Public-Private Partnerships Explained
by Derrick Choi
If you’ve traveled lately, it should come as no surprise the United States’ overall infrastructure is in need of help. The American Society of Civil Engineers recently gave it a grade of D+.
What’s also becoming clear is that government alone cannot solve this growing challenge. Alternative solutions range from an ambitious National Infrastructure Bank to a stronger engagement with the private sector in delivering these complex projects.
As the lines between public and private investment continue to blur, the financing and funding of our clients’ projects — often some of the world’s largest public assembly spaces — will only get more complex. To better prepare them for this new reality, we embarked on a deep dive into what’s next in the world of transportation.
We recently previewed the first topic in this series of research entitled projectMOVE with a look at how cities are tapping technology to solve transit challenges.
Now, we turn our focus to the topic of public-private partnerships (P3):
Module 1: the future of urban mobility
⇒ Module 2: public-private partnerships in infrastructure development ⇐
Module 3: the logistics of disruption
Send us a note to request the full projectMOVE research findings.
A Brief History of P3
For starters, what exactly is a Public-Private Partnership?
According to the National Council for Public-Private Partnerships, it’s a “contractual arrangement between a public agency (federal, state or local) and a private sector entity” and one where “each party shares in the risks and rewards” of the end product.
Though projectMOVE and this post focus on the world of transportation and logistics, Populous has worked with P3 projects across a variety of sectors. In general, they can be grouped together based on what role the private sector takes in the project:
- Who designs it?
- Who builds it?
- Who finances it?
- Who operates and maintains it?
Of the six types of P3 projects we categorize in the full research, the most comprehensive delivery and operating model is Design-Build-Finance-Operate/Maintain (DBFOM), which is finally gaining widespread adoption in the US:
Collaborations between the private and public sectors in the U.S. go back to the early 1800s when state governments granted charters to the private sector to operate freight and passenger train routes. On the tarmac, the creation of passenger airports has also historically been a joint venture between a municipal airport operator and an airline partner. Globally, more than 40 of the 100 largest airports have included private sector investment in their projects.
American streets are also seeing similar approaches. Entities like Alphabet (Google’s holding company) are teaming up with cities to better position urban centers for the future physical and digital infrastructure needs of tomorrow.
Is Public-Private Right for You?
So how do you decide on the best project delivery mechanism for your project? The first step is to recognize no one-size-fits-all solution exists for financing infrastructure. While the public-private synergy may sound appealing for a large-scale project, it’s not always the best route. Municipalities of all shapes and sizes have unique challenges in the ways they operate and how their projects are executed.
For the private sector’s point of view, we spoke with Joe Aiello of Meridiam Infrastructure, a private equity group specializing in high-profile public infrastructure investments like the LaGuardia Central Terminal redevelopment. Joe believes finding a savvy municipal partner is crucial to the success of a P3 opportunity. Meridiam’s approach is unique in the development world in that they often assume a role in operating and maintaining their projects. These so-called “cradle-to-grave” arrangements fall under the aforementioned DBFOM model.
To better understand the municipal perspective, we spoke with Husch Blackwell attorney Charles Renner, whose P3 team currently serves as counsel to the private partner in the redevelopment of Denver International Airport’s “Great Hall.” The project will privatize much of the airport’s 1.5-million-square-feet main Jeppesen Terminal into new amenities for the traveling public. Charles advocates for a consortium approach for effectively generating consensus among stakeholders and innovation from competing firms.
Three tips for those considering a P3 project according to Kenneth Currie, chief operating officer of global aviation consultancy InterVISTAS
- Loosen the grip: Like with any partnership, you have to relinquish absolute control and understand the associated risks.
- Details matter: A strong service lease agreement is the backbone of any healthy negotiation and where private interest and public good come to terms.
- Weigh the impact on workers: Public partners should be sensitive to labor and how a P3 will ultimately shape a community for years to come.
The Way Forward for American Airports
From London Heathrow to Singapore Changi, new airports continue to awe. For the most part, however, that innovation is happening beyond U.S. borders and is the product of major private investment. The top 30 airports across the globe as voted by airline customers includes only one American entry: the aforementioned Denver International Airport.
The stark reality is the U.S. funds its airports in a fundamentally different way. The historical combination of airline, municipal, state and federal funding streams has yet to provide the capital needed to adequately fuel the modernization of the country’s outdated aviation infrastructure. A recent survey conducted by the Airports Council International of North America estimates it will take $75 billion to revamp U.S. airports from the airfields to the terminal. That may seem like a daunting number, but where there’s a will — and the capacity for creativity, collaboration and innovation — there’s always a way.
Since the enactment of the U.S. Airport Privatization Pilot Program two decades ago, American airports from coast to coast are slowly adopting more variations of public-private partnerships. Our toolkit is expanding and, as a result, 21st-century infrastructure is beginning to take flight.
Stay tuned for our next projectMOVE topic exploring the impact of eCommerce on global logistics. In the meantime, request the full projectMOVE research findings.
Derrick Choi leads Populous Americas’ aviation efforts with 15 years of experience in complex public infrastructure and transport planning.