The United States Department of Transportation (USDOT) defines P3s as "contractual agreements formed between a public agency and a private sector entity that allow for greater private sector participation in the delivery and financing of transportation projects."
With 42 years of experience in underwriting, bonding and construction services, Mark Reagan, Chairman of Marsh Global Construction Practice, is bullish on emerging P3s in the U.S.: "In the last two years we've established at the parent company level down, through all of the operating companies within Marsh & McLennan Companies, a focus on infrastructure."
Looking back at the intersection of Reagan's career and P3's rise, he reflects, "we had begun to see what became known specifically as a pioneering national effort in [England] with P3s. It was the beginning of what they called a Private Finance Initiative (PFI), driven by the same forces that spread through Europe and Australia and in Canada and are now coming to a P3 theater near you here in the United States" Reagan adds, "The current political debate, the discussion around deficits and spending are endless, but the need for infrastructure in the U.S. is infinite."
"Necessity creates partnerships," explains Granite Construction's CEO Jim Roberts. "That's what public-private partnerships are about. States want to expand their infrastructure, especially large projects in metropolitan areas. Governments need to stretch dollars by bringing private capital into these complex P3 ventures. The construction community and the investment community are employed on a cost effective basis to help them do that. There's a movement afoot to go forward with more of these in the future and it's very positive for the country to do so."
Geoffrey Heekin, Aon's P3 Global Leader, explains a common P3 misconception: "Probably the greatest misnomer that was out there-even a stigma-was that the public-private partnerships were selling assets to the private sector." The fact is ownership of the asset remains the property of the public. Citing Marriot as an example, Heekin notes that: "They rarely own the hotel. They manage it. Marriott got out of real estate years ago. They use their brand and their core competency, which is management, facilities management, hospitality management. It's a developer or real estate trust that actually owns the asset. Frankly, that's the premise of P3."
Heekin sees an emerging market by the numbers. "In the U.S., in 2004, there was $1.4 billion worth of work done. In 2009, private investments rose to $6.7 billion. In 2010 there were eight projects totaling $5.8 billion that went to commercial close. In 2011, private investment dropped to $1.2 billion. In 2012, we'll see $5 billion closing and next year closer to $7 billion. I believe by 2018 private investments in public projects will reach somewhere around $15 billion." |
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Finally, Heekin explains the encouraging news of a growing political will: "There's an uptick. What's been lacking in the past is the proper political framework, a lack of sponsor education and awareness so some of those issues in the past were causing deal frustration and/or what I'll call a public aversion to P3s [which] is finally being dampened and/or removed as people are getting a better understanding of what P3s are and what they are not."
"As budgets shrink in municipalities and state governments and at the federal level, there's a gap to be filled," believes Andrew J. (Josh) Markus, an attorney with one of Florida's oldest law firms, Carlton Fields. "Private finance can fill that gap provided there's a return on investment that makes sense. It's not too difficult to get into the process and not too costly to get into the process. It's a long-term commitment however, usually 20-35 years." |
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Historically, P3 projects have been delivered on time and on budget more often than traditional procurement projects, despite the fact that the P3 projects were typically larger and more complex. Infrastructure Partnerships Australia performed a detailed study on P3s during 2000-2007. From a time basis, they found that on average, 18% of traditionally procured projects had timing overruns, while only 10% of P3 projects missed deadlines. In addition, if a project was delivered late, traditional projects were delivered 26% later than originally expected, while P3 projects were delivered only 13% later than expected. On the cost side 45% of traditionally procured projects were delivered with expenditure overruns, compared to only 14% of P3 projects. Additionally, when there were cost overruns, traditional projects were 35% over budget, while P3 projects were only 12% over.3
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3 Performance of PPPs and Traditional Procurement in Australia: Infrastructure Partnerships Australia, 2007