The Bipartisan Policy Center Presents P3 Case Studies
To remain competitive into the future, America must address its infrastructure needs – transportation, water, power and energy, and civic structures – repairing existing assets as well as expanding investments to meet the demands of the next generation. The task is daunting, especially in an era of fiscal constraint, and to accomplish it public officials must think creatively about how to deliver infrastructure more efficiently and cost-effectively. One promising approach is to partner with the private sector in financing and delivering infrastructure projects.
Public-private partnerships (P3s) are widely used in other developed nations, but are still relatively infrequent in the U.S. Of course, private companies have long been involved in the construction of infrastructure projects, but their role has been primarily limited to that of a contractor, with the ultimate responsibility for funding, financing, and delivering projects resting with the public sector, typically a state or local agency.
The emergence of P3s as a tool for financing and procurement of infrastructure projects brings several benefits for the public sector. On the procurement side, P3s allow the government to share risks – such as delays in construction, cost overruns, or lower-than-projected usage – with a private company. P3s may also lock in operations and maintenance costs over the long-term, ensuring that assets will be kept in good repair without the need
for yearly budget battles. As a financing tool, P3s can bring new investors to the table and reduce the need for the public sector to take on an ever-increasing amount of debt.
P3s are not appropriate for every project. Since one of the key benefits is sharing risk with the private sector, those projects with higher inherent risks are more suited for P3s than those without. The transaction costs and complexity of negotiating a P3 deal suggest that this model is most appropriate for large-scale infrastructure projects, which could either be stand-alone projects or a package of smaller projects.
If our nation is to address our infrastructure challenges, public sector leaders need to consider all options for delivering and paying for needed infrastructure. Currently, many projects that could be well-suited for a P3 approach are proceeding under a conventional procurement, which may be less efficient. Others are still on the drawing board. One of the reasons there are so few P3s in the U.S. may be that many public sector leaders lack the experience and information needed to assess whether a P3 would make sense for their community.
In order to increase understanding and consideration of P3s among public sector leaders, the Bipartisan Policy Center analyzed a number of projects that were pursued as P3s. Important lessons can be learned from these projects, as discussed below. For public officials considering a P3 approach, this paper offers a list of core principles for success, drawn from the experiences of public and private partners across the country.