Comparing 7 PPP/PFI Methods: How to Choose Between Park-PFI, Small Concession, and Designated Management [2026 Edition]

As the term PPP/PFI has gained wider currency, a recurring question has emerged in municipal practice: "We want to pursue public-private partnership, but which method should we use?" There is no single answer. Multiple options exist, each with distinct legal bases, project scales, and risk-allocation structures.

The seven representative public-private partnership methods are as follows.

Understanding the basic scheme of each method is the starting point for method selection. The following sections first outline the characteristics of each of the seven methods, then proceed to a cross-cutting four-axis comparison.

PFI Act Concession (Operating Rights Method)

The concession method assigns operating rights (concession rights) to a private operator while retaining public ownership of the facility. The private operator can use those rights as collateral for financing, enabling autonomous, long-term management. Domestic precedents include airports (Kansai, Sendai, Fukuoka, etc.), waterworks (Miyagi Prefecture), and expressways.

A defining feature is that the public sector withdraws from direct operations, allowing maximum private creativity and innovation — while the structuring of operating rights fees and the allocation of revenue-variation risk become the core of contract design.

PFI Act BTO (Build-Transfer-Operate)

Under the BTO scheme, a private operator builds the facility, transfers ownership to the public sector upon completion, and continues to operate it. Because ownership transfers to the public at the point of completion, this method tends to reduce public-sector risk. It has been widely applied to government buildings, schools, libraries, and hospitals.

PFI Act BOT/RO (Build-Operate-Transfer / Rehabilitate-Operate)

Under BOT, the private sector builds and operates the facility, then transfers it to the public at the end of the contract period. RO integrates the rehabilitation (renovation) and operation of an existing facility into a single private mandate, and has been applied to large-scale renovation projects involving closed schools and cultural facilities.

Park-PFI (Public Solicitation, Installation and Management System)

Park-PFI is a system established by the 2017 amendment to the Urban Park Act (Articles 5-2 through 5-9). It allows operators to be selected by public solicitation on an integrated basis — both constructing revenue-generating facilities (cafés, restaurants, etc.) and using the resulting revenue to develop surrounding paths, plazas, and other park infrastructure.

As of March 31, 2025 (Reiwa 7), 165 parks nationwide have adopted the system, with 136 parks under consideration, representing a vastly higher adoption rate than PFI Act-based park projects (of which there is effectively only one case).

Small Concession

Small Concession is a collective term for small-scale public-private partnership projects targeting idle public real estate with project costs of roughly less than ¥1 billion. It is not a single defined method, but functions as a "method menu" that combines PFI Act concessions, RO schemes, leases, designated management, and other instruments depending on the characteristics of each project.

For further detail, see the Small Concession introductory article.

Lease Method

The simplest method: leasing the facility to a private operator. No PFI Act application is required, and procedures are lightweight — but the rules governing renovation cost responsibilities, restoration obligations, and rent-level setting determine the success or failure of the project. Commonly used for activating closed schools.

Designated Management System

The Designated Management System, established under Article 244-2 of the Local Autonomy Act, delegates the management of public facilities to private operators, NPOs, and similar entities. A vote of the municipal assembly is required, and the designated period is typically three to five years. Ownership and management responsibility for the facility remain with the public sector.

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Comparing the seven methods across "project scale," "contract duration," "risk allocation," and "revenue structure" reveals the essential differences between them.

Project Scale and Contract Duration

The 20-year period under Park-PFI merits attention. To extend the installation-management permit period from the traditional maximum of 10 years to an effective maximum of 20 years, the plan must be certified as a Public Solicitation Installation Plan and must include the development of designated park facilities. The 20-year special provision does not apply to revenue-generating facilities alone.

Structure of Risk Allocation

In PPP/PFI, "risk allocation" refers to explicitly determining which party — the public sector or the private operator — bears demand-variation risk, construction risk, financial risk, regulatory change risk, and similar exposures.

The reason the public sector bears demand-variation risk under the Designated Management System is that usage fee revenue accrues to the public, while the designated manager receives a management commission — the "delegated management" model is prevalent. By contrast, adopting the "usage fee system" (Act, Article 244-2, Paragraph 8) allows usage fee revenue to become the designated manager's income, creating private-sector management incentives.

Differences in Revenue Structure

The defining feature of Park-PFI's revenue structure is cross-subsidy. Profits from revenue-generating facilities such as cafés and shops are directed toward the construction costs of highly public-benefit amenities such as paths, plazas, and rest facilities. This mechanism is the core of the system's design.

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The following organizes recommended methods by facility type. "Recommended" is determined by balancing the feasibility of the project with the benefits to both the public and private parties; the optimal solution will vary depending on the conditions of individual projects.

There are two reasons why Park-PFI is overwhelmingly advantageous for urban parks. First, the floor-area-ratio uplift special provision (from the standard 2% to a maximum of 12%) makes it easier to secure floor space for revenue-generating facilities. Second, compared to PFI Act-based park projects (effectively one case), Park-PFI has been adopted in 165 parks, providing a practical advantage in accumulated precedents and know-how.

