Value of Public-Private Partnerships

With regard to the value of public-private partnerships being used to build transportation projects, a recent Federal Highway Administration (FHWA) study on public-private partnerships concluded that they can perform better than 100% public sector projects in some instances.

Report to Congress on Public-Private Partnerships, 12/04, by US DOT, FHWA

Excerpts (in blue text):
Public-private partnerships can generate substantial benefits for public agencies interested in encouraging innovation and saving time and money on projects. Risk aversion and lack of experience with the private sector, however, often drive public agencies to spend considerable time and resources developing systems for soliciting projects, ensuring adequate competition, and allocating the risks associated with designing, constructing, and operating a large transportation facility.

Cost and time-savings associated with public-private partnerships are more readily quantifiable. Two reports and numerous case studies have found that public-private partnerships can save from 6 to 40 percent of the cost of construction and significantly limit the potential for cost overruns. The reason for these savings is that the private sector often has more appropriate incentives to limit costs than the public sector. In addition, having one entity responsible for design, construction, and operation can result in efficiencies that are not possible with traditional design-bid-build methods. Public-private partnerships help reduce the time it takes to build a project in two ways, through innovative finance and project management. The most significant time-savings generated by public-private partnerships are a result of innovative financing. By restructuring project financing and borrowing funds, public-private partnerships can cut many years off project delivery. Although frequently less dramatic, innovative project management also reduces the time it takes to finish a project, often saving months if not years.

PPTA is a Virginia procurement process, the Public-Private Transportation Act of 1995.

The Public-Private Transportation Act (PPTA) is the legislative framework enabling the Commonwealth of Virginia, qualifying local governments and certain other political entities to enter into agreements authorizing private entities to acquire, construct, improve, maintain, and/or operate qualifying transportation facilities. Passage of the Act, which took effect July 1, 1995, followed a year-long collaboration among the General Assembly, representatives from the private sector, and the transportation agencies.

PPTA has a fine record so far with respect to successfully delivering huge transportation projects, with respect to schedule and budget.

These are the ones that have been completed:

Route 895 Pocahontas Parkway, a 8.8-mile-long freeway built 1998-2002; 92% private funding, the project was awarded at $324 million, to be completed in 44 months, and they completed it at $314 million, which is $10 million under budget, and in 49 months, by Fluor Daniel/Morrison Knudsen, LLC (FD/MK).

Western Route 288 Richmond beltway, a 17.5-mile-long freeway built 1999-2004; 100% public funding, the largest section of the project was awarded under PPTA in May 2001 at $236 million, to be completed in 29 months, and they completed it at $236 million, which is on budget, and in 41 months, and the extra time is reasonable given that near-record levels of rainfall occurred in 2003 and 2004. By APAC-Virginia, Inc.

Dulles Greenway (built under the Virginia Highway Corporation Act of 1988, a one-time version of what later became PPTA), a 14-mile freeway built 1992-1995; 100% private funding, completed six months ahead of schedule, and on-budget of $350 million, by Kellogg Brown & Root, Inc.

Someone may argue that three out of three successes doesn't prove that all will be as successful, but I think it is a very good track record for three huge highway projects.

The Route 288 example shows that PPTA can be used for a 100% public funded project, and they built a lot of freeway on-budget for a reasonable cost.

Credits

Copyright 2005 by Scott Kozel. All rights reserved. Reproduction, reuse, or distribution without permission is prohibited.

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By Scott M. Kozel, Roads to the Future

(Created  3-1-2005)