The U.S. Department of Transportation (DOT) has issued final guidance for evaluating the appropriateness of using public-private partnership (P3) project delivery for infrastructure projects.
The guidance, distributed jointly through the DOT’s Federal Highway Administration and the federal Build America Bureau (Bureau), informs project sponsors about requirements when pursuing Transportation Infrastructure Finance and Innovation Act (TIFIA) or Railroad Rehabilitation and Improvement Financing (RRIF) funding for use in P3 initiatives. The document also clarifies major project financial plan requirements for performing value for money (VfM) analysis. The guidance does not impose new legal requirements, contain new criteria or have any legal effect.
Although P3 delivery can provide valuable aspects to certain projects, not every infrastructure initiative benefits from this approach. Using the guidance, project sponsors can analyze complexities and limitations inherent in certain projects, using that information to understand risks and how to manage them before selecting a P3.
The VfM analysis approach is the DOT’s recommendation for determining pros and cons of P3 versus other delivery alternatives. The analysis details the goals and underlying assumptions for project delivery, demonstrating when using a P3 yields more or less value than the most suitable public delivery option.
Public sponsors are required to conduct a VfM analysis or comparable alternative for projects that cost more than $750 million, when the sponsor is a public entity interested in federal credit assistance, when the project is in a state with transportation P3 laws and the project creates revenue or user fees. The same requirements extend to any projects proposed for P3 delivery that are seeking TIFIA or RRIF credit assistance.
The analysis would also apply to any surface transportation project receiving federal financial assistance in which the sponsor intends to use a P3 method for a project costing more than $500 million. The Build America Bureau does recommend that, even if a project doesn’t require a VfM analysis, sponsors should perform one or a comparable alternative to bet4ter inform decision makers.
The guidance includes a two-stage evaluation framework, establishing two critical points for evaluating P3 delivery:
- Stage 1 – Early Phase P3 Evaluation.
- Stage 1A – Progressive P3 Procurement.
- Stage 2 – Subsequent P3 Evaluations.
Stage 1 requires project sponsors to evaluate options before beginning procurement. This includes consulting with relevant stakeholders and utilize any qualitative or high-level quantitative analysis to determine the most appropriate public delivery option and P3 option. Project sponsors seeking TIFIA and RRIF assistance must complete a VfM or comparable analysis before proceeding.
Stage 1A requires public sponsors to conduct an initial VfM before signing a pre-development agreement alongside a detailed VfM before signing a concession agreement.
Stage 2 only applies if either Stage 1 or 1A results in the selection of a P3 delivery method. The sponsor is required to perform a detailed Stage 2 VfM before signing the concession agreement. The evaluation must include:
- Project cost and delivery schedule.
- The costs of utilizing public funding versus private financing for the project.
- The public contribution required to cover costs exceeding available financing.
- A description of key assumptions made while developing the analysis, such as federal assistance, tax impacts, expected private returns, risk allocation and premums and demand and revenue assumptions.
- Forecasting user fees and other revenues expected to be generated by the project.
- Any additional information deemed appropriate by the Secretary of Transportation.
The Bureau recommends that public sponsors perform an independent audit for relevant projects before signing contracts to ensure all processes have been followed and all major risks are identified, documented and shared. Public sponsors are also required to make the analysis and key terms of the concession agreement publicly available and to post the results on the project’s website.
As a condition for receiving TIFIA and RRIF credit assistance, project sponsors must conduct post-implementation reviews of the private partners’ compliance with concession agreement terms. Sponsors of projects worth more than $100 million that receive assistance no later than three years after the date of opening must:
- Review the project, including the private partner’s compliance with the terms of the concession agreement.
- Certify to the secretary that the private partner is meeting terms of the concession agreement for the project or notify the Secretary about the private partner’s noncompliance, including a brief description of each violation of the concession agreement.
- Make publicly available the above certification or notification without disclosing proprietary or confidential business information.
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