By: Brad Guilmino and Adam Sheets
Ask someone about the industry’s adoption of public-private partnerships (P3s), and they may describe it as slow.
But is it really? Or is it a normal progression of a new delivery method? Design-build delivery took 30 years to go mainstream, and yet some states still have not embraced it.
Changing how the surface transportation industry has delivered projects for the past 100 years takes time. The practice of leveraging private-sector developers to finance, maintain and operate large transportation projects is only 15 years old. The fact that the U.S. sees an average of two large transactions per year is the normal course of adoption. Having said that, there are numerous indications the pipeline is primed for an increased flow of deals in our country.
Thirty-seven states now have some degree of P3-enabling legislation. The private sector is eager for deals. Public agencies are savvier and more confident about the benefits of P3s and when to apply them. Public perceptions of private involvement are more favorable. Everyone acknowledges the need for transformational road and bridge projects to increase safety, mobility, global competitiveness, and pave the way for connected and autonomous vehicles. However, because no one knows exactly where the initial funding will come from, many say P3s have a bright future.
Building a comfort level
P3s have had financial struggles, but overall, they have appeared seamless to the traveling public and to the media. The pessimistic predictions of bankrupt concessionaire projects dragging taxpayers down with them have not come true. Many completed P3 projects are stellar examples of risk transfer and public insulation from financial burden.
Adding to owners’ comfort levels, the first major challenge to enforceability of performance standards resulted in the contract working as planned, and the developer on Texas’ SH 130 injecting an additional $60 million to repair the pavement without taxpayer contribution.
Finding funds
To take advantage of the benefits of P3, states and local governments are increasingly exploring funding solutions, which may require new toll programs, increased fuel taxes, indexation of fuel taxes, increased sales taxes and additional registration fees.
Twenty-six states and the District of Columbia have raised motor fuel taxes in the past four years. Voters have approved sales taxes and special tax districts to fund transportation projects. Funding partnerships, where local municipalities pool resources to deliver a project, also are common.
The popularity of INFRA, FASTLANE, TIGER, TIFIA and PABs, designed to fill market gaps and leverage private investment, could embolden Congress to enhance those programs and pass even more progressive surface transportation legislation in the future.
Previous guidance on a proposed federal infrastructure program has indicated projects may receive extra points if they incorporate new revenue sources for operations and maintenance life-cycle needs, elevating projects with a tolling component. The federal contribution might be only 20%, but 20% in grant money is significant when a DOT has a $1 billion transportation project and a $200 million shortfall.
Available in hybrid
Virginia’s Transform I-66 and Texas’ North Tarrant Expressway incorporate principles from predevelopment agreements and hard-bid pricing components. These hybrid agreements allowed both owners to be less prescriptive in the definition and terms of the project, and invite innovation and benefit from the hard-price bidding competition of a traditional design-build-finance-operate-maintain (DBFOM) delivery. The hybrid structure addresses the project’s needs as well as the owner organization’s comfort level and resource availability. The result is an agreement where prescription and innovation coexist.
