Public-Private
Partnerships
Dr. Joe Saviak, J.D., Ph.D., Associate Professor
of Public Administration, Flagler College
Dr. Lawrence Martin, M.B.A., Ph.D., Professor of
Public Affairs, University of Central Florida
Public-Private Partnerships
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This research is from a forthcoming guide for elected officials & senior
administrators – research funded and will soon be published by the
Government Services Partnership Institute, a national organization
which provides research, resources, & support to local governments so they
can successfully select & adopt contracting and P3s to reduce costs,
improve service, & meet citizen expectations
State & local governments are in financial crisis while also needing
significant funding to improve the condition of our current infrastructure on
which our economy and revenues to govt. depend – how do we close this
funding gap and meet our infrastructure needs for the 21st century?
One way in which many state and local governments have dealt with their
budget deficits is by deferring maintenance on existing infrastructure
and delaying the construction of new infrastructure - somewhat
helpful in the short term but results in longer term financial problems.
Is there another strategy available to state and local governments?
Public-Private Partnerships
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P3s involve an alliance between government and the private sector –
decisions, risks, & rewards are shared – trust is key – true partnership –
long term relationship.
State & local govts. have only begun to realize benefits of P3s - primarily
employed by them the financing and delivery of infrastructure and
facilities (capital projects).
Key differences from traditional govt. contracting:
1) Change in government/private sector roles and responsibilities
2) Longer contract time periods - involve longer contract time periods (5,
20, 25+ years) - can last as long as 99 years
3) Private sector partner sometimes provides all or some of the
funding for the project & may assume significant risks from the
government partner
4) Involves a potentially higher degree of risk for the partners
5) Contracting process does follow traditional government
procurement and policies and procedures (note: with several key
differences)
377 public-private partnerships (P3s) have been initiated in 24 states 104 of these P3s for transportation infrastructure - Florida (16), California
(12) and Texas (9) have initiated the greatest number of P3s.
Public-Private Partnerships
Benefits:
1) Accelerating infrastructure maintenance and construction
2) Substantial risk transfer from government to the private sector
3) On-time and within budget delivery of infrastructure projects
4) Source of infrastructure funding
5) Cost Savings
6) Equal or better quality
The Impact of P3s on Project Duration, Cost, & Quality
 The Virginia Pocahontas Parkway (Route 895) was completed for $10
million less than the original cost estimate.
 The Denver, Colorado E470 toll road was originally estimated to cost
$597 million, it was completed at a cost of $408 million.
 A study conducted by the Federal Highway Administration found that
design-build infrastructure P3s reduced project duration by 14%,
reduced total costs by 3% and maintained the same level of quality.
Public-Private Partnerships
Most Common Public-Private Partnerships (P3s)
 Airports
 Bridges
 Highways
 Hospitals
 Parking Facilities
 Prisons
 Rail Systems
 Roads
 Tunnels
 Water/Wastewater
Public-Private Partnerships
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Operations & Maintenance (OM) - the
private partner operates and maintains a
public facility or asset, the government
partner owns the public facility or asset.
Design-Build (DB) - the private partner both
designs and builds a facility or asset, the
government partner provides the funding
and owns and operates the facility or asset.
Design-Build-Operate (DBO) - the private
partner designs, builds and operates the
facility or asset, the government partner
provides the funding and owns the facility or
asset.
Design-Build-Operate-Transfer (DBOT) the private partner designs, builds and
operates a facility or asset and transfers
ownership to the government partner.
Build-Transfer-Operate (BTO) - the private
partner constructs a facility or asset and
transfers title to the government partner.
The public partner leases the facility or asset
back to the private partner under a long term
contract.
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Build-Own-Transfer-Operate (BOTO) - the
private4 partner builds, owns and operates a
facility or asset for a period of time at which
point ownership is transferred free of charge
to the government partner.
Build Lease-Transfer-Maintain (BLTM) the private partner designs, finances and
builds a facility or asset and leases it to the
government partner for a predetermined
period for a predetermined price.
Lease-Renovate-Operate-Transfer (LROT)
- the private partner renovates a facility or
asset . The government partner grants the
private partner a concession to operate the
facility or asset for a specified period of time
and to charge a fee for the service or
activity.
Design-Build-Finance-Operate-Maintain
(DBFOM) - the private partner designs,
builds, finances, operates and maintains for
a period time, e.g. 25 years), a facility or
asset, the government partner provides the
operating funds during the life of the facility
or asset or during the term of the contract.
Public-Private Partnerships
P3 Policy & Planning Issues
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Determine if state P3 enabling legislation exists?
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Determine infrastructure needs.
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Determine the “gap” between needs and available resources.
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Determine infrastructure priorities.
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Determine how available revenues will be apportioned between competing
infrastructure needs.
 Determine how to deal with unsolicited proposals.
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Determine if P3 expertise is available in-house (or require outside consultants).
Procurement Process – RFP, RFQ & RFP, Follow-up to unsolicited proposal (if allowed)
P3 Partner Selection is Key
Criteria for Selecting a P3 Partner
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Qualifications & Experience
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Financial Capability
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Risk Transference
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Litigation & Controversy
Public-Private Partnerships
State Enabling Legislation
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31 states have enacted laws authorizing at least some form of public-private partnerships (P3s).
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Enabling legislation is important because it sends a strong message to private sector firms that a
state and its local governments are “open for business” when it comes to P3s - removes
uncertainty and risk for both the public and the private sector partners.
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The first step in starting a P3 initiative is to determine if P3s are recognized under state
statutes and what the legislation permits and prohibits. If legislation does exist, then it is
important to know what it covers and how it applies. For example, some state legislation prohibits
the inclusion of non-compete clauses in P3 contracts.
