Advancing Public-Private Partnerships to Spur U.S. Infrastructure

Advancing Public-Private Partnerships to Spur U.S. InfrastructuretAs many urgent updates to the United States? infrastructure continue to be derailed by a lack of funding, the use of public-private partnerships, also called P3s or PPPs, is providing a viable path to completion for an increasing number of these projects.

Few dispute the fact that many of America?s water systems, bridges, and other infrastructure desperately need updating or outright replacement. The American Society of Civil Engineers? (ASCE) Infrastructure Report Card most recently gave the country a ?D+? in 2013 ? up slightly from a ?D? in 2011.

But the main road block to advancing these projects is financing. According to the ASCE, the estimated infrastructure investment needed nationally by the year 2020 totals $3.6 trillion, leaving an estimated funding gap of $1.6 trillion ? an amount just slightly higher than the current GDP of Australia.

For water systems, the statistics are especially grim. According to the ASCE, ?aging pipes and inadequate capacity lead to a discharge of an estimated 900 billion gallons of sewer each year.? And according to the American Water Works Association (AWWA), ?investment needs for buried drinking water infrastructure total more than $1 trillion nationwide over the next 25 years.?

With a growing population, fragile and aging assets and distribution networks, as well as the rising risks associated with climate change, the nation?s water-related infrastructure remains vulnerable to constant disruption. In addition, municipal water utilities are constrained by rates and user fees that do not reflect the full costs of supply, treatment and ongoing system maintenance to go along with the necessary improvements that ensure long-term water quality and availability.

Public-Private Partnerships 101

Oftentimes, the public sector takes on risks it is unable to properly manage, bearing responsibility for construction and design costs, material costs, project delivery, etc. In a public-private partnership, however, the public sector can gain certainty that a project will not exceed a set price as a private consortium accepts a lump-sum fixed price construction contract.

The private sector partner ensures that these projects are delivered on time, with no payments until substantial completion is reached, and all parties are satisfied that the finished product is fit for its purpose. The transfer of risk over the life cycle of the project guarantees that the private sector will bear the burden of these risks and provide savings and budget certainty to the public.

Similarly, the public sector is often responsible for the cost of delays on projects funded through traditional means. With public-private partnerships, the private sector bears the burden of most cost overruns caused by delays, so the private team has a strong incentive to finish on time, or early.

Overall, there is increased transparency in public-private partnerships, because all the details concerning risk allocation must be specified in a contract beforehand. Unlike the traditional approach, whereby accountability is unclear, and the bulk of the design, construction and project delivery risk falls on the public sector.

Advancing Public-Private Partnerships to Spur U.S. InfrastructuretA Growing P3 Movement in the United States

Already a well-established funding vehicle in many parts of the world, particularly in Europe, P3s have begun to catch on in the U.S. transportation market, most notably at the state and city levels. There also have been signs of P3 adoption in other domestic markets, including the recent completion of the Gov. George Deukmejian Courthouse in Long Beach, Calif., the first U.S. P3 public building project to be completed.

The P3 delivery model has not been utilized widely in the water sector largely due to the lack of financing tools available to lower the cost differential between tax-exempt financing and private financing. While states and cities can use Private Activity Bonds (tax-exempt financing that can be combined with private financing) for water P3 projects, such bonds are often unavailable as they are subject to a state?s volume cap and must compete with public housing projects and student loans for allocation.

However, P3s could be the wave of the future for the water sector due to the recent creation of a Water Infrastructure Finance and Innovation Authority (WIFIA), as part of the larger Water Resources Reform and Development Act signed into law by President Obama in June. WIFIA will catalyze the delivery of U.S., P3 water projects by providing municipalities with long-term, low-interest subordinated debt financing that can be combined with private financing. With WIFIA, the concern over the cost of financing can be significantly reduced.?

Consequently, numerous counties and cities are beginning to identify projects suitable for a P3 delivery approach. For instance, Prince George?s County in Maryland announced a $100-million P3 initiative to address stormwater management. Under this initial demonstration project, the county plans to retrofit 2,000 acres of impervious surfaces to reduce pollution runoff into the Chesapeake Bay, using private sector contractors and financing.

