Public-Sector Decision Making For Public-Private Partnerships (2009)

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Public-Sector Decision Making for Public-Private Partnerships
NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM
NCHRP SYNTHESIS 391

Public Sector Decision Making
for Public–Private Partnerships
A Synthesis of Highway Practice
CONSULTANTS
JEFFREY N. BUXBAUM
and
IRIS N. ORTIZ
Cambridge Systematics, Inc.
Cambridge, Massachusetts
S UBJECT A REAS
Planning and Administration
Research Sponsored by the American Association of State Highway and Transportation Officials
in Cooperation with the Federal Highway Administration
TRANSPORTATION RESEARCH BOARD

WASHINGTON, D.C.
2009
www.TRB.org
Copyright National Academy of Sciences. All rights reserved.

NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM NCHRP SYNTHESIS 391
Systematic, well-designed research provides the most effective Project 20-5 (Topic 39-06)
approach to the solution of many problems facing highway ISSN 0547-5570
administrators and engineers. Often, highway problems are of local ISBN 978-0-309-09829-8
interest and can best be studied by highway departments Library of Congress Control No. 2008911218
individually or in cooperation with their state universities and © 2009 Transportation Research Board
others. However, the accelerating growth of highway transportation
develops increasingly complex problems of wide interest to
highway authorities. These problems are best studied through a
COPYRIGHT PERMISSION
coordinated program of cooperative research.
In recognition of these needs, the highway administrators of the Authors herein are responsible for the authenticity of their materials and for
American Association of State Highway and Transportation obtaining written permissions from publishers or persons who own the
Officials initiated in 1962 an objective national highway research copyright to any previously published or copyrighted material used herein.
program employing modern scientific techniques. This program is Cooperative Research Programs (CRP) grants permission to reproduce
material in this publication for classroom and not-for-profit purposes.
supported on a continuing basis by funds from participating
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NCHRP COMMITTEE FOR PROJECT 20-5 COOPERATIVE RESEARCH PROGRAMS STAFF

CHRISTOPHER W. JENKS, Director, Cooperative Research
CHAIR Programs
GARY D. TAYLOR, CTE Engineers CRAWFORD F. JENCKS, Deputy Director, Cooperative Research
Programs
MEMBERS NANDA SRINIVASAN, Senior Program Officer
KATHLEEN S. AMES, Illinois DOT EILEEN DELANEY, Director of Publications
STUART D. ANDERSON, Texas A&M University
CYNTHIA J. BURBANK, PB Americas, Inc. NCHRP SYNTHESIS STAFF
LISA FREESE, Scoot County (MN) Public Works Division STEPHEN R. GODWIN, Director for Studies and Special Programs
MALCOLM T. KERLEY, Virginia DOT JON M. WILLIAMS, Associate Director, IDEA and Synthesis Studies
RICHARD D. LAND, California DOT GAIL STABA, Senior Program Officer
JAMES W. MARCH, Federal Highway Administration DONNA L. VLASAK, Senior Program Officer
MARK A. MAREK, Texas DOT DON TIPPMAN, Editor
JOHN M. MASON, JR., Auburn University CHERYL KEITH, Senior Program Assistant
ANANTH PRASAD, HNTB Corporation
ROBERT L. SACK, New York State DOT TOPIC PANEL
FRANCINE SHAW-WHITSON, Federal Highway Administration KOME AJISE, California Department of Transportation
LARRY VELASQUEZ, New Mexico DOT DEBORAH BROWN, Virginia Department of Transportation
KAREN J. HEDLUND, Nossaman, Guthner, Knox, & Elliot, LLP,
Arlington, VA
FHWA LIAISON DENNIS HOULIHAN, American Federation of State, County,
WILLIAM ZACCAGNINO and Municipal Employees
ART JAMES, Oregon Department of Transportation
TRB LIAISON MARTINE A. MICOZZI, Transportation Research Board
STEPHEN F. MAHER ANTHONY PAGANO, University of Illinois–Chicago
STEVE SIMMONS, Texas Department of Transportation
KEN WARBRITTON, Missouri Department of Transportation
PORTER WHEELER, Maryland Transportation Authority
KATHERINE A. PETROS, Federal Highway Administration (Liaison)
MICHAEL T. SAUNDERS, Federal Highway Administration
(Liaison)
Cover figure: Chicago Skyway, looking southeast across

Calumet River, showing underside of main span and river piers.
ACKNOWLEDGMENTS
The authors would like to thank Alex Linthicum, who conducted

most of the literature review for this project.

