1. The Good and the Bad of P3s Preserving the American Dream Conference August 7, 2017 Rossyln, Virginia
Jonathan L. Gifford

2. Agenda A brief introduction The Good The Bad Discussion
Surface transportation P3s in the US
The Good
Evidence of benefits
The Bad
Management challenges, Political risk, Project risk
Discussion

3. A Brief Introduction

4. What are P3s?
Public sector tool to provide services and infrastructure
Long-term contracts bundling together different project stages
Why is it used by the public sector?
Allows access to private sector resources for building & maintenance
Improves risk management, e.g.: design-construction mismatches
Improves incentives, e.g.: finish construction faster to receive payment

5. P3 Legislation in the US

6. Recent Surface Transportation P3 Projects
State
Financial Close
Project
Project Type
Status June 2017
California
2012
Presidio Parkway Phase II
Road
Operating
Colorado
2010
Eagle P3
Commuter Rail
Under Construction
2014
US-36 and I-25 Managed Lanes Phase II
Florida
2009
I-595 Managed Lanes P3
Port of Miami Tunnel
Tunnel
I-4 Ultimate Improvements
Under construction
Indiana
2013
Ohio River Bridges Project, East End Crossing
Bridge
I-69 Section 5
Maryland
2016
Maryland Purple Line
Procurement
New York - New Jersey
Goethals Bridge
North Carolina
2015
I-77 HOT Lanes
Ohio
Portsmouth Bypass, Southern Ohio Veterans Memorial Highway
Pennsylvania
Pennsylvania Rapid Bridge Replacement Project
Texas
2008
State Highway 130, Segments 5 & 6
North Tarrant Express Segments 1 & 2A
I-635 LBJ TEXpress Managed Lanes
North Tarrant Express Segment 3A, I-35
State Highway 183 Managed Lanes, Midtown Express
Virginia
2007
I-495 Capital Beltway HOT Lanes
Elizabeth River Tunnels, Midtown Tunnel
I-95 HOV/HOT Lanes, Express Lanes

7. The Good Side of P3s

8. P3 Evidence: Phase 1 Project selection using three criteria:
Type of infrastructure: surface transportation
Market maturity: financial close after 2003
Type of contract: long-term engagement (DBFOM, DBFM, DBOM)
6 projects selected out of 22 project universe
Virginia’s I-495 Express Lanes
Colorado’s U.S. 36 Express Lanes
Virginia’s I-95 Express Lanes
Methodology: Interviews of main actors & review of project documents
Florida’s Port of Miami Tunnel
California’s Presidio Parkway
Texas’ LBJ TEXpress Lanes

9. P3 Evidence: Findings Multiple objectives Goal achievement
Goals beyond efficiency and funding
Other goals: cost & schedule certainty, project acceleration, access to private sector expertise
Key tools: incentives, contract bundling, competition, and unsolicited proposals
Goal achievement
Overall goals are achieved
Even if not achieved, better than DBB (Presidio: $91M cost overrun compared to expected $418M in DBB)
Presidio Parkway Phase II was built on-budget versus >$300m DBB project average cost overruns of 76%.
However, public-sector cost conflicts led to a lawsuit and settlement. Even considering this, the project cost-overruns are only 25% compared to the expected DBB project risk.
Moreover, the 76% of the DBB should be considered on the estimated $550M cost, not the P3 agreement cost of $360M.
So 76% of $550 are: $418M vs $91M

10. Main Objectives Identified
Congestion management
Congestion free HOV/HOT lanes
Increased speeds on General Purpose lanes
Private-sector resources
US 36 overcomes TABOR public-sector debt constraints
Accelerate project delivery
US 36 & LBJ delivered years earlier vs traditional procurement
Virginia’s I-495 & I-95 delivered at least 6 years earlier
Certainty: cost and schedule
Certainty is challenging for large complex scale projects
Most projects within budget
On-time or within 2-8 weeks of delay
Large complex projects: think Big Dig in Boston

11. Main Objectives Identified
Access private-sector expertise
Design & electronic tolling (I-495)
Tunnel boring (Port of Miami Tunnel)
Trench and cantilever (LBJ)
Risk management
Geotechnical risk in Port of Miami Tunnel
Debt repayment in US 36 Phase II, includes debt from Phase I
Increase transit funding
Project funding allows for greater range of objectives, particularly transit and multi- modal approaches

