Therefore, it is necessary to think of solutions in terms of teamwork. Teamwork through Public-Private Partnerships can build the bridges, roads, power plants, and ports to connect the people to oceans of opportunity. The Private Sector is motivated by enterprise and the Governments should be motivated to enhance the welfare of its people.

Skilled lawyers are needed to help ensure the entire process of Public-Private Partnerships are handled smoothly. We can help with Public-Private Partnerships. Feel free to CONTACT US to discuss your legal needs.

*This blog post is for educational purposes only and not be used as legal advice.

How to Find Peace During a Stressful Tax Audit?


When the Internal Revenue Service (IRS) notifies business owners that they owe tax dollars, they usually do it by sending a 30-day letter or a 90-day deficiency letter. However, this does not mean the taxpayer actually owes what the IRS claims. Business owners should not panic. Instead, they should start preparing a defense.

I. 30 Day Letter

The 30-day letter from the IRS generally states an audit has taken place and wants the owner to agree to the amount from the audit. However, the taxpayer can reject the IRS examiner’s findings and protest to the IRS Appeals Office.

II. 90 Day Letter

The 90-day letter from the IRS is a deficiency letter. The IRS sends the deficiency letter for including, but not limited, to 3 reasons: 1) when time to send the 30-day letter is about to run out, also called the statute of limitations; when the taxpayer fails to respond to the 30-day letter; or when there is an actual deficiency in payment of taxes. The business owner can rightly protest this letter in the Appeal Office, US Tax Court, or Federal District Court. The taxpayer should consider all appropriate defenses with an appeal


Every taxpayer has legal defenses to help with the appeal of the IRS deficiency letter. The defenses can reduce or eliminate the tax deficiency. Three popular defenses are the Offer in Compromise, Installment Agreement, and Innocent Spouse Defense.

I. Offer in Compromise

When business owners allegedly owe the IRS, one common defense from paying is the Offer in Compromise (OIC). This defense allows the business owner to pay only what it actually can pay to the IRS.

For example, the IRS states that a person owes $150,000 in taxes. However, due to severe inability to pay, he can only pay $75,000. The IRS can agree to an OIC and allow the owner to not pay the remaining $75,000.

One must understand the IRS, while very forceful, is not here to bankrupt the taxpayer. To deter this application, the IRS requires a 20% lump sum payment with the OIC application.

The OIC allows the taxpayers to pay the IRS and move on with life.

II. Installment Agreements

The Installment Agreement allows the business owner to pay the IRS in monthly installments rather than paying the entire amount at one time.

For example, the IRS states A owes $150,000 in taxes. However, A only owes $80,000 in taxes. This is a victory for A. But, the problem is A does not have $80,000 to pay the IRS.

A taxpayer can gain another victory by getting the IRS to agree to an Installment Agreement. This will allow the taxpayer to make small affordable monthly payments over months or even years.

III. Innocent Spouse Defense

The IRS often holds a spouse liable for the unpaid taxes of their separated or divorced spouse. This is particularly true if there was a previous joint income tax return filed. Many times one spouse is not involved and unaware of the business dealings of the other spouse. The separated spouse who does all of the tax paperwork could not be reporting tens of thousands of dollars. This would hold both parties jointly liable for the unpaid taxes. However, there is a powerful defense called the “innocent spouse defense”.

A divorce decree means nothing in the eyes of the IRS. It merely creates a right for the non-liable spouse to sue her spouse after she pays the unpaid taxes to the IRS. The innocent spouse defense allows the spouse to not have to pay the IRS at all. If he or she can show no knowledge of the understated taxes on the jointly filed tax return and it would be inequitable (basically a legal word for unfair) to require payment, then the IRS can allow the innocent spouse defense. The spouse must elect this defense within 2 years of IRS collection activities.

These are powerful strategies to help individuals on their tax returns. However, businesses have strategies to help defend against IRS payroll tax audits and protect against levies and liens.

Payroll Taxes

Business owners are required to withhold payroll taxes (e.g. Medicare and Social Security) from employees’ checks. The IRS often attempts to hold businesses owners liable for any unpaid payroll taxes.

Running a business is understandably tough and falling behind on bills to creditors can happen. Business owners sometimes use withheld payroll taxes to pay company bills and loans instead of the IRS. However, owners have options and can appeal the notice of the IRS.

