IQ Spring 2013 - (Page 14)
uPdate// inFrastruCture
the need for P3
PuBLiC-PrivAte PArtnershiPs CAn heLP BriDge AMeriCA’s inFrAstruCture gAP.
By steven A.
nichols, William
t. eliopoulos and
Kaveh Badiei
PubliC Funding For major inFrastruCture
projects in the United States is at its leanest levels in decades. At the same time, the need for
improvements to public infrastructure is tremendous—a 2009 study from the American Society of
Civil Engineers (ASCE) estimates the necessary
five-year infrastructure investment at $2.2 trillion.
The last two decades also have seen increased
acceptance of the design-build delivery model and
a general recognition that it can increase project
delivery efficiencies greatly over the traditional
design-bid-build model. The public-private partnership (P3) delivery model combines design-build’s
delivery efficiencies—extended over a lengthy
operations and maintenance period of the public
asset—with capital provided by private markets to
finance the project. P3 represents an evolution of
design-build for major infrastructure projects. This
confluence of need and benefit has increased both
public- and private-sector interest in P3; the federal
government and more than half of the states have
now enacted legislation encouraging private firms to
invest in public projects.
What is P3?
P3 is an alternative construction project delivery
method that can take various forms on projects of
all sizes. Typically, a P3 project involves a longterm partnership between a public entity and a
private developer (“concessionaire”), for the concessionaire’s design, build, financing, operation and
maintenance of a substantial public-improvement
initiative. Usually, though not always, a P3 project
is built on public land and involves the construction and operation of public infrastructure with a
projected revenue stream that ultimately secures
and repays the project costs over time. P3 projects have been successfully completed worldwide
in traditional public infrastructure areas such as
transportation, transit and utilities including water
treatment, and social infrastructure areas including
healthcare, judiciary, corrections and education. P3
is not a solution for all public infrastructure needs,
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spring//2013
but it is a growing and important tool for public
agencies and private entities to consider for appropriate projects.
the origins oF P3
The P3 project movement was born of economic
necessity, beginning in Great Britain in the early
1990s and spreading to Australia, Canada and
Europe. These governments—strapped for funding and desperate for transportation and healthcare
infrastructure—embraced P3 as an important
method for providing critical services to the public. They adopted broad, systematic government
programs to spur the development of the P3 delivery method. More than 1,400 P3 contracts have
been signed in the European Union over the last
20 years, representing an estimated capital value of
approximately $340 billion.
P3’s FinanCial advantage
A traditional public-works megaproject typically
involves some form of public bond financing, often
supplemented by federal grant money, to raise the
funding necessary to pay the design and construction costs over several years during the project’s
design and construction phase. In a P3 project, a
private concessionaire typically obtains all or most
of the financing instead, and is paid by the public owner via milestone and other “availability”
payments once the improvement is substantially
complete and placed in service.
The private concessionaire typically employs
a hybrid of various project finance tools on large
P3 projects, including (1) private equity investment by the concessionaire and/or investors; (2)
private loans from commercial lenders; (3) government grants; (4) federal government loan and
guarantee assistance programs such as TIFIA
and SA FETEA-LU; and (5) corporate bond
financing such as private activity bonds, which
are issued on behalf of a private entity and generally restricted for use on projects that benefit
the public.
the quarterly publication of the design-build institute of america
Table of Contents for the Digital Edition of IQ Spring 2013
IQ Spring 2013
IQ Spring 2013 - (Page Cover1)
IQ Spring 2013 - (Page Cover2)
IQ Spring 2013 - (Page 1)
IQ Spring 2013 - (Page 2)
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IQ Spring 2013 - (Page Cover3)
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