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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, 14 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

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