FOREWORD Highway administrators, engineers, and researchers often face problems for which infor-
mation already exists, either in documented form or as undocumented experience and prac-
tice. This information may be fragmented, scattered, and unevaluated. As a consequence,
full knowledge of what has been learned about a problem may not be brought to bear on its
solution. Costly research findings may go unused, valuable experience may be overlooked,
and due consideration may not be given to recommended practices for solving or alleviat-
ing the problem.
There is information on nearly every subject of concern to highway administrators and
engineers. Much of it derives from research or from the work of practitioners faced with
problems in their day-to-day work. To provide a systematic means for assembling and eval-
uating such useful information and to make it available to the entire highway community,
the American Association of State Highway and Transportation Officials—through the
mechanism of the National Cooperative Highway Research Program—authorized the
Transportation Research Board to undertake a continuing study. This study, NCHRP Proj-
ect 20-5, “Synthesis of Information Related to Highway Problems,” searches out and syn-
thesizes useful knowledge from all available sources and prepares concise, documented
reports on specific topics. Reports from this endeavor constitute an NCHRP report series,
Synthesis of Highway Practice.
This synthesis series reports on current knowledge and practice, in a compact format,
without the detailed directions usually found in handbooks or design manuals. Each report
in the series provides a compendium of the best knowledge available on those measures
found to be the most successful in resolving specific problems.
PREFACE Public sector agencies are increasingly exploring the use of public–private partnerships
By Jon M. Williams to increase funding available for infrastructure improvement. This study examines the infor-
Program Director, mation that is available to properly evaluate the benefits and risks associated with allowing
Transportation the private sector to have a greater role in financing and developing highway infrastructure.
Research Board The report will be of interest to public sector decision makers seeking to leverage or sup-
plement traditional sources of funding with private investment and other participation.
Information for the study was gathered through a literature review, a survey of U.S. state
departments of transportation and Canadian ministries of transportation, and a second sur-
vey of other stakeholders. Supplemental information was gathered through interviews.
Jeffrey N. Buxbaum and Iris N. Ortiz of Cambridge Systematics, Inc., collected and syn-
thesized the information and wrote the report. The members of the topic panel are acknowl-
edged on the preceding page. This synthesis is an immediately useful document that records
the practices that were acceptable within the limitations of the knowledge available at the
time of its preparation. As progress in research and practice continues, new knowledge will
be added to that now at hand.

CONTENTS
1 SUMMARY
5 CHAPTER ONE INTRODUCTION

Methodology, 5
Report Organization, 6
7 CHAPTER TWO PUBLIC–PRIVATE PARTNERSHIP

DEFINITION AND HISTORY
Definition of Public–Private Partnerships, 7
Evolution of Public–Private Partnerships in the United States, 9
Public–Private Partnerships Participants, 10
11 CHAPTER THREE PUBLIC–PRIVATE PARTNERSHIPS

DECISION-MAKING TOPICS
Project Selection and Delivery, 11
Transparency, 24
Terms of Public–Private Partnership Agreements, 28
39 CHAPTER FOUR CONCLUSIONS
42 REFERENCES
46 BIBLIOGRAPHY
51 GLOSSARY OF TERMS, ABBREVIATIONS, AND ACRONYMS
53 APPENDIX A STATE DOT SURVEY QUESTIONNAIRE
65 APPENDIX B STATE DOT SURVEY SUMMARIES
99 APPENDIX C OTHER INDIVIDUALS/INTEREST GROUPS

SURVEY QUESTIONNAIRE
102 APPENDIX D OTHER INDIVIDUALS/INTEREST GROUPS

SURVEY SUMMARIES
128 APPENDIX E CASE STUDIES

PUBLIC SECTOR DECISION MAKING FOR

PUBLIC–PRIVATE PARTNERSHIPS
SUMMARY Public sector agencies around the country are seeking creative solutions to closing an increas-
ing gap between transportation infrastructure costs and funding. Public–private partnerships
(PPPs) have the potential to provide part of this needed investment. In addition, some believe
that PPPs can bring cost savings and efficiencies on project delivery and operations; how-
ever, there is not a lot of evidence to confirm this belief. A 2007 study commissioned by
Infrastructure Partnership Australia evaluated the efficiency of PPPs relative to traditional
procurement, and found that such partnerships were more cost-efficient and more often com-
pleted within schedule. Private investors have shown a willingness to invest heavily in new
and existing transportation infrastructure, given the right incentives, and properly structured
contracts can bring about cost savings. Much of the information promoting or criticizing
PPPs comes from those who have a direct stake in the outcome of the debate (positive or neg-
ative). Public sector decision makers seeking to leverage or supplement traditional sources of
funding with private investment and other participation must make informed decisions. Cur-
rently, there is a shortage of balanced information available to the public and decision mak-
ers in their deliberations on PPPs.
The well-publicized long-term leases of the Chicago Skyway and Indiana Toll Road gen-
erated a lot of attention by supporters and critics of PPPs. The public sector may benefit from
tapping into the private sector to procure much needed transportation improvements through
a variety of PPP types, with varying levels of private sector participation, based on risk trans-
ferred. However, concerns have been raised as to whether PPPs are in the public interest and
what type of information is available to decision makers as they decide whether to pursue a PPP.
This synthesis examines the information available in the United States and internationally that
is needed to properly evaluate the benefits and risks associated with allowing the private sector
to have a greater role in the financing and development of highway infrastructure, and how that
information can be used in the decision-making process. The synthesis also included two sur-
veys. The survey of state departments of transportation (DOTs) included 65 surveys distributed
to the 50 states, the District of Columbia, Puerto Rico, and 13 Canadian provinces. Overall, a
total of 49 responses were received for a 78% response rate. At the U.S. state DOT level (includ-
ing the District of Columbia and Puerto Rico), 44 responses were received, a response rate of
85%. A second survey of interested parties was taken by 24 individuals who were identified by
the authors and the topic panel, and had been publicized at the 2008 Annual Meeting of TRB.
The numerous topics of interest related to PPP decision making were divided into three
major categories: (1) project selection and delivery, (2) transparency, and (3) terms of PPP
agreements.
Three major themes emerged:
How might governments decide whether or not to pursue a PPP?
PPPs encompass a variety of project delivery options, with varying levels of private sector
participation, based on risk transferred. A PPP is not a one-size-fits-all solution, and the