12. The Bad Side of P3s

13. P3 Evidence - Findings Transparency practices gaps Goal achievement
Not all goals are measured (Miami Tunnel downtown improvements, e.g., safety)
Not all goals are disclosed (I-495 improved toll collection)
Main challenges to achieving goals
Intergovernmental coordination
Force majeure
Transparency practices gaps
Disclosure is not citizen friendly
Some states/projects are leaders in project transparency
But… is traditional procurement any better?
Presidio Parkway Phase II was built on-budget versus >$300m DBB project average cost overruns of 76%.
However, public-sector cost conflicts led to a lawsuit and settlement. Even considering this, the project cost-overruns are only 25% compared to the expected DBB project risk.
Moreover, the 76% of the DBB should be considered on the estimated $550M cost, not the P3 agreement cost of $360M.
So 76% of $550 are: $418M vs $91M

14. Examples of Management Challenges
Project
Dates
Relevant dates
Indiana Toll Road
2006
Financial close
Opening year
“Toll freeze” until electronic tolling is in place. State reimbursement
Reduction on investment obligations
2007
Construction starts
Delays in certain investments until 2010
2008
State reimbursement due to lost revenue
2010
Delays in certain investments until 2011
2014
Operator files for bankruptcy
2015
Exits bankruptcy
Pocahontas Parkway
1998
2002
Transurban USA purchases the contract for: Lease Develop-Operate
Extension of concession period (to 99 years)
Additional investments: 1.6-mile (2.6km), four-lane (Airport Connector), and electronic tolling
2012
Transurban USA writes off its equity on the parkway to zero.
Transurban USA transfers the operation to DBi Services

15. Political Risk
Three dimensions of political risk: Each triangle contains the identified political risk elements that exist from each dimension. Ideological opposition differs from NIMBY as being a threat from outside of the community, such a national environmental groups, anti-tolling groups, that attack any project they feel is undesirable, rather than a community organized group whose best interests are directly related to their community. Public and ideological opposition feeds can feed into political opposition – these factors are not exclusive to each other, but do have a variable scale of interaction.

16. Political Risk in P3 Projects (Only DBFOM)
Row: previous stage
Column: next stage
Projects ever in this stage
Initial procurement
Commercial close
Financial close
Under construction
Operating - private concessionaire
End of contract
Early termination
Deferred
Cancelled 42 7%
57%
29% 24
88%
12% 21
100%
33%
67% 14
79%
14%

17. Project Risk (Bankruptcy)
State
Contract
Opening
Cost
(US$, million)
Cause of bankruptcy
Camino Colombia Bypass TX
DBFOM
2000 90
Demand lower than projected
Competing facility 
Southern Connector SC
2001
191
Demand drops during Great Recession
No-skin-in-the-game (63-20 nonprofit corporation)
Las Vegas Monorail NV
DB/Equip+O&M
650
Cost overruns (from $350 to $650 million)
SR125 South Bay Expressway CA
2007
635
Environmental permits & Community opposition
Cost overruns (from $400 to $650 million)
Foley Beach Expressway AL
1999 44
Parent company went bankrupt for other project
Indiana Toll Road IN
DBFOM + OM
2006
3,800
Drop in interest rates (interest-rate swaps)
SH 130 (Segments 5-6)
2012
1,327

18. Discussion

19. Conclusions
P3s are not yet widely used in the U.S., except in a few states
Evidence of benefits
Private sector expertise used to introduce cost-effective designs or sound construction methods
Increases cost & schedule certainty
Accelerates delivery of projects 6 to 15 years
Improves risk management of projects
Projects are affected by:
Macroeconomic conditions
Revenue projections
Political risk, mostly NIMBY concerns
Inter-governmental conflict

20. Ways to improve P3s
Expand objectives, such as multi-modal transportation and real estate development
Engage communities early on in the process to gain approval and identify best-practices
Share best-practices among states to improve inter- governmental cooperation in infrastructure projects

21. Thank you! The Good and Bad of P3s Jonathan L. Gifford
George Mason University
Center for Transportation Public-Private Partnership Policy
P3policy.gmu.edu

22. Political Risk in P3 Projects (Only DBFOM)
Surface Transportation P3 Projects
Cancelled
Deferred
Early-termination
No political risk 3 1
Authority overlap
Inadequate contract terms 2
Legislative change
Political transition
Political Opposition
Public Opposition (NIMBY) 7
Ideological Opposition: Environmental Activism, Private and Foreign Firm Opposition
Total 13
Note: 1 project with insufficient information to assess whether it faced political risk.