Described by some as “classic sausage making,” the model for infra- structure delivery known as the public-private partnership, or P3, is poised to emerge as a credible option to help cure the colossal ills of the nation’s network of roads, bridges, airports, and tunnels. But even as mega P3 projects are either finished — the North Tarrant Express in Texas — under construction — the light rail Purple Line in Maryland — or in the works — the Gordie Howe Bridge from Detroit to Windsor — the nation’s embrace of P3 is far from wholehearted. And with no federal standard, long-established ways of doing business, and a hodgepodge of state legislation, there’s no hint P3s will take their place at the center of public works, as they have in Canada, Australia, and the United Kingdom. As state and local governments, as well as infrastructure companies and equity investors, wait to see what will happen, if anything, with the $1 trillion infrastructure bill touted by President Donald Trump — and as Trump has made conflicting statements about the effectiveness of P3s — there’s certainly no shortage of interest in what’s possible, and what’s not, under the P3 model. Todd Herberghs, executive director of The National Council for Public- Private Partnerships, an advocacy founded in 1985, said he’s been busy fielding questions, but in an interview with Civil + Structural Engineer magazine, said critical mass has yet to be achieved. “P3s are in the news and there is a lot of interest,” Herberghs said. “Our phones are ringing, but there’s a big difference between interest and actually going down the road.” P3s are a way to access new financing sources while also transferring risk from the public to the private sector. Under the standard model, the public sponsor controls each phase — design, construction, finance, operation, and maintenance — of the project’s life cycle. Under P3, a single private entity, which could be a consortium of several compa- nies, assumes responsibility for multiple phases, accepting long-term risks in return for prospective rewards. Transportation P3s feature user fees or tolls or, in other instances, government resources committed via long-term contract, known as availability payments, according to the U.S. Department of Transportation. Herberghs’ organization has an impressive list of members that in- cludes, among others, Arcadis U.S., Bostonia Partners, CH2M, and the Port Authority of New York and New Jersey. A clear indication that the big outfits are on board, Herberghs said the difficulties exist at the state and local level, the level where the overwhelming majority of infrastructure is owned. A big part of the complicated P3 model is risk and reward, and inves- tors only want to take on projects that promise a great return. That can spook state and local leaders and the constituents they represent. It doesn’t help when major P3 programs like I-69 in Indiana fail and are bailed out by the state. That being the case, P3 needs advocates in statehouses and city halls, or P3 can arrive as a dead letter. “A lot of times if there is no champion pushing for it, it might not go
anywhere,” Herberghs said. “It’s a new way of doing things and you have to explain it.” There are, however, issues at the federal level, where much of the “seed money” for P3 projects comes from in the form of low-interest debt. Early in his presidency, Trump had said he wanted to fund $1 tril- lion in upgrades. In May, a framework was issued in which the federal government would pledge $200 billion over 10 years as incentives for another $800 billion in spending by state and local governments and the private sector. In effect, the ideal environment for P3s. But in September, Trump, speaking to lawmakers, apparently reversed course, putting the infrastructure framework into question. A glimmer of hope for P3 advocates, meanwhile, came inAugust when U.S. Trans- portation Secretary Elaine Chao, a Trump appointee, appeared at the groundbreaking for the 16-mile light rail Purple Line in suburban D.C. The federal government pledged $900 million to the project, which has as private equity partners the super firms of Flour, Meridiam, and Star America. Still, the national infrastructure program appears to be stuck in neutral, with lawmakers focused on health care and tax reform, not roads and bridges. Add to that the series of brushfire controversies involving Trump, partisan gridlock on Capitol Hill, and a simmering investiga- tion into Russian meddling in the 2016 election, and the forecast looks cloudy for P3s. “I fear infrastructure is taking a back seat,” Herberghs said. “We’re reading the tea leaves.”
GeoffreyYarema Founder, Nossaman’s Infrastructure Practice Group
If infrastructure is taking a back seat, it’s at least still in the car. And there are plenty of influential people who want to see P3s considered whenever projects are proposed. One such person is Geoffrey Yarema, founder of Nossaman’s Infrastructure Practice Group. An acknowl- edged thought leader for innovative procurement, contracting, and financing structures for large transportation projects, he is known for his work with state departments of transportation, as well as regional and local agencies. Yarema has often provided expert testimony before Congress. In addition to his work across the United States, Yarema counts 16 years representing the Texas Department of Transportation through more than $59 billion in transportation improvements. Perhaps it’s no surprise that Texas is one of the nation’s leaders in P3s, with many projects operational or under construction, and with an advanced, cen- tralized state bureaucracy. Yarema, an attorney, spoke with Civil + Structural Engineer and shared his thoughts on P3 and its role in the ongoing struggle to repair and expand the nation’s infrastructure.
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january 2018
csengineermag.com
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