Center Research Insights into the U.S. Surface Transportation P3 Experience
The Center for Transportation Public-Private Partnership Policy
Schar School of Policy and Government
George Mason University
Potential P3 Contributions
Beginning in 2016, the George Mason University Center for Transportation Public-Private Partnership (P3) Policy (the Center) commenced its P3 Evidence Project, assembling and evaluating evidence regarding the U.S. surface transportation P3 experience.1 This research investigated completed U.S. highway and transit P3 projects developed between 2002 and 2015 having the greatest latitude for private engagement and innovation: construction contracts and long-term engagements (DBFOM, DBFM, and DBOM). Special attention was also paid to P3 projects featuring availability payments and concessions risking developer equity. The research team collected project-specific data through document review and participant interviews, employing a case study methodology to identify P3 project objectives and outcomes. Six initial case studies formed Phase I of the analysis, with three additional cases analyzed for Phase II.
The research findings illustrated that surface transportation P3s can offer benefits for the U.S. public-sector, including 1) providing increased access to private sector resources and expertise, often accelerating projects as a result; and 2) transferring and managing project risks.
Accessing Resources and Expertise
Today’s surface transportation infrastructure projects often require complex and innovative technological solutions. Yet many public sector agencies lack the skills, expertise, or capacity to realize such solutions. P3 delivery approaches can address this limitation by providing access to valuable private-sector expertise and innovation.
- Virginia: An unsolicited, private-sector proposal introduced crucial design innovations that greatly reduced the I-495 Express Lanes project’s eminent domain requirements. P3 approaches also transferred challenging technology deployment and toll enforcement to the experienced private concessionaire for the I-495 and the I-95 Express Lanes projects. In addition, alternative technical concepts (ACTs) proposed by the private sector for the Midtown Tunnel – Elizabeth River Crossings project produced a construction price 23% below the public sector´s original estimate.
- Texas: The private sector’s innovative trench-cantilever design proposal for the LBJ TEXpress Lanes project reduced costs by nearly $1 billion.
- Florida: The Port of Miami Tunnel concessionaire’s extensive experience with bored-tunnel technology proved crucial when addressing construction, geotechnical, and hurricane concerns.
Public funding constraints and debt ceiling limitations can also present barriers to traditional, public-sector delivery for large and complex surface transportation projects. Again, P3 approaches can help address this limitation by providing access to private sector equity and debt resources.
- Virginia: Private resources overcame public-sector funding and debt capacity limitations to advance both the I-495 and I-95 Express Lanes projects. P3-enabled private equity, private activity bonds (PABs), and federal TIFIA program loans similarly reduced Virginia’s public-sector commitment to deliver the Midtown Tunnel – Elizabeth River Crossings project.
- Texas: P3-enabled private resources produced Texas’s LBJ TEXpress Lanes project; private-sector equity and bonds also advanced the otherwise suspended State Highway 130 (SH 130) project segments 5 and 6.
- Colorado: Private-sector resources proved essential for overcoming debt-ceiling limitations in the U.S. 36 Express Lanes case.
- Indiana: P3 procurement reduced the state’s upfront financing costs for its Ohio River Bridges, East End Crossing – Lewis and Clark Bridge project by enabling milestone payments, private-sector equity contributions, PABs, and a TIFIA loan.
By providing access to private-sector expertise, innovation, and financial resources, P3s can also accelerate project delivery compared to the schedules expected under traditional, public-sector procurement.
- Virginia: P3-enabled private resources accelerated Virginia’s I-495 and I-95 Express Lanes projects by 6 years or more compared to the delivery schedule expected under limited public funding and state debt restrictions. In the Midtown Tunnel – Elizabeth River Crossings case, the P3 delivery approach probably accelerated the tunnel project by at least 6 years.
- Texas: The design innovations, cost reductions, and private-sector financing enabled by the LBJ TEXpress Lanes P3 accelerated that project by 10 to 20 years compared to traditional procurement. P3 structures also likely accelerated the SH 130 project’s segments 5 and 6 delivery by a decade or more.