decision to use one of the many PPP types or traditional approaches could consider and
incorporate:
• Valuation of alternative approaches. There is a need for a framework or process to

analyze the differences between public versus private delivery that can be well understood
by decision makers. The value for money is one of the most well-known techniques to
evaluate PPP projects. All valuation techniques have their merits and limitations, and
decision makers must be aware of what the benefits and limitation are from using these
valuation tools. To accomplish this, there is a need for personnel with skills including
value engineering, business modeling, risk transfer assessment, capital budgeting, tradi-
tional financial problem-solving methodology, and performance auditing.
• Appropriate risk transfer. The transfer and sharing of project risks is considered by
many as one of the main benefits of PPPs. In a PPP, risk could be allocated to the party
that can best manage such risk and, in some instances, there are risks to be shared by
both partners. Contract terms can be used to accomplish the transfer of risks.
• Transparency and public participation. PPP agreements are complicated, and there
have been criticisms over deals being rushed through without the public or its elected
officials understanding the implications. The lack of transparency in the PPP process
has been voiced as one of the main concerns, and it is mentioned as an important issue
by both supporters and opponents of PPPs. Once a PPP model is identified for a specific
project, this could be followed by an exercise in educating and informing both the pub-
lic and elected officials.
• Unavoidable complexity of the transactions. States are motivated to find creative
solutions, and they are interested in obtaining results quickly. However, the PPP process
is complex, from the valuation and procurement process through the duration of the
partnership. There is no uniform set of rules or standards to follow for all projects; there-
fore, there is a high level of expertise required when pursuing a PPP.
How might the public interest be protected?
A PPP allows a much larger role for the private sector, from bundling design and construction
in one contract (design-build), to long-term operations and maintenance of existing or new
facilities (concessions). Some PPPs include equity contributions from the private partner and
may also transfer toll collection and rate setting responsibilities to the private sector. When
transferring these responsibilities it is important to ensure that the private sector has the proper
motivations to protect the public interest, while allowing investors to meet a return on the
investment that is in line with the risk they take.
Most of the concerns about PPPs can be managed through contract terms. Although recent
contracts have addressed many of the issues that have caused concerns in the past, unfore-
seen situations may arise. That is, when the strength and flexibility of the contract is tested,
and clauses that allow for contract termination or buyout are important.
A PPP may also be monitored over its sometimes long lifetime to ensure that the private
sector meets safety, maintenance, and other standards specified by contract. When valuing
the decision to pursue a PPP, the public sector may account for the additional cost of perfor-
mance monitoring by qualified, independent public sector/DOT staff.
Other key public interest issues include appropriate use of revenues, maintaining envi-
ronmental standards, and maintaining fair labor practices.
Misperceptions about PPPs can be a distraction from the real issues.
Many public concerns are rooted in concerns raised over past transactions, even though more
recent approaches have learned from the past and resolved the issues in contracts. Some neg-

