Shared mobility in Greater Minnesota | Resources | Shared Mobility Public-Private Partnership Guide
4: Public-private partnership models
Public-private partnerships (PPPs) between municipalities and shared-mobility companies are often the most effective way to implement shared-mobility solutions. Understanding the various types of business models that underlie these partnerships can help cities make more informed decisions about what model is best for their community. Knowledge of the different business models available can also increase a municipality's negotiating power with shared-mobility companies.
It is important to note that one of the reasons business models differ slightly among municipalities is because of the varying interest from shared-mobility companies in entering certain markets. For example, communities on the fringe of an urban center may struggle to get interest from service providers, giving them less negotiating power. In contrast, urban cities or regional centers with high-density areas often garner interest from multiple shared-mobility companies, allowing them more negotiating power when creating their licensing agreements.
This section of the guide describes each of the PPP business models, as well as the benefits and drawbacks of each approach.
Design Build Finance Operate Maintain
Design Build Finance Operate Maintain (DBFOM) partnerships are the most common type of partnership in Minnesota and throughout the United States. These partnerships involve a private company constructing, providing, operating, and maintaining the service, including providing long-term financing. The private sector is repaid either through revenue generated by users, through fees, or by payments from state or local governments during the contract period.
An example of this type of partnership is the one between the City of Minneapolis and the private operator Lime. Lime is responsible for building the shared-mobility fleet of bikes and scooters, financing the business, and maintaining the vehicles. It pays a city licensing fee to operate within Minneapolis. Lime then collects revenue directly from users of the service.
DBFOM is a good approach for municipalities that want to offer shared-mobility services but do not have the time or resources to dedicate to operating the program. In the DBFOM model, municipalities do not have to spend their own money to acquire a transportation fleet, nor are they responsible for operating and maintaining the system and its infrastructure.
While the DBFOM model gives shared-mobility companies full control over their fleet, it involves significant upfront costs and continued payment to the municipality to operate the system. Additionally, companies must meet specific contractual requirements, limiting their ability to operate freely in the marketplace. As one shared-mobility company representative noted, this can create challenges for operators:
[Cities] are very risk averse, and because this is a world in which private companies are predominant, there’s this feeling of “let’s make the bar as high as possible so that if anything and everything happens, it’s going to be on them.” But there’s a tipping point at which we can’t make that work. And it is in some ways inhospitable to being able to provide the service.
Moreover, because DBFOM business models often operate under the terms of a yearly license, municipalities and companies alike spend much of their time negotiating the terms of the agreement. In addition, some Minnesota cities have a public charter that permits only yearly license agreements, so multi-year licenses are not an option. Another shared-mobility company representative noted, “When you’re on annual cycles, you’re spending a third of the year just contracting.”
Long-Term lease agreements
Long-term lease agreements—also known as leasing arrangements, asset recycling, or asset monetization—are another common public-private partnership model. Long-term lease agreements involve a municipality or other public entity owning a transportation asset, such as a fleet of cars or bikes, and then leasing this asset to a private company to operate and maintain the shared-mobility program. The private company collects revenue for its services during the lease period.
An example of this type of approach is the shared-mobility agreement between the City of St. Paul and HOURCAR. The City of St. Paul owns the car-share fleet called Evie, and contracts with HOURCAR to operate the program. Under the terms of the contract, the City of St. Paul pays parking costs, such as costs for metered spaces or permits, in exchange for HOURCAR operating the program and meeting the City’s equity targets.
Long-term lease agreements can be beneficial to both the municipality and the shared- mobility company, as they eliminate the need to devote time and resources to annually renegotiate a contract. In addition, many shared-mobility companies see value in deepening relationships with their city partners to meet transportation goals that are mutually beneficial to both the municipality and the company. As one shared-mobility provider in Minnesota noted, “In a world with the year-to-year [leases], and four to five companies [competing], it’s not going to get you those outcomes because I think everyone’s very focused on ‘how do I survive in the marketplace?’”
Entering into a long-term agreement can feel risky for a municipality when there is no established relationship or mutual trust with the shared-mobility company When working with a new company, a year-long pilot agreement could be helpful for cities before establishing longer term leases. This allows the shared-mobility company to operate in the city for a period of time, and demonstrate their ability to meet the city’s needs and compliance requirements. One city staff person responsible for shared-mobility in an urban municipality in Minnesota expressed hope that they can use what they’ve learned working with various shared-mobility companies under annual license agreements to ultimately choose one service provider to partner with under a longer term lease or service agreement. As they noted, “We want to have more consistency for these companies, so they’re going to be here in the longer term.”