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Are Public-Private Partnerships (P3s) the answer for America’s aging infrastructure?

October 10, 2017

As America struggles to find funding to rebuild its aging infrastructure, P3s may offer a solution for major projects.

Head of Construction

Scott Rasor is the Head of Construction for Zurich North America Commercial Insurance. He is a... About this expert

highways

Recent extreme weather events in Florida and Texas have increased awareness of the impact poorly maintained infrastructure can have on business and our communities. Insufficient drainage channels, overtaxed sewage treatment plants and outdated highways that can’t support current populations are part of America’s aging infrastructure. Even before recent hurricanes, the American Society of Civil Engineers (ASCE) reported our infrastructure is in poor to fair condition and mostly below standard, with many elements approaching the end of their service life.

As the U.S. government works to draft an infrastructure bill to help fund the rebuilding of America, we need to look at other options, such as Public-Private Partnerships (P3s).

Many U.S. infrastructure projects are large and complex. They are often too big for a private developer or public entity to successfully finance, design and deliver alone. In addition, the ongoing operation of completed projects requires a knowledgeable partner committed to the long-term. P3s, which are designed to share costs, risks and responsibilities, may offer another solution for America’s infrastructure challenge.

In 2015, the U.S. accounted for roughly a quarter of nominal global GDP and 18 percent of global construction spending, but only nine percent of the world’s nominal total costs of P3 infrastructure in the same time period. Those numbers are beginning to change as more states and U.S. territories recognize the need to fund the rebuilding of America. As of 2016, 35 U.S. States, the District of Columbia, and one U.S. territory have enacted statutes that enable the use of various P3 approaches for the development of transportation infrastructure.

There are compelling reasons for public and private entities to build a partnership:

  • Greater risk awareness: Since P3 projects are usually large, feasibility studies are often utilized to appraise risks and level set build expectations; most risks are known before the project begins.
  • Checks and balances: Continuous assessment and flexibility by all parties involved helps ensure a smoother process; as new information becomes available, the process and goals can be modified as needed.
  • Greater return-on-investment (ROI): P3 models encourage innovative design and financing approaches, allowing private and public entities to focus on what each does best.

While interest in P3s is growing in the U.S., it does require developers and general contractors to look at projects differently. Developers must be willing to work with transparency and a shared vision with the public entities involved. Private partners that choose to work within a P3 model often assume greater risk and long-term responsibilities. As P3s shift more risk to developers, they in turn often push more risk to general contractors. In a P3 project, the contractor may face many new challenges, including public relations, providing equity investments, and managing gaps in insurance.

Successful P3 projects incorporate joint planning, cooperative leadership and clear channels of communication. The need to rebuild and revitalize public infrastructure, an even more pressing challenge in light of those recent hurricanes, has reached a critical level. P3s may be the answer we are looking for to help rebuild America’s aging infrastructure.

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