ative perceptions about PPPs have lingered over time. Also, inadequate public information
and openness in the process may lead to mistrust. Project sponsors might communicate with
citizens and decision makers in an effort to build trust and to educate the public about some
of the misperceptions related to PPPs and how they have been addressed, such as:
• Non-compete clauses are always part of PPPs with a long-term lease component.
In reality, after the experience with strict non-compete clauses in the 91 Express Lanes
PPP in California, most PPP deals have included “limited-compete” clauses.
• A PPP is a synonym for tolls and with that toll increases are inevitable, resulting
in windfall profits. Limiting schedules for toll levels can be and have been written into
PPP agreements. In addition, there are several types of PPPs that do not require the
implementation of tolls (e.g., design-build, maintenance contracts, and agreements with
availability payments/shadow tolls). Furthermore, direct user fees (i.e., tolls) are not the
only way that the private sector can be compensated. The PPP debate, specifically related
to long-term concessions paid through tolls, is caught in the middle of a debate about
tolling policy. Tolling policy and use of revenue is an important public responsibility that
can be clearly articulated in contracts.
• The public sector loses total control of the facility. Under a PPP agreement, the public
sector never loses ownership of the facility; however, some responsibilities are trans-
ferred to the private sector. The extent to which these responsibilities are transferred is
defined by contract. Well-crafted agreements, along with monitoring and enforcement
of contract terms, can ensure that the public interests are protected.
An open process helps build trust and support, as long as project sponsors can demonstrate
that decisions are being made with the public interest in mind.
Future research on this subject could focus on the PPP valuation process and the develop-
ment of a framework to assist project sponsors in the selection of project delivery options,
including the various types of PPPs. In addition, additional research is needed on how to
develop an annual growth rate to establish toll rate caps on PPPs that rely on tolling. However,
this report provides a basic understanding of PPP efforts to date in this country.

CHAPTER ONE
INTRODUCTION
Across the country, public sector agencies are seeking creative Such asset monetization agreements are only one type
solutions to closing an increasing gap between transportation of PPP that can be used for highways, but they have inspired
infrastructure costs and funding. Public–private partnerships great excitement and debate over the merits and pitfalls of
(PPPs) have the potential to provide part of this needed invest- PPPs. One of the primary areas of concern is how are public
ment. In addition, there are those who believe that PPPs can interests protected and what information is available to deci-
bring cost savings and efficiencies on project delivery and sion makers such that the public interests are protected. A
operations, although there is not much evidence to confirm recent report from the Government Accountability Office
this belief. One recent study commissioned by Infrastructure (GAO) concluded that although PPPs appear to be a viable
Partnership Australia (2007) evaluated the efficiency of PPPs alternative to support transportation investments, “it is diffi-
relative to traditional procurement, and found that they were cult to be confident that [the public] interests are being pro-
more cost-efficient and more frequently completed within tected when formal identification and consideration of public
schedule. Given the right incentives, private investors have and national interests has been lacking, and where limited
shown a willingness to invest heavily in new and existing upfront analysis of public interest issues using established
transportation infrastructure, and properly structured contracts criteria has been conducted” (GAO 2000b).
can result in cost savings. Much of the information promoting
or criticizing PPPs comes from those who have a direct stake This synthesis examines the information available in the
in the outcome of the debate. United States and internationally in decision making related
to PPPs. Note that a PPP can be used for all manner of trans-
In recent years, interest in PPPs for highway infrastructure portation projects: highways, transit, freight, air, and water-
projects has surged in the United States as a result of a con- ways. This research focuses on the use of PPPs for highway
fluence of several trends (Brown 2007; Zhang 2008): projects, but sometimes uses examples from other modes,
where appropriate.
1. Automobile travel demand is high and is expected to
PPPs in the United States are evolving, and there are no set
continue growing;
rules that prescribe specifically when and how these partner-
2. Inflation has outpaced the rate of motor fuel tax
ships should be pursued and implemented. States are learning
increases, thus decreasing available revenue for trans-
and adapting as they acquire experience and gain more expo-
portation investment, and significant existing state
sure to the various PPP mechanisms. There is no “one-size fits
municipal debts have limited public agencies’ abili-
all,” and the ultimate decision of what type of PPP is appro-
ties to obtain more money from the tax-exempt bond
priate for a particular project will depend on many factors,
market; making each arrangement unique. Nevertheless, governments
3. Transportation infrastructure costs are rising as a result can draw lessons from United States and international experi-
of construction cost inflation and the aging of existing ence that will help craft an arrangement that achieves the trans-
infrastructure; and portation goals and needs, while protecting the public interest.
4. Pension funds and insurance companies, both domes-
tic and international, have enormous amounts of cash
to invest in steady, predictable, long-term cash flows. METHODOLOGY
It was the high-profile asset monetization deals of existing This synthesis is based on information obtained through a lit-
facilities (referred to as brownfields) on the Chicago Skyway— erature review and two web-based surveys, one to all U.S.
$1.83 billion in up-front payments, and the Indiana Toll state and Canadian provincial departments of transportation
Road—$3.8 billion in up-front payments, that really caught the (DOTs), and the other to individuals and organizations known
attention of elected officials. Some saw such deals, referred to to the authors and panel to have an interest in PPPs.
now generically as public–private partnerships, as a way to tap
value from existing infrastructure. Others saw these contracts Literature Review
as relinquishing control over decision making on public assets
to the profit-motivated private sector without adequate public The literature review was designed to locate U.S. and inter-
oversight. national experience related to concerns about how the public

