2.3.3  Implementation Challenges

P3s are complex arrangements and require careful deliberation before agreements are executed. While P3 strategies can provide significant benefits as described above, they are not appropriate for all transportation projects. Some of the potential challenges in implementing P3s include:

  Difficult financial, legal, and technical issues that require oversight over the length of the contract period. States need to acquire the technical and institutional capacity to develop and oversee P3s and will need to hire outside expertise to help in various phases, including planning, project feasibility evaluation, contract negotiations and performance monitoring.

  State enabling legislation is needed to undertake a P3. To date, 35 states, the District of Columbia and Puerto Rico have enacted statutes that grant agencies statutory permission to enter into P3 agreements.

  Although P3s can offer access to capital, they do not provide States with new revenue; in fact, P3s need a reliable revenue stream to work.

 Private financing entails higher financing costs compared to tax-exempt public financing. However, private financing (debt and equity) may be necessary in order to conserve limited public debt capacity. In some cases, these higher costs can be mitigated though the use of Federal tax provisions (e.g., accelerated depreciation), more flexible financing terms, and innovative finance tools, such as PABs and TIFIA, to reduce the cost of borrowing for private debt.

  There are several uncertainties (e.g., traffic and revenue projections; pricing and allocation of risk; private sector returns) that need to be included in feasibility assessments for P3 projects. Understanding these factors is essential to ensure an objective analysis and a proper balance between responsibilities, risks and rewards of the parties involved in the transaction.

  Finally, transparency and education in the P3 process are key to achieve public support. In the past, there have been many misperceptions about P3 due to inadequate public information and openness in the process. For example, a common misperception is that the public sector "loses" control or ownership of the asset by transferring a significant amount of control of, and risk for, one or more elements of a project to a private partner for a specified period of time. In reality, the public partner does not relinquish ownership of the facility and remains involved to the extent that the contract terms clearly define the responsibilities of public and private parties, and other provisions protect the public interest (e.g., toll setting, frequency of toll rate adjustments, service standards).