| TABLE 1 | |
| Traditional Approach (non-PPP) | Definition |
| The traditional method of project delivery in which the design and construction are awarded separately and sequentially to private firms. | |
| PPP Approaches |
|
| Combines the design and construction phases into a single fixed-fee contract, thus potentially saving time and cost, improving quality, and sharing risk more equitably than the DBB method. | |
| Private Contract Fee Services / Maintenance Contract | Contracts to private companies for services typically performed in-house (planning and environmental studies, program and financial management, operations and maintenance, etc.) |
| A contracted construction manager (CM) provides constructability, pricing, and sequencing analysis during the design phase. The design team is contracted separately. The CM stays on through the build phase and can negotiate with construction firms to implement the design. | |
| Design-Build with a Warranty | A DB project for which the design builder guarantees to meet material workmanship and/or performance measures for a specified period after the project has been delivered. |
| Design-Build-Operate-Maintain (DBOM), Build-Operate-Transfer (BOT), or Build-Transfer-Operate (BTO) | The selected contractor designs, constructs, operates, and maintains the facility for a specified period of time meeting specified performance requirements. These delivery approaches increase incentives for high quality projects because the contractor is responsible for operation of the facility after construction. The public sector retains financial risk, and compensation to the private partner can be in the form of availability payments. |
| Design-Build-Finance (DBF), Design-Build-Finance-Operate (DBFO), or Design-Build-Finance-Operate-Maintain (DBFOM) | DBF, DBFO, and DBFOM are variations of the DB or DBOM methods for which the private partner provides some or all of the project financing. The project sponsor retains ownership of the facility. Private sector compensation can be in the form of tolls (both traffic and revenue risk transfer) or through shadow tolls (traffic risk transfer only). |
| Long-Term Lease | Publicly financed existing facilities are leased to private sector concessionaires for specified time periods. The concessionaire may pay an upfront fee to the public agency in return for revenue generated by the facility. The concessionaire must operate and maintain the facility and may be required to make capital improvements. |
| Full Privatization |
|
| Design, construction, operation, and maintenance of the facility are the responsibility of the contractor. The contractor owns the facility and retains all operating revenue risk and surplus revenues for the life of the facility. The Build-Own-Operate-Transfer (BOOT) method is similar, but the infrastructure is transferred to the public agency after a specified time period. | |
| Asset Sale | Public entity fully transfers ownership of publicly financed facilities to the private sector indefinitely. |
Source: Based on FHWAs “User Guidebook on Implementing Public-Private Partnerships for Transportation Infrastructure Projects in the United States,” with some modifications made by the authors.
The Chicago Skyway and the Indiana Toll Road deals fall into the long-term lease agreement/concession category defined earlier. Although PPPs in various forms (mostly through design-build) have been used in the United States before these concession agreements, the large payments from private investors to the public sector raised awareness in the transportation community about this PPP option, and the deals were widely covered by the media, leading to an extensive discussion of the merits and issues of long-term concessions. Concession proposals in Pennsylvania and New Jersey to lease their existing toll roads fueled the debate among supporters and opponents, and alternative proposals have been put forth in both states to move away from the long-term concession model involving the private sector to what has been dubbed as "public-public" partnerships. In New Jersey, the state decided not to pursue a public-public toll road monetization approach because public support was lacking. Pennsylvania has two competing initiatives simultaneously. One involved a PPP through Act 44 (enacted in the summer of 2007) that would generate annual payments from the Pennsylvania Turnpike to other transportation uses in the state, and includes the possible tolling of the currently toll-free I-80, which is pending federal approval. The other was a long-term lease of the existing Pennsylvania Turnpike to private investors. As of July 2008, Pennsylvania had requested bids from private investors and accepted a bid for $12.8 billion that is pending legislative approval. The Pennsylvania Turnpike has already provided payments to the Pennsylvania DOT under Act 44. The request to implement tolls on I-80 was resubmitted to FHWA; the proposal was rejected by the federal government on September 11, 2008.
In 2006, the Harris County Toll Authority conducted a study to assess the revenue generation potential of three different financial arrangements: asset sale, long-term concession, and keeping the system under public control. The Harris County commissioners made a decision to maintain public control over the toll road system. Under the public ownership scenario, the implementation of more aggressive tolling would generate financial gains close to those under the long-term concession scenario and still allow the county to retain full control of its toll roads.
The significant exposure of these deals in the media has led the public, and even some transportation professionals, to view or refer to PPPs as only long-term concessions and/or Design-Build-Finance-Operate (DBFO), in which the rights to collect tolls and set toll rates, and the operations and maintenance of a toll facility are transferred to the private sector. As noted previously, however, PPPs encompass a wider range of procurement methods with varying levels of private responsibility based on risks transferred. Furthermore, the public concerns raised by PPPs vary within each PPP type, and these increase as the level of private involvement increases.
It is also important to distinguish between "greenfield" and "brownfield" PPPs, where the former refers to any PPP for new infrastructure (e.g., DBFO) and the latter refers to long-term lease agreements or concessions for existing facilities.