According to county executives, the intent of this project is to leverage private sector ?ingenuity? and funding to complete needed improvements in a ?faster, cheaper, greener? way than it could under traditional procurement processes. Indeed, the county is anticipating 50 to 60 percent cost savings versus what it would normally spend on year-by-year stormwater planning and one-off construction contracts.

Federal Efforts for Local Projects

Several federal entities, notably the Army Energy Initiatives Task Force (EITF), Federal Highway Administration (FHWA) and the Federal Energy Management Agency (FEMA), have taken steps to actively promote P3s at the national, state and local levels.

The Army EITF serves as the central management office for partnering with Army installations to implement cost-effective, large-scale renewable energy projects, leveraging private sector financing. The task force focuses on renewable and alternative energy production projects that are 10 megawatts or greater, and located on Army installations in the United States. It is working with more than a dozen installations to review and provide feedback on renewable energy project proposals based on an enterprise-wide approach ? seeking ?innovative and collaborative partnerships with private industry and businesses to finance, plan and execute a cost-effective portfolio of large-scale renewable-energy projects on Army installations.? In addition, the U.S. Army Corps of Engineers is examining the possibility of P3s to help restore the nation?s inland waterway infrastructure.?

Emerging Domestic P3 Arenas

Here are a few diverse P3 projects supported by AECOM Technology Corp., at the federal and local levels outside of the transportation realm, which have already seen significant success with P3s.

The Gov. George Deukmejian Courthouse in Long Beach, Calif.NASA AMES Research Center

Through an agreement with the Western Power Administration, the NASA AMES Research Center in Moffett Field, Calif., receives energy at a very low cost. AECOM partnered with Pacific Gas & Electric, through its Utility Energy Services Contract (UESC), and is creating an energy-efficiency and renewable energy master plan that will result in an annual cost reduction. UESCs offer federal agencies an effective means to implement energy-efficiency, renewable-energy, and water-efficiency projects. A utility arranges financing to cover a project?s capital costs, which are repaid over the contract term from cost savings generated by the energy efficiency measures. The agency saves time and resources by using one-stop shopping provided by the utility.

AECOM has completed multiple projects for the 220-acre, 8.8-million-sq-ft NASA campus since 1995. Most recently, the company was architect of record, engineer of record and landscape architect of record for the new LEED Platinum N232 Collaborative Support Facility, completed a Capital Investment Planning Assessment for long-term facility and infrastructure asset development, and designed and developed a pioneering air traffic controller/flight simulator facility.

Army Corps of Engineers MATOC Work

A partnership between AECOM, Siemens and Bechtel has won initial awards from the Army Corps of Engineers for all four indefinite delivery indefinite quantity Multiple Award Task Order Contracts (MATOCs) for geothermal, solar, wind and biomass technologies to support renewable energy on U.S. Defense Department installations.

This MATOC will be used to procure reliable, locally-generated, renewable and alternative energy for Department of Defense installations through Power Purchase Agreements (PPAs) that benefit the environment while lowering energy costs. A PPA is a long-term contract to buy power from an energy provider that uses its own source of funds to build an energy facility on government land and owns, maintains and operates the facility for an extended term up to 30-plus years.

Gov. George Deukmejian Courthouse

The new Gov. George Deukmejian Courthouse, located in the redevelopment area of downtown Long Beach, Calif., opened its doors for operations in September 2013. The project?s developer, Long Beach Judicial Partners, LLC (LBJP), a Meridiam Infrastructure project company, was pleased to announce that its design-build team of Clark Construction and AECOM completed this landmark 11 days ahead of schedule and under budget. The 530,000-sq-ft building, constructed at a total cost of $495 million, including financing, is the first U.S. social infrastructure P3.

Vahid Ownjazayeri is group chief executive for Global, Civil Infrastructure for AECOM Technology Corp.

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