- Colorado: The U.S. 36 project’s P3 structure accommodated state debt restrictions to deliver the project 10 to 15 years faster than predicted under traditional procurement.
By procuring infrastructure facilities via P3 approaches, the public sector can design contracts to share project risks with private-sector partners or transfer risks entirely to those partners.
- Florida: For the Port of Miami Tunnel project, the state shared the cost and scheduling risks deriving from unexpected geotechnical conditions with the private concessionaire. The concession agreement also made the private concessionaire responsible for any local impacts deriving from tunnel construction and operation that exceeded pre-determined levels.
- Virginia: The P3 process allowed Virginia to shift geotechnical risks, historic artifact discovery risks, and damage risks to the Midtown Tunnel – Elizabeth River Crossings project’s private sector concessionaire.
- Texas: Texas transferred demand and financing risk entirely to the SH 130 segments 5 and 6 private sector equity holders and lenders, separating the state from the project’s finances.
- Indiana: The Ohio River Bridges, East End Crossing – Lewis and Clark Bridge P3 transferred the project’s construction and maintenance risks to the private sector.
The Evidence Project findings also indicate that public agencies can design their P3 contracts to improve cost and schedule risk management, particularly by a) bundling design and construction activities into consolidated design-build P3 contracts, and b) by conditioning P3 milestone payments, availability payments, and/or toll collection on predefined delivery specifications.
- Texas: Using P3 contract mechanisms, Texas delivered its LBJ TEXpress Lanes project on time and within budget. The SH 130 P3 also delivered segments 5 and 6 within the state’s budgeted outlays and one month ahead of schedule. While the state of Texas is not at financial risk, subsequent toll revenue shortfalls and unanticipated repair costs have fallen on lenders (including TIFIA) and private investors, where they remain a matter of dispute.
- Virginia: Virginia delivered its I-495 and I-95 Express Lanes P3 projects on time and within budget. The Midtown Tunnel – Elizabeth River Crossings concessionaire, similarly, delivered its project within budget and 14 months ahead of schedule, despite the tunnel’s many construction risks.
- Colorado: The U.S. 36 project delivery came in under budget but two weeks behind schedule due to a major and unexpected flooding event.
- Florida: The Port of Miami Tunnel concessionaire delivered its project under budget but opened three months late following technical problems. Nevertheless, the P3 contract’s heavy monetary penalties likely helped minimize delays and cost increases.
- California: The Presidio Parkway project achieved on-time substantial completion of its roadway portions, although landscaping fell behind schedule following disagreements among the project’s public-sector stakeholders.
- Indiana: The Ohio River Bridges, East End Crossing – Lewis and Clark Bridge P3 project experienced substantially reduced change orders equaling 2% of the original cost estimates, two-thirds of which reflected state-requested changes. The project opened 47 days late following extreme, force majeure weather and floods. The concessionaire completed the project 6 months sooner than expected under public procurement.
Impediments to P3 Success
While surface transportation infrastructure P3s can offer benefits, they do not succeed under all conditions. As a result, the Center’s research team has also investigated the population of U.S. surface transportation P3 projects that experienced deferments, cancellations, and early terminations (68 projects).2 Like the Evidence Project, the research focused on projects involving long-term private sector engagement (DBFOM, DBFM, DBOM, BOT, BOO, and long-term lease) and projects completing sufficient procurement steps to indicate strong P3 interest and engagement: requests for qualifications (RFQs) and requests for proposals (RFPs). Based on data collected from primary and documentary sources, these “troubled projects” often demonstrated poor project selection or adverse conditions ranging from legal and bureaucratic barriers to strong public opposition and economic shocks.
Several of the deferred, cancelled, or terminated U.S. surface transportation P3 projects demonstrated unfavorable economics. As a result, the public sector often ended P3 procurement upon encountering insufficient economic viability or inadequate private-sector bids.
- Alaska: The state turned to P3 procurement after it could not finance its Knik Arm Bridge using traditional procurement. Projected toll revenues failed to attract private sector interest.