interest was protected in PPP transactions and how these con- • Tools used by state DOTs to evaluate PPP proposals;
cerns were addressed by decision makers, project sponsors, and
and other stakeholders. The literature review included docu- • Information provided to decision makers, including who
ments suggested by the review panel, in addition to papers provides the information.
and studies previously compiled by the authors. Some of the
information sources reviewed included: The survey was developed as a collaborative effort among
AASHTO, NCHRP, and FHWA, to avoid duplication and to
• A Cambridge Systematics’s report on long-term lease limit the potential burden on DOTs for responding to multiple
agreements and public concerns prepared for the Uni- surveys on a similar subject. In 2005, FHWA and AASHTO
versity of Southern California, Keston Institute; conducted a survey that investigated state DOT experience
• Studies by states, regions, and toll road authorities inves- with, their readiness to undertake and professional capacity
tigating PPP options; needs related to PPPs, and it was scheduled to be updated dur-
• U.S. House of Representatives—Testimonies on PPPs ing the spring 2008. The full survey included 15 questions, of
before the House Transportation and Infrastructure which 9 were specifically related to this NCHRP synthesis.
Committee; Overall, 65 surveys were distributed and 49 responses were
• Several GAO studies, including a recent report about received for a 78% response rate. Forty-four state responses
protecting the public interest in PPPs; were received, a response rate of 85%, and five Canadian
• FHWA: provinces responded. Appendices A and B contain the survey
– PPP website; questionnaire and the results summaries, including separate
– International Scan Report on Asset Management; summaries for U.S. and Canadian transportation departments.
– PPP User Guidebook and Case Studies; and
– PPP legislation survey prepared by Nossaman,
Guthner, Knox & Elliot, LLP. Survey of Other Individuals and Organizations
• Publications from the Organization for Economic Coop-
eration and Development (OECD), the European Union, A second survey about public concerns related to PPPs was
and the World Bank; distributed to individuals and organizations that are known
• TRB papers presented at its annual meetings in recent to have an interest in the subject. The distribution list was
years; developed by the principal investigators in collaboration
• Academic and industry papers; with NCHRP staff and Topic Panel members. The survey
• Books on PPPs: Nuevos Sistemas de Gestión y Finan- was also publicized at the January 2008 TRB 87th Annual
ciación de Infratructuras de Transporte (New Systems Meeting. This survey was qualitative, and sought to specifi-
of Management and Financing for Transportation Infra- cally find the perceived benefits of PPPs, the most common
structure), by Izquierdo and Vassallo (2004); and concerns, and how these concerns might be mitigated. A total
• Newspapers and Internet newsletters/blogs on PPPs and of 24 individuals responded to the survey, representing sev-
toll roads. eral groups including legislature, state DOTs, transportation
consultants, financial advisors, investment banks, interest
groups, and academia. The full questionnaire can be found in
Survey of U.S. State and Canadian Provincial Appendix C, and a summary of the responses is provided in
Departments of Transportation Appendix D.
A web-based survey was sent to all U.S. state DOTs (includ-
ing the District of Columbia and Puerto Rico) and to their REPORT ORGANIZATION
13 Canadian provincial counterparts to assess various aspects
of PPP decision making, covering: Chapter two of this synthesis provides an overview of the dif-
ferent ways that PPPs are defined, some history about PPPs
• Criteria used to select PPP projects; in the United States, and addresses some common miscon-
• Measures and/or strategies used to protect the public ceptions about PPPs. Chapter three addresses a broad range
interest; of topics of concern related to PPPs, and chapter four has con-
• Level of importance of public concerns related to PPPs; clusions and suggestions for further research.

CHAPTER TWO
PUBLIC–PRIVATE PARTNERSHIP DEFINITION AND HISTORY
The high-profile asset monetization lease contracts executed This definition is widely adopted across the PPP literature
on the Chicago Skyway in 2005 and the Indiana Toll Road in (Jeffers et al. 2006; AECOM 2007b) as related to trans-
2006 are but one way the private sector can take a greater portation PPP, and we continue to use that definition in this
than usual interest in transportation infrastructure develop- synthesis.
ment, operations, and maintenance. There are many other
varieties of PPPs, and any discussion of the merits of PPPs
needs to be clear on what is being discussed. This section
Opinion/Comment from “Other Individuals/Interest
provides an overview of the many types of PPPs that have Groups” Survey:
been implemented or considered in North America.
PPPs range from concessions to construction contracting
methods. It is very important to differentiate between the
various types of PPPs in use rather than lumping them all
DEFINITION OF PUBLIC–PRIVATE together. The public accountability varies significantly
PARTNERSHIPS
from type to type.
References to PPPs are wide-ranging and ambiguous, with lit-

