An innovative financing tool that can be used for transportation PPPs, a 63-20 public benefit corporation is a nonprofit corporation that, pursuant to IRS Rule 63-20 and Revenue Proclamation 82-26, is authorized to issue tax-exempt debt on behalf of private project developers for activities that are "public in nature." | |
A+B contracting-also known as "cost-plus-time bidding"-is a procurement approach that rewards a contractor for completing a project as quickly as possible. Each submitted bid includes both A) the project cost and B) the value associated with the time needed to complete the project; both factors are used to determine low bid. Bonuses for early completion and/or penalties for late completion typically are included, and the contractor assumes the risk of not completing the project on time. | |
An asset management contract is used for long-term maintenance and/or operation of an existing facility. Under this type of contract, the private entity typically is responsible for financing needed improvements and is paid a fee by the public sector for doing so. Fees may include performance incentives or disincentives. Possible benefits include cost savings. See also "operations and maintenance (O&M) contract." | |
Asset monetization is the extraction of monetary value from an existing asset. A transportation asset can be monetized by a public agency in a PPP through receipt of an up-front payment for a concession lease or an ongoing revenue-sharing arrangement. See also "long-term concession lease" and "revenue sharing." | |
In an asset sale, the public entity fully transfers ownership of a publicly funded asset to the private sector indefinitely. This is considered full privatization, not a PPP. See also "privatization." | |
Under this PPP financing arrangement, the public entity agrees to make regular payments to the private entity based on the facility's availability and level of service achieved for operations and maintenance. Unlike shadow tolls, availability payments do not depend on traffic volume (see "shadow tolling"). In the United States, availability payments are more common for transit projects. Florida's I-595 Managed Lanes project is the first U.S. highway project to use this approach; performance-based availability payments to the private operator are planned to start once the facility is fully operational (expected to be in 2014). | |
Brownfield projects focus on improving, operating and/or maintaining an existing asset (contrast to "greenfield"). PPP brownfield projects in transportation typically are long-term operation and maintenance contracts or lease concessions (see also "operations and maintenance [O&M] contract" and "long-term lease concession"). Blended greenfield-brownfield projects also exist-for example, improving an existing asset by adding new capacity (e.g., more lanes). | |
Under a build-(own)-operate-transfer (BOT or BOOT) PPP project delivery structure, the private contractor retains ownership of a facility after construction and for a specified period during the operations and maintenance phase of the project, after which ownership is transferred to the public sector. Similar to design-build-finance-operate (DBFO) (except for the temporary private ownership before transfer) and build-transfer-operate (BTO). This model is not often used in the U.S. highway sector. | |
Build-own-operate (BOO) is a project delivery structure that does not necessarily contractually obligate the private entity to transfer ownership of an asset back to the public sector. This model is not often used in the U.S. highway sector. Although similar to the build-operate-transfer (BOT) approach, this is considered full privatization rather than a PPP. See also "privatization." | |
Build-transfer-operate (BTO) is a variation on the design-build-operate-maintain (DBOM) project delivery structure in which the private contractor transfers ownership to the public sponsor after construction is completed, and then is authorized to operate the facility for a period of time. This model also includes some private financing of the design, construction, operation and maintenance of a facility. BTO is similar to design-build-finance-operate (DBFO) and build-(own)-operate-transfer (BOT or BOOT). | |
A compensation clause is a possible element of a limited complete clause that requires the public sector to compensate a private concessionaire for lost toll revenues due to competing public facilities. One example is the State Highway 130 concession in Texas. See also "noncompete clause" and "limited compete clause." | |
See "long-term lease concession." | |
Concession benefits are the rights to receive revenues and other benefits (often from tolling) for a specified period of time. See also "long-term lease concession." | |
Congestion pricing is a variation on tolling, in which user fees for a transportation facility vary based on the level of traffic volume or time of day. It is also known as "variable pricing." Note that not all PPPs use tolling or pricing techniques. See also "tolling." | |
The construction manager at risk (CM at Risk) project delivery structure involves a separate contract for a construction manager and a design contractor during the initial phase of the project. The construction manager provides constructability, pricing and sequencing analysis and negotiates a design-build contract with the project sponsor as design work progresses. Potential benefits include advancement of a project during price negotiations. | |
Under the construction manager/general contractor (CM/GC) contracting method, the design contractor and the building contractor are hired simultaneously and work together to develop design and construction solutions tailored to the particular project. The project owner retains full control of the project design throughout the process. Potential benefits can include accelerated project delivery. | |
See "A + B contracting." | |
Design-bid-build (DBB) is the traditional procurement approach for transportation projects in the United States, in which the design and construction of a facility are sequential steps in the project development process and each activity is bid separately. This is not a PPP | |
