Public-Private Partnerships

Photo of Steve McBrady

Surveying the state of American infrastructure in 2008, the Obama administration sought to hit the ground running with the passage of the American Recovery and Reinvestment Act (ARRA).

The ARRA provided approximately $120 billion in direct infrastructure spending, including $48 billion specifically for transportation infrastructure projects (such as bridges and highways).

 

At the time, however, the American Society of Civil Engineers estimated that an investment of $1.6 trillion over five years would be required to bring the nation’s infrastructure into good condition.  Notwithstanding the infrastructure spending contained in the ARRA, there is simply too much structurally deficient, functionally obsolete, or …missing … infrastructure in the U.S. to be patched up in one piece of legislation. 

 

In what the President calls the “the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s,” his Administration has laid out ambitious plans for infrastructure improvements that will require significantly more money than what is contained in the recently passed stimulus legislation.

 

In other words, the stimulus package was intended as a first step. So, what is the next step? 

Though briefly floated, it is evident that there will be no second stimulus package (affectionately referred to as Son of Stimulus by opponents, and conspicuously lacking vocal supporters) in the near future. The Administration will therefore need to look beyond traditional planning and procurement mechanisms if it plans to make a serious attempt to address the country’s substantial infrastructure needs. To this end, two immediate – and related – procurement mechanisms have emerged as potential solutions: Public-Private Partnerships, and a National Infrastructure Bank. 

 

In the coming weeks, we will discuss these two procurement mechanisms, and what they may mean for the future of American infrastructure. Stay tuned.  

Photo of Steve McBrady

A year ago, I predicted that Public-Private Partnerships (PPPs) would emerge as a going concern in U.S. procurement, as states and the federal government sought to shore up infrastructure deficiencies across the country. 

PPPs, or P3s as they are sometimes known, are an alternative procurement method focused on delivering public sector services in a cost-effective manner, through a combination of government incentives, innovative private sector financing, and streamlined project delivery.    

Public-Private Partnerships differ from traditional U.S. public procurements in several key aspects, including financing, operation, and procurement.  PPPs are organizational structures by which the private sector finances, builds, rehabilitates, maintains, and/or operates specific public sector activities in exchange for a contractually specified stream of future returns.  

PPPs can include, for instance, private sector-financed development and operation of infrastructure, whereby a private company builds and operates infrastructure and/or provides services in exchange for commuter fees (such as toll revenue) or a significant share of the revenue stream; or, alternatively, a partnership for private sector-financed rehabilitation and operation of a hospital, prison, airport or energy facility, which is then operated by the private entity and “leased” to the appropriate federal, state or local government authority for a negotiated fee.

So why are PPPs relevant? In this section of The Forum we will be discussing PPPs and their emergence as a potential solution to the looming American infrastructure crisis.