tle precision in how the term is used. Some consider a partner-
ship simply a term used to describe relationships between Types of Public–Private Partnerships
any contracting parties, whereas others interpret it as an
advancement on or alternative to “contracting out” (Wettenhall The literature documents several alternative approaches to
2003). Grimsey and Lewis (2005) consider whether PPPs are partnerships (U.S.DOT 2004; AECOM 2007b; FHWA 2007;
a form of privatization and assert they are not, because with Pakkala et al. 2007). The approaches relevant to highway infra-
privatization, the government no longer has a direct role in structure are summarized in Table 1, and are sorted by involve-
ongoing operations, whereas with a PPP the government retains ment to the private sector, from least to greatest. The first,
ultimate responsibility. Leavitt and Morris (2007) suggest Design-Bid-Build (DBB) is the traditional method of project
partnerships encompass a continuous range of public/private delivery; the last two are considered complete privatization,
mixes. At one end of the continuum the government agency whereas the rest are considered PPP. Build-Own-Operate and
provides for and produces products or services. At the other Asset Sales represent full privatization of public-use assets,
extreme the government completely divests all responsibil- and the FHWA PPP Guidebook reports that “these contracts
ity for products or services. A partnership is any arrange- are perceived as not in the public interest,” because the public
ment that exists between these two extremes. The FTA spec- sector relinquishes control over how the asset is maintained
ifies that a PPP is essentially a form of innovative procurement and priced. The Chicago Skyway and Indiana Toll Road deals
in which private capital is invested, and not an innovative are sometimes referred to as “asset sales,” but this is incorrect—
finance tool such as “joint development” or “transit ori- in reality, they were “long-term lease agreements.”
ented development” deals that are typical of transit projects
and that provide additional capital and operating revenues The survey of state PPPs enabling legislation (prepared by
(FTA 2007). Nossaman, Guthner, Knox, & Elliott, LLP for FHWA) shows
that 21 states allow DBFO procurement for toll facilities.
The U.S.DOT’s Report to Congress on Public-Private
Partnerships (U.S.DOT 2004) defines a PPP as:
Common Perceptions
A public-private partnership is a contractual agreement formed

The Chicago Skyway and the Indiana Toll Road deals fall into
between public and private sector partners, which allow more
private sector participation than is traditional. The agreements the long-term lease agreement/concession category defined
usually involve a government agency contracting with a private earlier. Although PPPs in various forms (mostly through
company to renovate, construct, operate, maintain, and/or man- design-build) have been used in the United States before
age a facility or system. While the public sector usually retains
ownership in the facility or system, the private party will be
these concession agreements, the large payments from private
given additional decision rights in determining how the project investors to the public sector raised awareness in the trans-
or task will be completed. portation community about this PPP option, and the deals were

TABLE 1
ALTERNATIVE APPROACHES TO INFRASTRUCTURE DEVELOPMENT
(from least private involvement to most)
Traditional Approach
(non-PPP) Definition
Design-Bid-Build (DBB) The traditional method of project delivery in which the design and
construction are awarded separately and sequentially to private firms.
PPP Approaches
Design-Build (DB) Combines the design and construction phases into a single fixed-fee
contract, thus potentially saving time and cost, improving quality, and
sharing risk more equitably than the DBB method.
Private Contract Fee Services / Contracts to private companies for services typically performed in-
Maintenance Contract house (planning and environmental studies, program and financial
management, operations and maintenance, etc.)
Construction Manager @ Risk A contracted construction manager (CM) provides constructability,
(CM@R) pricing, and sequencing analysis during the design phase. The design
team is contracted separately. The CM stays on through the build phase
and can negotiate with construction firms to implement the design.
Design-Build with a Warranty A DB project for which the design builder guarantees to meet material
workmanship and/or performance measures for a specified period after
the project has been delivered.
Design-Build-Operate- The selected contractor designs, constructs, operates, and maintains the
Maintain (DBOM), Build- facility for a specified period of time meeting specified performance
Operate-Transfer (BOT), or requirements. These delivery approaches increase incentives for high
Build-Transfer-Operate (BTO) quality projects because the contractor is responsible for operation of
the facility after construction. The public sector retains financial risk,
and compensation to the private partner can be in the form of
availability payments.
Design-Build-Finance (DBF), DBF, DBFO, and DBFOM are variations of the DB or DBOM methods
Design-Build-Finance-Operate for which the private partner provides some or all of the project
(DBFO), or Design-Build- financing. The project sponsor retains ownership of the facility. Private
Finance-Operate-Maintain sector compensation can be in the form of tolls (both traffic and revenue
(DBFOM) risk transfer) or through shadow tolls (traffic risk transfer only).
Long-Term Lease Publicly financed existing facilities are leased to private sector
Agreements/Concessions concessionaires for specified time periods. The concessionaire may pay
(brownfield) an upfront fee to the public agency in return for revenue generated by
the facility. The concessionaire must operate and maintain the facility
and may be required to make capital improvements.
Full Privatization
Build-Own-Operate (BOO) Design, construction, operation, and maintenance of the facility are the
responsibility of the contractor. The contractor owns the facility and
retains all operating revenue risk and surplus revenues for the life of the
facility. The Build-Own-Operate-Transfer (BOOT) method is similar,
but the infrastructure is transferred to the public agency after a specified
time period.
Asset Sale Public entity fully transfers ownership of publicly financed facilities to
the private sector indefinitely.
Source: Based on FHWAís “User Guidebook on Implementing Public-Private Partnerships for Transportation
Infrastructure Projects in the United States,” with some modifications made by the authors.
widely covered by the media, leading to an extensive disapproval. The other was a long-term lease of the existing Penn-
cussion of the merits and issues of long-term concessions. sylvania Turnpike to private investors. As of July 2008, Penn-
Concession proposals in Pennsylvania and New Jersey to lease sylvania had requested bids from private investors and accepted
their existing toll roads fueled the debate among supporters and a bid for $12.8 billion that is pending legislative approval. The
opponents, and alternative proposals have been put forth in Pennsylvania Turnpike has already provided payments to the
both states to move away from the long-term concession model Pennsylvania DOT under Act 44. The request to implement
involving the private sector to what has been dubbed as tolls on I-80 was resubmitted to FHWA; the proposal was
“public-public” partnerships. In New Jersey, the state decided rejected by the federal government on September 11, 2008.
not to pursue a public–public toll road monetization approach
because public support was lacking. Pennsylvania has two In 2006, the Harris County Toll Authority conducted a
competing initiatives simultaneously. One involved a PPP study to assess the revenue generation potential of three dif-
through Act 44 (enacted in the summer of 2007) that would ferent financial arrangements: asset sale, long-term conces-
generate annual payments from the Pennsylvania Turnpike to sion, and keeping the system under public control. The Harris
other transportation uses in the state, and includes the possible County commissioners made a decision to maintain public
tolling of the currently toll-free I-80, which is pending federal control over the toll road system. Under the public ownership