The owner can show he or she has not willfully failed to pay the collected payroll taxes. In addition, the owner can show another party is responsible for collecting the company’s payroll taxes. Companies often have hundreds of employees with everyone having a different role. In addition, companies often outsource payroll. Showing that another person is responsible for the unpaid payroll taxes can save money and headaches.

Tax Liens and Levies

Business owners often are hit with IRS liens and levies. Things happen, but owners have options and can appeal the lien or levy. An IRS lien is a legal claim against an owner’s property in order to guarantee payment of an alleged tax debt. A levy is where the IRS actually takes property or portions of wages from the owner to satisfy the alleged tax debt.

A business owner can pay the money or appeal the lien or levy. The owner should always explore all sound options.

The IRS is the world’s largest collection agency, but owners should not be afraid to pursue their rights through the various tax appeal venues.

Appeal Venues

When a business owner wants to appeal an IRS letter, there are options. The owner can appeal to the IRS Appeal Office, US Tax Court, or Federal District Court. They each have their separate pros and cons.

I. IRS Appeals Office

In the IRS Appeals Office, the Federal Rules of court Evidence (e.g. hearsay and other legal objections) are more relaxed. However, a major negative of the IRS Appeals Office is that another employee of the IRS will be reviewing your appeals. It will not be an independent and unbiased judge.

II. United States Tax Court

The US Tax Court applies the Federal Rules of Evidence. Hearsay and its exceptions (e.g. the business records exception) are important hurdles and create opportunities to win or lose the trial. In addition, there is no jury to hear the facts of the case. But, the benefit is there is an independent and unbiased judge.

III. Federal District Court

In Federal District Court, there is an unbiased judge and an available jury. However, the main negative of the Federal District Court is the owner must pay the alleged tax in full and then file a claim for refund to enter into this court.

Both the US Tax Court and the Federal District Court requires the taxpayer to understand who has the burden to speak and prove his case.

Burden of Proof

When a business owner appeals an IRS deficiency letter to a court, the taxpayer generally has to show he or she is not liable for the tax. This is a legal term called the "burden of proof". Outside of a few exceptions, the IRS is presumed correct and does not have to prove the taxpayer underpaid the taxes in court. Despite the possibility of human error, the IRS attorney generally never has to prove anything. The taxpayer must show he or she isn’t responsible for the taxes.

This is in contrast to other areas of the law, such as criminal law, where the government has the burden to show a person is guilty. The defendant in criminal law often never testifies. In tax law, the taxpayer proves he or she is not liable by testifying or bringing witnesses to testify. The taxpayer can also bring business documents to court to help the case.

It is important for a taxpayer to understand how to prove he or she is not liable for the taxes. Obtaining evidence through Freedom of Information Act (FOIA) requests can help a taxpayer prove the case.

Freedom of Information Act Tax Implications

The business owner has a very powerful tool to gather information and documents from the IRS when the owner appeals his IRS deficiency letter. This tool is called the Freedom of Information Act (FOIA). A taxpayer can send the FOIA request to the IRS to obtain the information the IRS has used against the taxpayer. The taxpayer must give the IRS a reasonable description of the records wanted in the FOIA request.

However, there are exceptions where the IRS will not give information on FOIA requests. A few of the exceptions include information relating to national defense or foreign policy, trade secrets, IRS employee personnel files, or enforcement techniques.

The taxpayer must be fully informed of the stance of the IRS in order to adequately prepare an appeal.

Closing Agreement

When a taxpayer comes to an agreement with the IRS, the taxpayers should request a closing agreement. A closing agreement is to protect the taxpayer against the government from reopening the case at a later date. The closing agreement is legally binding on both the taxpayer and the IRS, as to the matters that they each agreed to. Unintentional mistakes by either party will not reopen the closing agreement.

However, a closing agreement may be set aside if there is a material misrepresentation, fraud, or malfeasance. In addition, the tax court has the authority to review the reopening of a closing agreement. The IRS must show that the case is worthy of reopening.

A closing agreement is generally a good thing for the taxpayer. However, the closing agreement does prevent the taxpayer from later filing a claim or instituting a lawsuit for a refund of taxes paid.

We can help with Tax Law Problem. Feel free to CONTACT US to discuss your legal needs.

*This blog post is for educational purposes only and not be used as legal advice.