Many of the benefits of PPPs were described in the 2004 Report, including the efficiencies gained from PPPs in project delivery, operations and maintenance.17 These and similar benefits have been documented by multiple studies over the last few years18 and are identified below. As PPPs are increasingly utilized in the United States, the value of many of these benefits becomes increasingly clear, including the following:
• PPPs can result in significant cost savings. The 2004 Report indicated that PPPs can save from 6 to 40 percent of the cost of construction and significantly limit the potential for cost overruns through innovative contracting.19 Consolidating responsibility for multiple project elements, including design, construction, and operation, in one private entity can result in cost saving efficiencies that are not possible with the traditional DBB approach. In addition, because cost savings benefit the private partner, and because the private partner is responsible for cost overruns through fixed-price contracts, the private partner has direct incentives to limit costs.20 By raising private capital rather than public debt, PPPs can also ease
The Miami Port Tunnel project provides a good example of the cost savings that can be achieved by a PPP. While planners projected that the Florida Department of Transportation ("FDOT") would need to make annual payments of $68 million to the concessionaire for the design, construction, operation and maintenance of the project, each of the three private sector proposals received by FDOT contemplated significantly lower costs, with the bidder selected by FDOT requiring an annual payment less than half that amount, only $33 million.21
• PPPs can shorten project delivery by several years. By providing access to immediately available private sources of capital, PPPs can accelerate the construction of projects that might otherwise be delayed for years or not be built at all.22 In addition, the same efficiencies that produce cost savings often enable PPP projects to be constructed faster than traditional projects.23
The concession for the Missouri Safe & Sound Bridge Improvement Program is expected to accelerate significantly the repair or replacement of more than 800 bridges in Missouri through an innovative PPP. The PPP will assign responsibility for completing the work on all of the bridges to one private partner. According to a State Representative, "[w]ith this innovative new approach to transportation we will do in five years what would have taken us 20 before."24
• PPPs allow for the allocation of risk to the party best able to manage risk. Traditionally, virtually all of the risk associated with the design, construction, financing, operation and maintenance of a transportation project is borne by the public sector. PPPs allow for a significant portion of the project risk to be transferred to the private sector, reducing taxpayer costs.25 Proper allocation of project risks to the parties (public or private) best able to manage the risks can result in lower overall risk for the project, reduced project costs and accelerated project delivery. Proper risk allocation can also increase the public sector's ability to manage a large number of projects simultaneously.
A PPP structure is enabling the Virginia Department of Transportation to provide a dynamic solution to traffic on one of the most congested corridors in the country, the I-95/Capital Beltway corridor south and west of Washington, DC. Under a PPP structure the concessionaire is assuming the financial, technological and operational risks of implementing a complicated, variable rate, congestion pricing mechanism for the corridor. The concessionaire is willing to assume these risks because it will earn a return on its investment if the project is successful.
• PPPs can encourage innovations and the incorporation of life-cycle costs. Traditionally, PPPs can encourage the incorporation of life-cycle costs in the design and construction of a facility which often leads to delivery of a higher quality transportation project.26 PPPs can also encourage the private sector to come forward with creative ideas for improving the quality of public transportation infrastructure.
A survey of 37 PPP projects in the United Kingdom concluded that private partners in PPPs build higher quality facilities in order to reduce the long term costs of operation and maintenance.27 In the Design-Build arrangements for the Largo Metrorail Extension in Washington, DC, the Design-Build contractor utilized a jet van tunnel ventilation system rather than the vent shaft system that the procuring agency had used for other tunnels because the jet van system is easier to maintain and more efficient to operate. This innovation saved an estimated $10 million in project costs.28
These examples demonstrate that state and local authorities are using PPPs to reduce costs, accelerate project delivery, allocate risk more effectively and encourage innovation.
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17 The benefits of PPPs were described in Chapter III of the 2004 Report.
18 See, for example, (i) Current Practices for Public-Private Partnerships for Highways, Draft Report, submitted by KCI Technologies, Inc., in cooperation with the Maryland Transportation Authority, the Maryland Department of Transportation, and the Maryland State Highway Administration, June 22, 2005 (the "Maryland Report"), (ii) Surface Transportation Funding Options for States, National Conference of State Legislatures, May 2006 (the "NCSL Report"), (iii) Report to Congress on the Costs, Benefits, and Efficiencies of Public-Private Partnerships for Fixed Guideway Capital Projects, USDOT, November 2007 ("USDOT Transit PPP Report"), (iv) PFI: Construction Performance, UK National Audit Office, Report by the Comptroller and Auditor General, HC 371 Session 2002-2003, February 5, 2003 ("UK NAO Report"), and (v) Performance of PPPs and Traditional Procurement in Australia: Final Report, The Allen Consulting Group, November 30, 2007 ("Australia PPP Report").
19 2004 Report, pg. 2.
20 See the NCSL Report, pg. 49, which states that "[b]ecause the private entity wants to make a profit, it has greater incentive to reduce costs, improve efficiency and shorten completion time."
21 Miami Port Tunnel, Maximum Availability Payment Opened, Port of Miami Tunnel Project, Media Advisory, Revised April 12, 2007.
22 2004 Report, pg. 48. See also the Maryland Report, pg. 22. The Maryland Report explains that using traditional funding sources States are often forced to choose between funding an expensive mega-project and funding smaller urgent projects. Using non-traditional sources of funds made available through PPPs, expensive mega-projects and smaller urgent projects can be completed simultaneously.
23 See Note 20 above.
24 Gov. Blunt Signs Bill to Dramatically Improve 153 Bridges in St. Joseph Area, Missouri Governor Matt Blunt, Press Release, September 5, 2007.
25 2004 Report, pg. 59. See also the Maryland Report, pg. 32.
26 2004 Report, pg. 62. USDOT Transit PPP Report, pp. 9-10.
27 The UK NAO Report, pp. 7-8, which asserts that "[b]y designing and building the asset to a standard that will reduce maintenance costs throughout the contract period the consortium can reduce its long term costs while ensuring that it meets the department's service requirements."
28 USDOT Transit PPP Report, pg. 19. The Largo Metrorail Extension was a Design-Build project, not a long-term concession, but this project demonstrates the cost savings and innovations that result from the combination of multiple project elements in one entity, a key component of the PPP structure.