scenario, the implementation of more aggressive tolling one of the first state PPP-enabling legislations. Some of the
would generate financial gains close to those under the long- early PPPs for development of toll roads in the 1990s, such as
term concession scenario and still allow the county to retain the Pocahontas Parkway in Virginia and the Southern Connec-
full control of its toll roads. tor in South Carolina, included the creation of 63-20 non-profit
corporations to issue debt. California enacted PPP legislation in
The significant exposure of these deals in the media has 1989, allowing for four pilot PPP projects. Two, the SR-91
led the public, and even some transportation professionals, to Express Lanes and the South Bay Expressway, were developed
view or refer to PPPs as only long-term concessions and/or under the Build-Transfer-Operate model with private finance.
Design-Build-Finance-Operate (DBFO), in which the rights
to collect tolls and set toll rates, and the operations and main- On the federal side, SEP-14 was created in 1990, allowing
tenance of a toll facility are transferred to the private sector. states to experiment with innovative contracting options, such
As noted previously, however, PPPs encompass a wider range as cost-plus-time bidding, lane rental, and the use of warranties
of procurement methods with varying levels of private respon- for certain project elements. Subsequent transportation acts,
sibility based on risks transferred. Furthermore, the public con- such as ISTEA, TEA-21, and SAFETEA-LU created pilot
cerns raised by PPPs vary within each PPP type, and these programs and innovative finance tools that added flexibility
increase as the level of private involvement increases. for implementation of tolling and also encouraged states to
pursue private participation in transportation infrastructure.
It is also important to distinguish between “greenfield” and
“brownfield” PPPs, where the former refers to any PPP for For example, the Transportation Infrastructure Finance and
new infrastructure (e.g., DBFO) and the latter refers to long- Innovation Act of 1998 (TIFIA) was created to leverage fed-
term lease agreements or concessions for existing facilities. eral resources and stimulate private capital investment by pro-
viding credit assistance for large transportation projects. The
precursor to the creation of this credit assistance program was
EVOLUTION OF PUBLIC–PRIVATE the Alameda Corridor. Recent PPPs that have been approved
PARTNERSHIPS IN THE UNITED STATES
for TIFIA loan assistance include the refinancing and funding
The history of PPPs in the United States presented in this sec- of the Pocahontas Parkway (for a future extension), SH-130
tion comes from various sources including the U.S.DOT PPP Segments 5 and 6, SR-125, and the I-495 Capital Beltway
“Report to Congress” (2004), the USC Keston Institute study high-occupancy toll (HOT) lanes. Interest in the TIFIA pro-
on PPPs (2007), the FHWA PPP Guidebook (2007), and the gram has increased recently owing to relaxed rules emerging
recent GAO report on PPPs and the public interest (GAO from SAFETEA-LU, coupled with the recent credit crunch
2000b). Modern PPP agreements are not new in the United that has raised significantly the cost of private debt, making
States. In 1990, FHWA’s Special Experimental Project Num- TIFIA credit assistance more attractive.
ber 14 (SEP-14) authorized the use of innovative contracting
techniques, including design-build and, as reported by the SAFETEA-LU amended the Internal Revenue Service
FHWA PPP Guidebook, 42 states, the District of Columbia, Code to allow tax-exempt Private Activity Bonds (PAB) for
Puerto Rico, and the Virgin Islands have the ability to deliver privately developed and operated highway and freight facil-
transportation projects through design-build. ities, authorizing up to $15 billion through 2009. As of March
2008, $3.3 billion had been allocated to various projects,
Private sector participation in road development dates including the Port of Miami Tunnel in Florida (availability
back to the 1790s, with the development of the Philadelphia payment concession) and the I-495 Capital Beltway in Vir-
and Lancaster Turnpike in Pennsylvania. The private role in ginia (HOT lane concession), among other projects. FHWA
highway development, however, diminished over time. Toll created the Special Experimental Program 15 (SEP-15), which
facilities were developed by public turnpike authorities after allows for experimentation on new PPP approaches to project
World War II, mainly in the north and the east of the United delivery, focusing primarily on four major components includ-
States (U.S.DOT 2004). In addition, with the development of ing contracting, compliance with environmental requirements,
the Interstate Highway System and a higher reliance on gas right-of-way acquisition, and project finance.
taxes for road development, private sector involvement in
highways was mainly through either design contracts between Although many of the toll roads developed in the late 1990s
state DOTs and architectural/engineering firms or construc- included private participation, some, including the Pocahontas
tion contracts. Parkway and Southern Connector, were financed through tax-
exempt bonds, TIFIA assistance, and commercial debt, with
In the late 1980s, states began to explore the potential no equity from the private sector. PPPs in recent years have
for increased private sector participation in highway develop- involved private equity investment in DBFO (e.g., Texas’
ment. In Virginia, the Dulles Greenway was authorized by leg- SH-130 Segments 5 and 6 and Virginia’s I-495 Capital Belt-
islation in 1988, and developed under one of the first PPP agree- way HOT lanes) and long-term leases (e.g., Chicago Skyway
ments in the United States. This project was the precursor of the and Indiana Toll Road), and some of the toll roads financed
Virginia Public-Private Transportation Act of 1995 (PPTA), in the 1990s through non-profits have been refinanced in recent