- Oregon: Oregon attempted three P3s – the Sunrise project, the Newberg-Dundee Transportation improvement project, and the South I-205 Corridor Project – but cancelled them after toll projections and other financial indicators proved insufficient for financing.
- Virginia: The state’s Route 460 project proved too costly to be economically viable. The public-sector Metropolitan Washington Airports Authority won the Dulles Toll Road’s competitive bidding process, effectively cancelling the P3 procurement.
- Texas: Demand problems drove the Camino Colombia case’s foreclosure and ultimate state buyout.
- California: Weak revenues contributed to the Mid-State Tollway’s cancellation.
Legal and Bureaucratic Problems
Even when projects met basic viability thresholds, legal and bureaucratic problems could undercut P3 procurement. For example, contract flaws and legal challenges contributed to several P3 cancellations and terminations.
- Illinois and Indiana: The Iliana Expressway was cancelled in Illinois and deferred in Indiana when the courts found the project lacked a proper “no build” scenario for adequate project assessment in a lawsuit brought by an environmental advocacy group.
- California: The SR 91 P3 contract included a non-compete clause precluding public agencies from building competing infrastructure. As regional population growth drove increased congestion on non-tolled roadways, the local transportation authority eventually bought the project to overcome the non-compete clause, ending the original P3 agreement, and subsequently retendered the concession.
Cancellations are also derived from inter-party coordination problems, conflicts, and their resulting delays.
- Pennsylvania: Conflict arose between the Pennsylvania governor’s office and the Turnpike Authority during the state’s attempt to use a long-term lease P3 approach for its Pennsylvania Turnpike. The inter-agency pressure ultimately contributed to the private parties withdrawing their bid.
- Virginia: The I-81 project was cancelled four years into negotiations, at the private consortium’s request, following changes in the consortium’s corporate ownership.
Typically reflecting concerns about environmental impacts, noise, eminent domain seizures, and/or the private sector’s trustworthiness, public opposition also contributed to many U.S. surface transportation P3 project cancellations, deferments, and terminations, particularly during procurement stages.
Environmental opposition, both local and ideological, appeared across several cases, often alongside fears regarding noise pollution and eminent domain seizures.
- Florida: Local environmental opposition prevented development along the Tampa-area Northwest Hillsborough Expressway (East-West Road) route beginning decades before P3 consideration. Tampa’s State-Road-54/56, FL54 Xpressway also foundered under objections from established environmental organizations, the increased construction costs required for wetland-protecting elevated lanes, and fierce, long-running local opposition stemming from environmental, noise pollution, and eminent domain fears.
- North Carolina: The Mid-Currituck Bridge faced legislative issues and public environmental degradation concerns during P3 procurement and subsequent public procurement efforts.
- California: Environmental lawsuits increased costs for California’s South Bay Expressway, ultimately contributing to the project’s bankruptcy and contract termination.
- Texas: Texas cancelled its TTC -35 and TTC-69 projects after facing a citizen uprising over eminent domain, private property rights, and environmental hazard concerns.
Fragile public trust contributed to local opposition in several additional cases.
- Virginia: The state’s I-81 project saw opposition from the trucking industry (tolling) and local opposition grew as some believed the project was a “done deal” without consideration of the public interest.
- California: The SR 91 project’s non-compete clause caught the public’s attention, driving opposition to the private sector’s involvement. The public’s growing distrust likely influenced the political actions behind the state’s Mid-State Tollway project termination as well.
While less common, strong opposition from individual policymakers also influenced several projects.
- Florida: Alligator Alley (I-75) faced strong political opposition from State Senator Aronberg, who introduced two bills imposing a two-year moratorium on leases and requiring legislative approval for any lease agreements. Neither bill was enacted but they generated critical delays and uncertainties that raised costs and stirred up local opposition during the global financial crisis.
- Georgia: Governor Deal, worried that hostile public sentiments from older high occupancy toll (HOT) projects would spill over into the state’s I-75/I-757 North project, cancelled the project’s procurement soon after taking office.
