Transformation of America’s Infrastructure with Public-Private Partnerships

San Francisco’s iconic Golden Gate Bridge is also an example of a way of developing infrastructure in the U.S. that has long been out of fashion, but has begun to reemerge: the use of public-private partnerships (P3s).

 

Today, the P3 market is gaining back it’s to acceptance in the U.S., in large part due to three factors: declining tax revenues, shrinking budgets, and a desperate need to repair and expand rapidly deteriorating infrastructure nationwide.

 

P3’s growing popularity is following a global trend of reliance on public-private partnerships that began in England, spread through Europe, Australia and Canada, and is only now arriving in the United States.

 

U.S. Infrastructure’s Failing Grade Presents Huge Opportunity for P3 Projects

 

According to the American Society of Civil Engineers (ASCE), America’s infrastructure currently rates a D + in quality and safety – not very reassuring to anyone who uses bridges, tunnels, flies, or drinks water from the tap.

 

1 For the U.S. to continue its recent efforts to improve the situation (in 2009, the ASCE gave the U.S. an infrastructure grade of D –), over the next five years we will need to spend $1.73 trillion on enhancements to surface transportation, $100 billion for rail, and $134 billion for aviation.

 

2 In addition, the U.S. Environmental Protection Agency (EPA) estimates that the U.S. will need $335 billion to improve the nation’s water infrastructure 3 and an additional $298 billion for wastewater infrastructure 4.

 

Obviously, these needs are far too large for the private sector to fund on its own.  But the potential for tremendous participation from private funding sources is clearly there.  

 

Currently, 33 states have legislation that enables P3 projects, and it seems likely that more will come on board in the near future.

 

P3 projects historically have outperformed traditional public procurement projects along two critical parameters: staying on budget and delivery speed. 

 

According to a study conducted by Infrastructure Partnerships Australia, from 2000-2007 only 14% of P3 projects went over budget, compared to 45% of traditionally funded projects.  And where there were cost overruns, P3 projects averaged 12% over budget, versus 35% for traditional projects.

 

On time-to-completion, P3 projects missed deadlines 10% of the time, versus 18% for traditionally procured projects.

 

A Growing P3 Market Brings with it Private Sector Opportunities – and Increased Risk

 

As the P3 market expands to meet society’s desperate need for improved infrastructure to service America’s burgeoning population and economy, there will be a concomitant shift of risk from the public to the private sector.

 

As Thomas Grandmaison, executive vice president of Construction Casualty and executive sponsor for AIG’s Construction Industry Practice Group, has noted, “All private sector participants will be challenged to accept risk beyond their comfort zone…and a significant portion of that risk will not be transferrable to conventional insurance coverages.”

 

While the U.S. has not been in the forefront of the recent global wave of P3 development, it is poised to become the world’s largest P3 market.

 

The opportunities are there in terms of infrastructure needs, and it appears that the public and political will that is necessary to make it happen is rapidly moving into place.  If it does, then there may be some new engineering miracles like the Golden Gate Bridge coming very soon.