Paper Objective: Based on case studies and over twenty-four interviews with senior professionals from public and private sectors involved in public-private partnerships (PPP), this paper will provide empirically-based recommendations for public managers to oversee private sector contributions to government service delivery programs.

Keywords: Managing Budget-Cuts, Cross-Sector Collaboration, Performance Evaluation

Why Government Capacity Matters: With state and local governments facing some of the most dire fiscal conditions since World War II (NASBO, 2011), more and more U.S. government administrations are turning to private sector finance and related models of PPPs to develop large-scale infrastructure projects, the most expensive public programs in their jurisdictions (Geddes, 2011; Rall, Reed, & Farber, 2010).  PPPs offer opportunities for many state and local governments to do more with less, due to the potentials for private sector financing to accelerate projects that governments cannot finance on their own (Yescombe, 2007), and due to the potential cost-savings that can result from private sector design and operations of large-scale facilities (Grimsey & Lewis, 2007; Robinson, Carrillo, Anumba, & Patel, 2010).  The challenge is that much of the skills, knowledge, and human resources needed for facilitating PPPs are different from what government administrations are used to carrying out (Forrer, Kee, Newcomer, & Boyer, 2010; Robinson et al., 2010).  Additionally, international reviews reveal that PPPs are often unable to achieve their expected efficiencies (Hodge & Greve, 2007), due largely to the deficiency of public sector capacity for managing their design and implementation (Robinson et al., 2010). 

Methodology: This paper draws from document analysis of two state-level agencies (the Virginia Department of Transportation and the Texas Department of Transportation), as well as analysis of transcripts from twenty-four interviews with experts from the two states through the software program Atlas.ti.  Both states under investigation demonstrate extensive experience designing and implementing PPPs, and provide examples of what works and does not work for government agencies that have carried out this work.  The study’s conclusions draw from case studies from each state, as well as a cross-case analysis to highlight issues of convergence and divergence from each of the two contexts under examination (George & Bennett, 2004; Yin, 2003). 

Implications:  Findings from the two case studies suggest that while government administrations are initially at a disadvantage to negotiate with the private sector, they can improve their leverage through the development of internal capacity.  Findings also suggest that citizen engagement is central to government learning of what is appropriate for PPPs, as well as organizational cultures that allow for open discussion of failures and the causes of failures in projects.  The paper draws from a theoretical framework of government learning to describe how government agencies can utilize the experience of other agencies, document their own lessons through experience, and develop monitoring and evaluation systems to improve their oversight of PPPs.