Challenging exogenous economic conditions, often tied to the 2008 financial crisis and Great Recession, also appeared frequently among the U.S.’ cancelled, deferred, and terminated surface transportation P3 projects.
- Mississippi: Mississippi’s Jackson Airport Parkway Connector was deferred after bidders could not obtain investment-grade ratings for financing during the global financial crisis and consequently could not submit proposals.
- Missouri: The Safe Sound Bridge, similarly struggled to find financing during the 2008 economic downturn.
- Nevada: Financial conditions, including higher interest rates, rising finance costs, and increasing operation and maintenance expenses also undermined Nevada’s Project NEON, US 95/I-15.
- California: The Accelerated Regional Transportation Improvements (ARTI) case, including six bundled P3 highway projects, was cancelled after the state’s Section 143 enabling legislation created financing challenges. Opposition forces also interacted with economic conditions to drive early contract termination in California’s South Bay Expressway case.
- Florida: Florida’s Alligator Alley (I-75) project encountered financial uncertainty during the financial crisis, with potential bidders reportedly requesting a delay in the project’s procurement. Economic conditions probably also interacted with public opposition factors to end the state’s First Coast Outer Beltway and State-Road-54/56, FL54 Xpressway projects.
- Texas: The TTC-35, TTC-69, SH 161, and SH 550 project cancellations occurred between March 2008 and January 2011 suggesting an interaction between the Great Recession’s economic risks and the projects’ tremendous public and political challenges.
In addition to its Evidence Project and P3 cancellations research, the Center has also investigated bankruptcy3 and contract renegotiation4 cases within the U.S. surface transportation P3 experience. While these bankruptcies and renegotiations remain somewhat controversial within the U.S. P3 sphere, the research findings suggest that these processes can provide crucial flexibility given the great uncertainty surrounding large, complex infrastructure projects and their delivery.
Complex surface transportation infrastructure P3s often require long-term contracts that demand extensive expertise for their development and implementation within highly uncertain environments. Given such conditions, contract renegotiations can provide a critical mechanism for addressing errors, unintended consequences, and exogenous shocks (weather events, public opposition, and economic shocks) not accounted for in original contracts. By providing a flexible mechanism for addressing complexities, renegotiations can also forestall or even avoid more extreme outcomes like public bailouts, contract termination, defaults, and bankruptcy.
Contractual issues necessitated contract renegotiations in several cases studied by the Center. For example, California’s State Route 91 case included a non-compete clause that stymied public efforts to address traffic congestion in the surrounding area. Adverse incentives linked to a tax-exempt non-profit corporation structure proved problematic for Virginia’s Pocahontas Parkway and Nevada’s Las Vegas Monorail.5 Public opposition to tolling and environmental concerns in Virginia’s Elizabeth River Crossings case and California’s South Bay Expressway case, respectively, demonstrated, in turn, how contract renegotiations can help P3 partners respond to unanticipated project complexities. Finally, contract renegotiations helped address demand shortfalls and interest rate changes present for Virginia’s Dulles Greenway and Pocahontas Parkway projects, California’s South Bay Expressway project, and the Indiana Toll Road case.
Unlike many international bankruptcy practices, U.S. Chapter 11 bankruptcies allow struggling P3s to continue operations while their financial structures are modified, usually with debt reduction. Chapter 11 mechanisms typically keep facilities open, preserving public services and giving the private sector little opportunity to leverage facility operations (threatening facility closures) for opportunistic gain. In addition, by facilitating debt reduction, U.S. Chapter 11 bankruptcy also makes buyouts more attractive, making it easier for public sector partners to attract new concessionaires, continuing facility operations without requiring government bailouts or inconveniencing the public. In six U.S. surface transportation P3 bankruptcy cases studied by the Center – South Carolina’s Southern Connector, Nevada’s Las Vegas Monorail, California’s South Bay Expressway, Alabama’s Foley Beach Expressway, Indiana’s Indiana Toll Road, and Texas’s State Highway 130 (segments 5 & 6) – U.S. bankruptcy codes facilitated debt restructuring and did not disrupt service provision.
