Public / Private Partnership Options for Building Transportation Facilities

Public Private Partnership Options for Building Transportation Facilities

Source: adapted from US Department of Transportation, Federal Highway Administration (2007) Financing Freight Improvements, Publication #FHWA-HOP-06-108.

The main forms of Public / Private Partnerships (PPP) include:

  • Design-Bid-Build. In the first stage, a contract is awarded to an engineering design firm to set a clear guideline regarding the potential costs, materials, and equipment required to complete a public works project. Then, private contractors are invited to bid on the proposed specifications, which are reviewed by the public entity. The winning contractor then undertakes the construction phase, and once completed, the public sector will perform management and maintenance. All steps are financed by the public sector.
  • Private Contract Fee Services. A common contract structure where the public sector transfers the responsibility of specific services, such as operation and maintenance of public infrastructures, to the private sector. A variety of private firms have specialized in providing services to transport infrastructure, particularly in terms of maintenance, repairs, and upgrades.
  • Design-Build. Similar to the design-bid-build partnership with the exception that they are combined with a single contract. As usual, the public sector owns the infrastructure and bears the responsibility for its financing, operation, and maintenance.
  • Build-Operate-Transfer. While the public sector is responsible for the financing of the infrastructure, a private entity provides for construction and operation. It is also known as a “turnkey” PPP since, after a specified amount of time, the public sector takes over the infrastructure. It can be decided to extend the operation contract to the same operator or have it up for bid.
  • Design-Build-Finance-Operate. The responsibilities for designing, building, financing, and operating the infrastructure fall in the hands of the private sector, but ownership remains public. However, there is some flexibility in the PPP as the respective shares of the financing could come from a pool of public and private interests. Flexibility also takes form in terms of the nature of the financing, which can be capital or in-kind (e.g. land). The expectation is that the contracted debt used to finance transport infrastructure will be recovered by future revenues, which implies that user fees will be applied and that debt (such as bonds) is leveraged by future revenues.
  • Build-Own-Operate. The design, development, financing, building, operation, and maintenance of infrastructure fall completely under the responsibility of the private sector, and this for the duration of the concession, which is dominantly long term. Public sector involvement is limited to the general regulatory framework and assures compliance with the contract terms.

One of the purpose of PPP is to share risks about a capital intensive project.