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If no state legislation exists, then the risks of starting a P3 project can be considerable. The state
legislature or the governor can involve themselves in a P3 project at any time with negative
consequences, even after lengthy negotiations have already been conducted and the private
sector partner has incurred costs.
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State legislation dealing with P3s is constantly being altered, updated and revised. Case in
point is the State of Florida which in 2012 introduced significant new legislation dealing with P3s.
State
Broad
Coverage
Unsolicited
Proposals
Availability Payments or
Shadow Tolls
Lower Level
Authority
Prior Legislative
Approval
Non-Compete
Clause
Florida
No
Yes
Yes
Yes
Yes
Prohibited
Public-Private Partnerships
Managing Risk in P3s
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Partner (government or private sector) best positioned to deal with the risk should assume
the risk.
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Demand Risk - Usually assumed by the private sector P3 partner. Problem when a dedicated
funding stream (tolls or fees) is used to fund the operating expenses of a P3 project. Demand
forecasts and revenue projections - highly unreliable – especially for P3s of long duration (10, 20,
30, 99 years). Everyone loses if private sector partner to default on the P3 project or to declare
bankruptcy because of insufficient revenues. Structure P3 so that if demand declines to a point
where revenues are insufficient to fund operations, then tolls or fees can be increased or some
other remedy invoked in order to maintain desired service levels.
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Service Interruption Risk - Prescreen and select capable private sector P3 partners. Trust is
one of the most important components of a P3. The government must be able to trust that the
private sector P3 partner “will do the right thing” to make the project work.
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Political Risk - Managing and mitigating political risk is largely related to how well government
explains the value and benefits of P3 projects to stakeholders and mobilizes their support.
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Financial Risk - Financial risk varies depending upon the type of project. O&M projects have less
overall financial risk than do DBFOM projects.
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Force Majeure Risk - Generally shared equally by both the government partner and the private
sector partner.
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Additional P3 Risks - P3 projects create additional risks including site risk (e. g., suitability) and
design and construction risks. P3s are usually structured so that these additional P3 risks are
assumed by the private sector partner.
Port of Miami Tunnel P3
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The Port of Miami actually sits on an island.
Traffic entering and exiting the Port of
Miami must do so on surface streets. The
Florida Department of Transportation
(FDOT) has entered into a transportation P3
with a private sector consortium partner,
MAT Concessionarie LLC, to design-buildfinance-operate-maintain (DBFOM) a tunnel
that will connect the port with interstates
I-395 and I-95.
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The total cost of design and construction of
the tunnel is $607 million. The state of
Florida will pay for 50 percent of the capital
costs (design and construction) with the
other 50% being provided by Miami-Dade
County and the City of Miami. All operating
and maintenance costs will be paid by the
State of Florida. The FDOT will collect
container and passenger fees to provide the
revenue stream to fund the partnership.
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Construction of the tunnel began in May
2010 and completion is expected by May of
2014. Operational control of the tunnel will
revert to the FDOT at the end of the P3
contract in October 2044.
The Chicago Skyway
An Operation & Maintenance P3
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The Chicago Skyway is a 7.8 mile toll road connecting Interstate 94 to Interstate
90. In 2005, the City of Chicago was looking for ways to unlock value in its
fixed assets. The city made a decision to enter into a public-private partnership
(P3) for the operation and maintenance (O&M) of the Skyway. The city leased
the Skyway for 99 years to a consortium of Macquarie/Cintra for an up-front
payment of $1.8 billion. Macquaire Infrastructure Group is an Australian
company; Cintra is a Spanish company.
The private sector partner operates and maintains the Skyway in accordance
with contractual provisions that require the use of industry best practices
including: safety concerns, drainage issues, snow removal, toll collection
procedures and others.
The private sector partner immediately moved to install more lanes and
switched to electronic tolling, improvements the city could not undertake due
to budgetary constraints.
The P3 contract specifies predetermined tolls through 2017. After 2017, the private
sector partner may increase tolls annual by: (a) 2%, (b) the Consumer Price Index, or
(3) the increase in the nominal gross domestic product per capita, whichever is
greater.
The City of Chicago has used the $1.8 billion in proceeds from the P3 to: pay
down debt, fund other non-transportation projects and create a reserve fund.
In addition, the city has avoided future operation and maintenance costs for the
Skyway
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Public-Private Partnerships
Lessons Learned in Managing the Implementation of P3s
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In contracting, we manage the contract – in P3s, we manage the relationship.
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Creation of a P3 Unit – specific organizational units should be created to oversee P3s.
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Designation of P3 Project Manager – primary interface with the private sector partner.
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Use of Outside P3 Consultants - if outside P3 consultants are used, they should also be tasked
with helping to train in-house staff.
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Project Management Teams - should be created consisting of representatives of all government
units involved in a P3 project.
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Early Involvement of Private Sector Partner - private sector partners should be involved earlier,
not later, in decision making about the scope of the P3 project.
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Contract Provisions - a P3 contract should also: (1) focus on outputs and outcomes rather than
inputs & methods used; (2) identify the number of asset upgrades, if any, and when they are to
occur; (3) identify if, when and how much tolls or user fees may be increased; and (4) specify what
happens to the asset at the end of the P3 project.
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Documentation of Decisions and Directions - P3s terms can run for 20, 30, 50 even 99 years.
Staff of both the government and the private sector partners at the end of a P3 will most likely not
be the same ones from the front end - important to document all decisions made throughout the
term of the P3 project.
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Contract Term – international experience finds that most P3 terms range from 30 to 40 years.
Public-Private Partnerships
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