Better. Faster. More Cost-Effective.

News 28/05/2026

Why private infrastructure engagement is about more than raising capital — and how a new generation of partnerships can succeed

There was a time — in the late 1990s and early 2000s — when private-sector models for delivering public services were seen as a beacon of hope. More competition, better processes, fewer efficiency losses. Expectations were high and the promise ambitious: private capital and expertise would modernise underfunded public infrastructure while improving quality, speed and cost-efficiency.

Today, more than two decades later, we face a paradox. The investment need for infrastructure has grown massively — estimates point to a modernisation backlog of several hundred billion euros in Germany alone — yet public confidence in private-sector solutions has largely evaporated.

Why did the first generation of public-private partnerships fail? And why do we need — perhaps now more than ever — a new wave of partnerships?

Why the First PPP Generation Failed

Very few new PPP projects have been planned and delivered over the past 20 years. Support for PPP in public opinion and large parts of the political landscape is scarce. Past projects are widely seen as crisis-prone, poor in quality, and — with hindsight — systematically overpriced.

From my own experience, I identify three root causes:

Structural contract deficiencies. Contracts were often designed without clear provisions for unforeseen problems or the governance processes needed to resolve them. Mechanisms for adjusting terms through amendments — and the rights of both parties to trigger them — were frequently absent. Equally, contracts lacked effective safeguards against quality shortfalls. The result was protracted litigation and renegotiation that burdened both sides and undermined the efficiency gains originally sought.

Financial distortion from the interest rate environment. PPP models locked in long-term financing contracts of 25 to 30 years at a time of high interest rates. Those rates are embedded — implicitly — in the fees and rents that persist to this day. The subsequent rate reversal and prolonged low-interest era made these financing structures look extremely expensive in retrospect. At the same time, inflation-protection clauses — typically tied to general, not project-specific, price indices — created the impression of excess returns for investors.

The wrong motivation on the public side. Across all projects, a common thread emerged: public authorities wanted private money, not private expertise. PPP was understood primarily as a remedy for over-indebtedness, not as a tool for better service delivery. Governance structures suited to long-term partnerships were absent. Instead, rigid, long-term contracts were signed without the flexibility for necessary adjustments over time.

Why Private Infrastructure Investment Matters More Than Ever

Despite this sobering track record, one thing is clear: private capital and private expertise are more necessary today than ever before. Germany and Europe face a dual infrastructure challenge.

First: decades of systematically insufficient investment in infrastructure built in the 1950s through 1970s — roads, bridges, school buildings, water supply — much of which has reached or exceeded its intended service life.

Second: new infrastructure imperatives driven by decarbonisation, digitalisation and demographic change. The energy transition requires massive investment in grids, storage and renewable generation capacity. Supply and waste systems must become more resilient to external shocks. Digitalisation demands high-performance data centres, fibre and mobile networks. Demographic change and inclusion place new demands on social infrastructure.

Even with renewed focus on public spending — special funds and the Germany Fund — it is clear that the public sector cannot shoulder these investment needs alone. A significant financing gap remains even under optimistic assumptions about future fiscal headroom. The debt brake, demographic pressures and competing expenditure needs all impose tight constraints.

But it is not only about capital. Equally important are speed and quality of implementation. Public administrations are thinly staffed in many areas; planning capacity is limited and processes slow. Private investors and operators — if correctly structured — can bring complementary competencies: project management expertise, technical know-how, capacity for innovation and implementation speed.

Success Factors for a New Generation of Partnerships

The question is not whether private engagement in infrastructure is needed, but how it should be organised. The opportunity lies in doing it better, faster and cheaper than before — better in terms of quality and innovation, faster in terms of delivery timelines, cheaper through improved incentive structures.

Standardised contracts as an enabler of pragmatic partnerships. A central lever for better PPP models is standardised, proven contracts that enable a bottom-up approach: implement pilot projects boldly first, then derive robust model contracts from working best practices and scale them. Construction culture in Germany remains strongly adversarial — that confrontational dynamic translates directly into contracts that reflect distrust rather than collaboration. Standardised frameworks can counteract this: they build trust through repeatability, reduce transaction costs and allow public authorities to move away from case-by-case negotiations. Contracts cease to function as shields against “the private sector” and become instruments of scalable, partnership-based cooperation.