Under a design-build (DB) contracting method, a single entity is responsible for both the design and construction of a project and both procurements are combined into one fixed-fee contract. Potential benefits can include time savings, cost savings, risk sharing and quality improvement. A variation is design-build with a warranty (also known as design-build-warrant), in which a contractor guarantees to meet material workmanship and/or performance measures for a specified period of time after project delivery. Design-build is sometimes considered the PPP approach with the least private involvement; others have excluded it from the PPP category, since it involves only a projects construction phases. Thirty-eight states and Puerto Rico have design-build enabling legislation, whereas fewer have authorized other PPP models for highway projects (see Figures 6 and 7 and Appendices B and E). | |
design-build-finance-operate-(maintain/ manage) (DBFO or DBFOM) | Design-build-finance-operate-(maintain/manage) (DBFO or DBFOM) models are variations on the design-build-operate-maintain (DBOM) PPP project delivery structure that also include some private financing of the design, construction, operation and/or maintenance of a facility. Under a DBFO or DBFOM, the public sponsor retains ownership of the facility and uses revenues generated from operation of the facility (such as tolls) to repay the private and other financing used to construct it. These approaches may include an up-front payment to the public sector agency or a revenue-sharing agreement (see also "revenue sharing"). In other cases, availability payments may be used (see also "availability payments"). Potential benefits include transfer of financial risk to the private contractor. These models are similar to build-operate-transfer (BOT) and build-transfer-operate (BTO). |
Under a design-build-operate-maintain (DBOM) PPP project delivery structure, the private contractor is responsible for the design and construction of a facility, as well as its operations and maintenance for a specified period of time after construction. One potential benefit is the incentive to a private contractor to deliver a higher-quality product in order to avoid higher maintenance and improvement costs during the operations phase. | |
A grant anticipation revenue vehicle (GARVEE) is a federal debt financing instrument that enables a state, political subdivision or public authority to pledge future federal-aid highway apportionments to support costs related to eligible bonds, notes or other debt financing instruments. GARVEEs essentially enable debt-related expenses to be paid with future federal-aid funds, which can accelerate construction timelines and spread the cost of a transportation facility over its useful life. These instruments are not available to private entities, but can facilitate PPPs by providing additional, reliable and immediate funding for transportation projects. GARVEEs are authorized under 23 U.S.C. §122. | |
Greenfield projects focus on developing and/or building a new asset (contrast with "brownfield"). Many PPP structures are available for greenfield projects, including design-build, design-build-operate-maintain (DBOM), design-build-finance-operate-maintain/manage (DBFOM) and others. Blended greenfield-brownfield projects also exist (see "brownfield"). | |
Innovative methods of financing construction, maintenance or operation of transportation facilities. Covers a broad variety of nontraditional financing, including use of private funds or innovative use of public funds such as GARVEEs (see "grant anticipation revenue vehicle [GARVEE]"). | |
Innovative contracting practices are meant to improve the efficiency and quality of road construction, maintenance or operation. See "A+B contracting," "design-build" and "design-build-finance-operate-(maintain/manage) (DBFO or DBFOM)" for examples. | |
See "long-term lease concession." | |
A project's life-cycle costs are its total costs from project inception to the end of its useful life. | |
A limited compete clause is a variation on a noncompete clause that allows a public sponsor to build or improve certain transportation facilities that may draw traffic from a privately leased toll road, within limits. One example is the Pocahontas Parkway in Virginia. A limited compete clause may include compensation to the private operator for lost toll revenues due to competing facilities (see "compensation clause"). See also "noncompete clause." | |
A long-term lease concession is a PPP project delivery structure involving a long-term lease of an existing public asset to a private concessionaire for a specified period of time (see also "brownfield"). Generally, the concessionaire agrees to pay an up-front lump sum fee to the public agency in exchange for the right to collect availability payments or direct revenue generated by the asset over the life of the contract (typically 25 years to 99 years). Alternatively, a revenue-sharing arrangement may be used (see also "revenue sharing"). The concessionaire agrees to operate, maintain and/or improve the facility during the term of the lease. This approach has received more public attention in the United States than other PPP models, largely due to the highly publicized leases of the Chicago Skyway and the Indiana Toll Road. See also "concession benefits." | |
In PPP agreements-particularly for brownfield concessions-noncompete clauses prevent the public sponsor from building or improving highways or other transportation facilities that might provide a competing route for traffic on a privately leased toll road. Such clauses are used to help reduce revenue risk for the private toll road operator, but have been criticized for limiting the public sector's ability to deliver needed transportation infrastructure. One example is in the original California SR 91 agreement. PPP agreements now generally use a modified version of a noncompete clause (see "compensation clause" and "limited compete clause"). Some states-such as Arizona, California, Colorado, Florida, Mississippi, North Carolina and Texas-prohibit noncompete clauses in statute. Note that noncompete clauses originated with public toll roads. | |
Under an operations and maintenance (O&M) contract, a selected contractor is responsible for operating and maintaining a facility for a specified time. See also "asset management contract." | |
See "shadow tolling." | |
An innovative financing tool that can be used for transportation PPPs, public activity bonds (PABs) are a form of tax-exempt bond financing that can be issued by or on behalf of state or local governments for privately developed and operated projects. This gives private entities access to tax-exempt interest rates. All Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) projects are eligible for PABs. Under current law, the total amount of such bonds is limited to $15 billion. As of January 2010, PAB allocations totaled $6.3 billion for seven projects. | |
