Time to focus on the bigger picture

The US state of Virginia has been at the cutting edge of public-private partnerships (PPPs) in the US. It is also one of only a handful of US territories, including Puerto Rico, which has a formal state authority for PPPs. This is not likely to be a coincidence. These boards are comprised of experienced public sector representatives, including engineers and financing experts, who seek to identify the most suitable projects for PPP procurement.  

The concept of PPP state authorities is catching on, and could be the next chapter for the US PPP industry, which continues to lag that of its international peers.

The good news is that what was once considered an “exotic” approach to procurement has turned a corner and made its way into the mainstream, D.J. Gribbin, managing director and head of US government advisory and affairs at Macquarie Capital (USA), explains to Infrastructure Investor.

“The concept of PPPs is resonating and has positive connotations, which is helpful,” he says.

PPPs in the US are beginning to cover more areas, such as social infrastructure. But there is a growing feeling that states may see even greater activity with the help of formal PPP authorities.

Gribbin expects that the emergence of groups such as the Puerto Rico Public-Private Partnerships Authority and the Office of Transportation Public-Private Partnerships in Virginia will provide the US with the tools it needs to approach public-private deals in a more holistic manner.

He thinks a systematic approach is better than undertaking projects on a ‘one-off’ opportunistic basis. Pinning all your hopes on just one project can be especially disheartening and costly when the undertaking fails.

“If you’re going to do one project over five years, you don’t need a special office to do that. But this is a procurement model that works across a broad array of asset classes. There is nothing to say that a P3 works better on roads than schools. It’s just as efficient across all asset classes,” he says.

In addition to Puerto Rico and Virginia, a partnership advisory commission is currently being formed in the state of Texas on the heels of formal PPP legislation that was passed in September 2011. This group will support best practices and serve as a repository of information for local governments seeking more clarity on public-private partnerships. The commission is still being formalised and is expected to be launched by the second quarter of 2012, industry sources say. 

Not every industry participant is cheering the emergence of another layer of authority, however. Jim Broaddus of Broaddus & Associates, a construction programme management firm, told Infrastructure Investor that state authorities are “complicated” and suggests that instead “project owners” should have more of a voice in the procurement process.

The next generation

Others contend that state authorities can be helpful as long as their influence does not stifle the creativity of the private sector. For instance, based on its new law, Texas can accept unsolicited bids from the private sector for PPPs; but those proposals must be approved by the commission before advancing further.

Macquarie’s Gribbin maintains that PPP state authorities will spearhead the next generation of PPP activity in the US.

“Five years ago, the P3 [PPP] industry’s problem was lack of information about P3s and how they operated. Now governments better understand the value of P3s and are keen to utilise them. Today's challenge is the difficulty governments have executing P3 transactions utilising traditional procurement staff,” he says. 

US infrastructure participants point to their neighbours to the north in Canada as an example of what public-private partnerships can achieve when procured effectively. “One need only look at Partnerships BC, Infrastructure Ontario, and other governments utilising P3 authorities to see the dramatic difference between those programmes with P3 authorities and the US market,” Gribbin says.

In addition to Texas, other states understood to be on the cusp of formulating a formal agency include Indiana, Ohio and New York.