Simple monitoring. PPP models should be deployed where quality is easy to observe and quality deficiencies can be effectively remedied or sanctioned — motorways and school buildings, for example. Remediation must be possible rather than defaulting to blanket financial penalties, which tend to generate confrontation rather than cooperation. This requires precise definition of performance parameters and continuous, collaborative monitoring.

Scalability and standardisation. International best practice consistently demonstrates the value of standardisation — in projects from Canada, the Netherlands and elsewhere. France’s fibre broadband roll-out model is instructive: in rural regions, local authorities co-finance expansion through long-term PPP contracts with private operators. Open network access for multiple service providers is standard, enabling competition at the service level rather than the infrastructure level.

Infrastructure researcher Bent Flyvbjerg has convincingly shown that successful infrastructure projects move through two phases: a long, deliberate conception phase, followed by a phase of extreme implementation speed. The latter is enabled by modularisation — a “Lego principle” — and extensive standardisation of components, processes and contracts.

Focus on core competencies and innovation partnerships. The public sector should focus on its core competencies: strategic oversight, regulation and quality control. Operational activities where private actors have efficiency and innovation advantages should be outsourceable — simply on pragmatic grounds. Innovation partnerships can play a vital role here: public and private partners jointly develop solutions to complex infrastructure challenges. The primary objective is not capital raising but access to expertise, technology and implementation capability.

Governance aligned to cooperation. Decisive is a governance structure oriented towards cooperation and strategic partnership — not a zero-sum game between client and contractor. Construction and operation should not be understood as an adversarial business relationship but as a joint search for win-win outcomes. This requires contracts with adjustment mechanisms, clearly defined escalation paths for disputes, and transparency over costs and risks. A culture of collaboration is not created by contracts alone, but it can be fostered by intelligent contract design. Gain-sharing mechanisms — where efficiency gains are split between the public authority and the private partner — can set positive incentives. Equally important are regular, institutionalised dialogue formats at both operational and strategic levels.

The role of co-investors and new partnership models. In the past, public and municipal enterprises were predominantly shareholders at holding and intermediate-holding level — often energy companies with balance sheet capacity. Looking ahead, a more differentiated picture is emerging: greater participation in special-purpose vehicles and joint ventures, where different financial instruments — equity, subordinated capital, debt — are used to reflect appropriate risk-return structures.

The inclusion of strategic co-investors is central. Municipal enterprises with their own infrastructure and operating experience can function as genuine partners. They bring local knowledge, political understanding and long-term perspective. As co-investors, they also share in the risks and benefit from successful projects — a fundamental difference from pure client-contractor relationships.

Institutional investors such as pension funds and insurance companies can also be important co-investors. They seek long-term, stable returns and can provide patient capital. However, they require professional partners with genuine operational competence — owner-operators with deep technical and delivery expertise in-house. This is a key distinction from the past, when pure financial investors frequently partnered with construction companies without any meaningful operating experience of their own.

The time has come for a new generation of owner-operators capable of entering genuine eye-level partnerships with the public sector — actors with their own technical expertise, a deep understanding of the complexity of operating infrastructure over decades, and the ability to co-design and deliver new pilot projects with public partners: experimentally, with a learning mindset and an openness to outcome.

Not Capital for Its Own Sake — But for Infrastructure That Works

The goal is not to mobilise private capital because it seems to be available in abundance. The goal is to restore functioning public services quickly — infrastructure that meets the demands of a modern, decarbonised and digitalised society.

This matters for the economy as a whole: functioning infrastructure is a prerequisite for productivity growth, competitiveness and prosperity. Crumbling schools and congested transport networks undermine citizens’ trust in the state’s capacity to act.

Private-sector solutions in public service delivery can and should occupy an important place — but we must think about them correctly and then implement them with quality, speed and efficiency. This requires a change of mindset on both sides. The public sector must understand private engagement not primarily as a financing vehicle but as a strategic partnership. Private investors and operators, in turn, must be willing to accept long-term responsibility, create transparency and deliver genuine added value — not just capital, but expertise, innovation and implementation excellence.