Privatization is when full control and ownership of a public asset is transferred to the private sector. This is not a PPP. See also "asset sale" and "build-own-operate (BOO)." | |
Progress payments are the traditional approach to federal, state and local contracting in the United States, in which regular cash payments are made by the public sector to the private sector to allow the contractor to perform without using its own financial resources and without borrowing. | |
According to a widely adopted definition from the U.S. Department of Transportation, a public-private partnership (PPP or P3) is "a contractual agreement formed between public and private sector partners, which allow more private sector participation than is traditional. The agreements usually involve a government agency contracting with a private company to renovate, construct, operate, maintain, and/or manage a facility or system. While the public sector usually retains ownership in the facility or system, the private party will be given additional decision rights in determining how the project or task will be completed." In some PPPs, the private sector may also finance some or all of a project. | |
A purely private development project has no public sector involvement and no contract or other formal agreement between the public and private sectors. This is not a PPP. | |
Revenue bonds are issued by the public sector to finance the construction or maintenance of a transportation facility. Unlike general obligation bonds, these are not backed by the full faith and credit of the government but, rather, depend on revenues from the roadway they finance. | |
Revenue sharing is a PPP arrangement in which the public sector shares in the revenues generated by a privately leased transportation facility, over a certain threshold. This arrangement generally comes with a lower up-front concession payment to the public sponsor (see "long-term lease concession"). Examples include State Highway 130 in Texas and the Pocahontas Parkway in Virginia. | |
An innovative financing tool that can be used for transportation PPPs, Section 129 loans allow federal participation in a state loan to a public or private entity for transportation projects with dedicated revenue streams. States have the flexibility to negotiate interest rates and other terms. Projects receiving Section 129 loans must meet fewer requirements than those receiving state infrastructure bank loans (see "state infrastructure bank [SIB]"). Section 129 loans are authorized under 23 U.S.C. §129. | |
Shadow tolling-known as "pass-through tolling" in Texas-is a variation on the use of tolling to support private financing of a highway project. Under this PPP financing arrangement, the sponsoring public agency agrees to make payments to the private operator "equal to the amount of the toll that would have been imposed on users of the facility if a direct user fee had been implemented," which gives the private sector an incentive to maximize traffic volume on the facility. Thus, shadow tolls are not paid by facility users. Shadow tolls are similar to availability payments, except that shadow tolls depend on traffic volume (see "availability payments"). | |
An innovative financing tool that can be used for transportation PPPs, a state infrastructure bank (SIB) is a revolving fund administered by a state that supports surface transportation projects through low-interest loans, loan guarantees and other credit assistance to public and private sponsors of federal-aid highway projects. The program allows states to capitalize revolving loan funds with federal-aid funds. As of December 2008, 32 states and Puerto Rico had entered into 579 SIB loan agreements worth more than $5.56 billion. In addition, Florida, Georgia, Kansas, Ohio and Pennsylvania have developed state-funded SIBs. SIBs are authorized under 23 U.S.C. §610.1. | |
See "Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA)." | |
Toll credits are earned by states for toll revenues from existing facilities that are spent on nonfederal highway capital improvement projects. The credits then can be substituted for the required nonfederal share on a federal-aid project, essentially increasing the federal share on such a project. Toll credits do not, however, increase the total funding available for transportation. | |
In this traditional approach to financing PPP highway projects, users pay tolls that cover the full construction and operating costs of the road. Not all PPPs involve tolling or pricing techniques. See also "congestion pricing." | |
Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) | An innovative financing tool that can be used for transportation PPPs, the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) provides federal credit assistance in the form of direct loans, loan guarantees or standby lines of credit to public or private sponsors of major surface transportation projects. The programs goal is to "leverage federal funds by attracting substantial private and other non-federal co-investment in critical improvements to the nation's surface transportation system." Various criteria must be met to qualify for TIFIA assistance, and only 33 percent of eligible project costs can be supported. Congress authorized $122 million per year for TIFIA for FY 2005 through FY 2009, which can support on average more than $2 billion of annual credit assistance. From its inception to July 2010, the program provided $7.9 billion in assistance for projects worth $29.4 billion total. |
Value capture refers to various arrangements in which the private sector contributes financial or other resources in exchange for benefits-such as increased property values-resulting from public investment in transportation improvements. Examples include development impact fees, joint development agreements (usually used for transit projects), tax increment financing, air rights development and assessment districts. Some value-capture projects may be considered PPPs, depending on the extent to which the private and public sectors share project risks and responsibilities. In many, however, the private sector acts primarily as an alternative revenue source for the public sector. Most value-capture approaches are used mainly by local, not state, governments. | |
See "congestion pricing." | |
In the context of PPPs for road projects, a warranty guarantees that a facility will meet a certain level of quality or else repairs or replacements will be made at the private contractor's expense. See also "design-build." |