Implications for Stakeholders
When taken together, the findings presented by the Center’s recent research suggest that P3s can offer valuable benefits, but only for appropriate projects and under the right conditions. More specifically, the research findings suggest that stakeholders considering P3s for surface transportation infrastructure delivery 1) select projects carefully, 2) engage stakeholders early, and 3) remain flexible under changing circumstances.
Careful Project Selection
While private-sector financial resources offer tempting reasons to engage with private partners, these resources alone rarely sustain the most effective P3s. As a result, decision-makers must carefully evaluate how potential projects might benefit from the full range of benefits offered by P3 approaches – expertise and innovation, financial resources, project acceleration, and risk management – when considering P3 procurement for surface transportation infrastructure projects. In addition, if projects face demand shortfalls, eminent domain requirements, environmental degradation concerns, legal or bureaucratic disputes, and other similar challenges under traditional public procurement, P3 approaches will likely encounter those same problems. In fact, the complexities generated by P3 approaches might even heighten such challenges. Consequently, careful evaluation efforts will be critical for selecting the most suitable projects for P3 procurement.
Early Stakeholder Engagement
The Center’s research findings also suggest that P3 approaches offer the greatest benefits and fewest challenges when both public and private stakeholders are engaged early in the project development and procurement processes.
Private-sector innovations introduced through unsolicited private-sector proposals and alternative technical concepts have proven highly valuable in many U.S. surface transportation P3 projects, including Texas’ LBJ TEXpress Lanes, Virginia’s Midtown Tunnel, and Florida’s Port of Miami Tunnel. Nevertheless, stakeholders often engage the private sector too late in the procurement process to take advantage of such opportunities. California’s late private-sector engagement in its Presidio Parkway case, for example, likely precluded potential cost reductions or quality innovations available through private sector design modifications. Kentucky and Indiana, similarly, developed their Ohio River Bridges designs long before selecting their delivery methods, potentially limiting some opportunities for private sector ATC proposals during the P3 procurement process. Had the public sector incorporated private-sector expertise earlier in the procurement process, it might have incorporated greater technical and financial innovations into its infrastructure development, producing greater economic, safety, environmental, and/or value capture benefits for the region. As a result, public agencies looking to make the most of P3 approaches might wish to pursue private-sector expertise and innovation earlier in their procurement processes.
Many projects investigated by the Center struggled with cancellations and contract renegotiations driven, at least in part, by strong public opposition. As a result, P3 partners may wish to improve their outreach and community engagement practices, particularly during the early project design and procurement phases. Since success looks different across jurisdictions and across projects, such citizen engagement is invaluable for P3 objective setting and evaluation process within democratic societies. An engaged public should have a means to 1) request detailed, comparable metric information for that objective across procurement methods; 2) raise project-related concerns; and 3) suggest other project objectives to meet community needs and improve the project’s overall quality for affected citizens. Citizen engagement within Colorado’s U.S. 36 Express Lanes P3 procurement, for example, ultimately led to bus, bike, and related transit components within the roadway project, allowing decision-makers to extend the project’s benefits, increase its access to public sector funds, and improve overall public support. Without such citizen engagement, P3 partners risk extended public opposition and may inadvertently forgo the novel benefits made possible by P3 procurement approaches.
Adaptability under Uncertainty
Recent bankruptcies and contract renegotiations within the U.S. surface transportation P3 experience threaten to undermine confidence in P3s as viable delivery mechanisms. Many troubled projects offer valuable lessons for future P3 design and decision making, but large-scale surface transportation infrastructure delivery remains challenging regardless of procurement method, particularly given the future’s fundamental uncertainty. As a result, when complex surface transportation infrastructure P3s encounter challenges, robust yet flexible conflict resolution, contract renegotiation, and bankruptcy processes can be invaluable tools for P3 stakeholders looking to preserve public benefits and protect the public interest.