As demonstrated in certain case studies, increased involvement by the private sector may not by itself prevent a project from experiencing difficulties that result in higher costs and/or schedule delays. Various circumstances may cause projects to experience problems beyond the ability of the private development team to mitigate or eliminate. This is why a careful analysis of potential risk factors should be performed before a public sponsor and a private delivery team enter into a PPP arrangement, particularly where there are significant externalities or complexities to the project. Therefore prospective partners to a PPP should consider the following in assessing whether to proceed with a particular PPP approach:
• While the involvement of the private sector in a transportation capital project and its operations can help improve the cost-effectiveness and timeliness of project delivery and provide other benefits in terms of risk transfer and access to financial markets, it is not a guarantee of successful delivery or financial self-sufficiency.
• While the involvement of the private sector can enhance the prospects for a good project to be successfully delivered within budget and schedule limitations, greater involvement by the private sector may not make a project of dubious feasibility automatically become feasible. However greater involvement by the private sector may help a marginal project become more feasible and a good project even better through the application of cost-effective practices, use of the latest technology, and access to affordable financial strategies and capital markets.
• PPPs are not a strategy for turning bad projects into viable projects just because the private sector is involved to a greater extent, except in those cases where the private sector can gain significant value capture benefits that lower the public sponsor's responsibilities for funding project capital and O&M costs.
• The private sector, like the public sponsor, is subject to ridership, development, and revenue risks. Projections of material prices, ridership, revenues, and development activity are subject to future events or changing conditions that could affect these estimates. The assumptions upon which traffic and revenue projections are based are often beyond the control of either the private or public sectors. However, the private provider team may be able to better manage and withstand the consequences of these risks based on their prior experience and the depth and skills of their resources.
• The private sector can misjudge the feasibility of transportation projects delivered through a particular PPP approach given the many factors that can influence project results and the provider team's ability to fulfill its contractual obligations in a cost-effective and timely manner. However, the private sector has greater incentive to apply due diligence and risk management techniques to identify and minimize the potential for these kinds of challenges, particularly when the private sector partner has an equity position in financing the project which is at risk if the project does not achieve certain performance requirements.
A review of the available literature and the results of the case studies included in the companion reports to this guidebook indicates that the number of successful PPP transportation projects is much larger than the number of projects involving the private sector which have experienced difficulties, often for reasons not related to the increased involvement by the private sector. In many cases the involvement by private sector partners reduced the extent and consequences of these difficulties.
With many PPP approaches available, the kind of private sector involvement can vary by function, service, project, and agency. Some partnership approaches may not be appropriate or beneficial in certain cases while in other instances a PPP can turn a troubled project into a success. The essence of a PPP is that it is based on a true partnership, where both the public sponsor and private delivery team are involved in ways that maximize their contributions to the project based on their respective capabilities. While not a panacea for the fiscal, staffing, and technological shortages facing state and local transportation agencies, PPPs can provide additional resources to the provision of transportation infrastructure and services. As a result, the number of state and local transportation agencies sponsoring PPP projects is rapidly growing, while the domestic financial investment community has begun to seize the opportunities associated with this emerging market for transportation infrastructure financing.