In the absence of a new transportation policy, investment in infrastructure is largely left to alternative sources of funding, such as Public Private Partnerships (PPPs). With all the buzz about PPPs, contractors should first learn the "basics" about alternative financing and then appreciate the risks.
If you watched the State of the Union Address a few weeks ago, you know that President Obama’s speech was largely silent on the details behind any support for infrastructure investment. According to The Transport Politic, "Mr. Obama’s address, whatever its merits from a populist perspective, nonetheless failed to propose dramatic reforms to encourage new spending on transportation projects, in contrast to previous years."
With little encouragement from the Administration, what should contractors know about infrastructure investment? In an earlier post, I talked about whether PPPs could help revive the highway and bridge industry. Looking at the same issue one year later, here are some thoughts:
- Contractors need to understand the PPP enabling legislation in their state. As states explore utilizing PPPs for roads, bridges and other infrastructure, they need to approve enabling legislation. A state legislature has to consider a number of issues that will be important to contractors, who should be engaged in the debate.
- Contractors need to understand that PPPs don’t create new money. Instead, the arrangement relies on the private sector and other resources to help develop the infrastructure. Public funds will eventually be a part of the equation to pay back the private investment.
- Contractors need to understand the different risks involved with PPPs. If you are going to participate in a project involving alternative financing, you need to understand the new risks and opportunities that you will encounter. The AGC of American published a White Paper on Public Private Partnerships (pdf), which gives a good overview of the history of PPPs, the legislative hurdles encountered by states, and the legal issues to consider by contractors.
If you are a contractor that is going to participate in a PPP project, you should consider some of the following risks that may be new to your traditional understanding:
As shown in the above chart, many of the obligations traditionally borne by the public agency are now shifted to the PPP. The contractor should be directly involved in the contract negotiations since risks are being allocated differently.
Source: AGC of America