Potential PPP Obstacles or Concerns

State and local governments that are considering the use of PPPs may have several concerns about private involvement in transportation projects or may face several challenges in PPP implementation.  Obstacles to greater use of PPPs include the following.3

•  Legal prohibitions, regulatory restrictions or procedural restrictions that amount to a lack of authority to engage in PPPs. For example, a legal impediment is that most states do not allow innovative forms of procurement, which limits the potential for such partnerships.4 Relying only on the low-bid approach for procurement is not conducive to the use of public-private partnerships.

•  Agencies, potential private sector partners or the general public may. Lack familiarity with the PPP process and allocation of roles, responsibilities, risk and returns, and limited knowledge of examples of successful PPPs.

•  An overly bureaucratic approach by state transportation or other agencies and/or lack of consistency in how transportation agencies interpret statutes and regulations regarding PPPs.

•  A disconnect in approach and understanding between potential public and private sector partners;

•  Institutional inertia or opposition by parties that fear change to traditional project delivery approaches or harbor distrust for the opposite sector.

•  Lack of dedicated revenues or innovative financing mechanisms to support projects. According to FHWA, dedicated revenues, whatever their source, are generally the best way to support a PPP project's financial plan.5

Some objections to PPP use may a rise from concerns about the perceived loss of public control. In examples where private entities have purchased concession rights or tolling on public facilities, the perception is that the state or local government can lose the ability to control rates or ensure the quality of the facility.

Although only a few dozen projects have been completed using public-private partnerships, interest is growing.6 The recent successful completion of a long-term agreement between a private consortium with the city of Chicago to operate the Chicago Skyway Toll Bridge System has renewed interest in PPPs.

Congress also has promoted PPPs. In the FY 2004 Department of Transportation (USDOT) Appropriations Act, the USDOT was asked by Congress to identify the impediments to greater involvement of PPPs in large capital-intensive highway and transit projects.  In response, FHWA held several workshops and published an extensive report containing useful information to help states evaluate the possible use of public-private partnerships.7

To further encourage PPPs, FHWA established Special Experimental Project 15 (SEP-15) in 2004 to " ... encourage transportation agencies in seeking to attract private sector investment, innovation, efficiency and new revenue streams for U.S. transportation infrastructure."8 The program creates a process for state transportation agencies to seek the waiver of FHWA statutory and regulatory restrictions that are impeding the project delivery process.

Of the 23 states with PPP legislation, several-including Florida, Oregon, Texas and Virginia are aggressively using such partnerships. Legislation passed by the states tends to focus on authorizing the state departments of transportation and other transportation agencies to enter into partnerships and giving powers to undertake specific activities associated with a partnership. Many allow acceptance of both solicited and unsolicited proposals.