For detailed procedures and guidelines, see the Park-PFI Practical Guide.

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Actual method selection can be narrowed down by answering the following five questions in sequence.

Step 1: Is the target facility located within an urban park?

→ Yes: Consider Park-PFI as the first option. Confirm market interest through market sounding to determine whether an integrated design of revenue-generating facilities and public facility development is feasible.

→ No: Proceed to Step 2.

Step 2: Does the project cost exceed ¥1 billion?

→ Yes (large-scale): Consider methods under the PFI Act (Concession, BTO, BOT/RO). Narrow down the method through a Value for Money (VfM) analysis.

→ No (under ¥1 billion): Within the scope of Small Concession. Proceed to Step 3.

Step 3: Does the facility have revenue-generating potential (can the private operator achieve financial viability)?

→ Yes: Consider a PFI Act Concession-type Small Concession or a lease method. Market sounding to confirm private-sector interest should be the first step.

→ No: For facilities with no revenue potential where the goal is to maintain public services, the Designated Management System is the realistic option. However, consider whether private-sector incentives can be designed by introducing the usage fee system.

Step 4: Is large-scale renovation required?

→ Yes: The RO scheme (integrated commission for renovation and operation) is a strong candidate. It enables the use of private-sector design capabilities and financing capacity.

→ No: The option of proceeding simply with a lease method comes into view.

Step 5: Can a sufficient contract duration be secured?

→ 15 years or more can be secured: PFI Act methods and Park-PFI (20 years) enable long-term investment recovery design.

→ Less than 5 years can be secured: The Designated Management System is the primary option, but it should be recognized that large-scale private investment is unlikely in this structure.

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The following addresses three misconceptions that repeatedly arise in practical settings.

Misconception 1: "Park-PFI is a type of PFI Act project"

Background of the misconception: Because the name includes "PFI," many people mistakenly assume it is a project governed by the PFI Act (Act No. 117 of 1999).

Correct understanding: The legal basis for Park-PFI is the Urban Park Act (Articles 5-2 through 5-9); it is a separate system from the PFI Act. The PFI Act generally requires the establishment of an SPC (special purpose company), but Park-PFI does not. The complexity of procedures and project costs differ fundamentally.

It is important to grasp the reality that "there is effectively only one case of a park project applying the PFI Act. The mainstream of public-private partnership in the parks sector is Park-PFI and the Designated Management System."

Misconception 2: "The Designated Management System involves simple procedures and imposes little burden on the private sector"

Background of the misconception: It is true that procedures are lighter than under the PFI Act — but assuming it is "simple" creates a gap with reality.

Correct understanding: The Designated Management System requires a vote of the municipal assembly, and the candidate selection process (public solicitation, selection committee, evaluation) also entails considerable cost and time. Furthermore, because the designation period is only three to five years, the private sector has little incentive to make large-scale capital investments. If a private operator invests in renovation but may lose the designation in a few years, no one will invest — this structural problem leads to a vicious cycle in which facility deterioration accelerates.

For facilities requiring long-term investment, selecting a method that allows for a longer contract duration is the fundamental solution.

Misconception 3: "Small Concession is just designated management at a smaller scale"

Background of the misconception: The word "small" in Small Concession can give the impression of a scaled-down version of designated management.

Correct understanding: The essential difference of Small Concession lies in the structure of risk allocation and investment recovery. Under designated management, a management commission is paid by the public sector and usage fee revenue in principle accrues to the public. Under Small Concession (concession type or lease type), the private sector develops and operates the facility using its own funds and retains the revenue. The decisive difference is that responsibility for the project's financial viability shifts to the private sector.

Furthermore, the design philosophy of eliciting maximum private creativity and innovation starting from a sounding-type market survey is fundamentally different from designated management, which remains a form of management delegation.

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Even after understanding the characteristics of the seven methods, the question of "which method suits my municipality and facility?" does not have a single definitive answer. The items to confirm as preconditions are as follows.

1. Physical condition of the facility: Degree of building deterioration, seismic compliance status, need for equipment renewal
2. Business potential of the location: Drawing power, surrounding commercial environment, accessibility
3. Private-sector interest in participation: Early confirmation through market sounding is indispensable
4. Internal municipal capacity: PFI Act procedures are complex, and the proficiency of staff in charge is tested
5. Funding sources and subsidy programs: Available subsidies differ by method — for example, the Social Capital Development Comprehensive Grants for designated park facility development

Method selection is a technical question of "which scheme to apply," but it must be preceded by clarity of purpose: "what do we want to achieve, and what problems are we solving with whom?"

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When reading statutory provisions alone is not enough to determine which method fits your municipality, ISVD offers free consultations to work through the process together — from organizing preconditions to narrowing down the right method.

References

Guidelines for Utilizing Park-PFI toward Improving the Quality of Urban Parks (Revised May 2025) (2025)

Small Concession Promotion Policy (2024)

PPP/PFI Promotion Policy Briefing Materials (2024)

Park-PFI (Public Solicitation, Installation and Management System) Utilization Status (2025)

PPP/PFI Promotion Action Plan (2024)