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AIA: A P3 Remedy for US Infrastructure

Thursday, April 14, 2016

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No one wants to see another Flint water crisis, but aging water distribution systems are only part of the public infrastructure woes facing states and localities. In 2013, The American Society of Civil Engineers reported that the nation’s infrastructure will require more than $3.6 trillion in additional funding by 2020.

Public-private partnerships (P3s) could be the solution, according to a new white paper from The American Institute of Architects, the association announced earlier this month.

Building-Up: How States Utilize Public-Private Partnerships for Social & Vertical Infrastructure” presents innovative ways that states and localities are using the P3 model to meet a variety of infrastructure needs. It includes a map of the U.S. that shows states with P3-enabling legislation, and whether that legislation applies to transportation or a broader range of sectors.

engineer, construction site manager discuss project
© iStock.com / Drazen Lovric

A new study from the American Institute of Architects presents innovative ways that states and localities are using the P3 model to meet a variety of infrastructure needs.

The report is a joint effort by the AIA, the National Conference on State Legislatures and the National Council for Public-Private Partnerships.

The Right Conditions for a Public-Private Partnership

As reported earlier, P3s are increasingly used by all levels of government to construct projects for public use, but these agreements are complex and present a variety of challenges for both parties.

According to the report, most states have broad enabling legislation related to P3 projects, with few project-specific limitations, according to the report. While most call for some degree of legislative involvement, most states leave the procurement decision up to the appropriate state agency.

The following factors help to indicate whether a project is a good fit for P3 procurement:

  • Available Revenue Streams: Dedicated revenue streams, such as transportation tolls, have long been used to attract private sector investment in the form of P3s, but other revenue structures are becoming popular, such as “availability payments.”

    Under such an arrangement, the partner handles the project’s design, construction, maintenance or operations, according to the report, and “the state will pay the private partner an 'availability payment,' backed by future public funding, dependent on the private sector meeting predefined benchmarks of performance.”
  • Risk Transfer: The private sector may be better positioned to manage a P3 project’s operations risk, maintenance risk, construction risk, finance risks, while the public sector commonly retains risks such as ridership (when appropriate) or user risk, force majeure and revenue risk.
  • Scalability: The complexity of P3 agreements create barriers for small municipalities or public agencies, according to the report, but these problems may be overcome by bundling together multiple similar small-scale projects.

    Pennsylvania’s Rapid Bridge Replacement P3, for example, combines the replacement and maintenance of more than 500 small to medium-sized bridges. This bundling provides scalability, allowing smaller projects to leverage the private sector and transfer maintenance risk into a long-term contract.

Additional factors to consider include proper statutory authority, the public vs. private cost of financing and the long-term performance strategy of the asset owners (public sector agencies).

Potential Benefits and Concerns

Drawing upon the private sector’s expertise and resources offers many benefits, according to the report, but also raises concerns about protecting the public’s interests.

P3 benefits and concerns
National Conference of State Legislatures

Individual P3 projects tend to raise their own unique issues, the report notes, and “any new and innovative technique naturally will create concerns over protecting the public’s needs, goals and quality of life.”

Individual P3 projects tend to raise their own unique issues, the report notes, and “any new and innovative technique naturally will create concerns over protecting the public’s needs, goals and quality of life.”

In the end, infrastructure projects belong to the public; as the report says, “the public interest and public goals should be considered before private sector interests.”

   

Tagged categories: American Institute of Architects (AIA); American Society of Civil Engineers (ASCE); Funding; Government; Infrastructure; North America; Program/Project Management; Public-private partnerships (P3); Transportation

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