10
years through transfers to private investors (e.g., Pocahontas • State or public toll authority (project sponsor);
Parkway and Dulles Greenway, and the Northwest Parkway • Equity participants, such as:
toll road outside Denver) after failing to meet traffic and rev- – Integrated transportation companies,
enue projections. – International construction companies,
– Funds, and
– Developer/concessionaire.
PUBLIC–PRIVATE PARTNERSHIPS PARTICIPANTS
• Lenders (e.g., commercial banks);
A PPP in transportation consists of several participants that • Design and construction companies;
come together to deliver a specific project, including: • Operating companies.
• Public sector decision makers (i.e., members of the

legislature);

11
CHAPTER THREE
PUBLIC–PRIVATE PARTNERSHIPS DECISION-MAKING TOPICS
PPP projects raise a variety of concerns as they move from The existing transportation infrastructure is aging and
concept through project delivery. These concerns range from travel demand continues to increase. At the same time, tra-
the initial decision to use a PPP procurement/delivery mech- ditional transportation revenues are growing at a slower
anism through specifics of who has control over toll setting rate than transportation needs, leading to an increasing
(where there are tolls involved), how risks and revenue are funding gap.
shared, and how the complexities of agreements can be com-
municated to the public and decision makers. This synthesis
has been organized into the following topical areas:
• Project selection and delivery: Groups” Survey:
– Criteria for deciding whether to use a PPP approach; CONCERN: Inadequate criteria for selecting candidate
– Unsolicited proposals and the transportation plan- projects for P3 implementation.
ning process; MITIGATION: Better public sector understanding of the
– Roles of public and private sectors, risk allocation, trade-offs inherent in P3—private sector money is not
and rates of return; “free” and P3 is not necessarily the answer when everything
– PPP valuation tools; and else has failed.
– Bonding, bonding capacity, letters of credit, and ini-
tial construction warranties.
• Transparency:
– Transparency and public participation; In response, some governors, legislators, and others in posi-
– Adequacy of legislative branch review; and tions of transportation policy leadership have proposed raising
– Perceptions of foreign control of domestic assets and motor fuel taxes or vehicle fees to close the transportation
the role of local contractors. funding gap; however, few attempts at revenue enhancement
• Terms of PPP agreements: have succeeded. It is tempting for government to consider
– Asset control and ownership; PPPs a “quick cash” scheme to close the transportation fund-
– Tolling policy; ing gap, but in reality, a PPP provides several tools that can
– Non-compete and other unanticipated event pro- help narrow the gap between transportation needs and fund-
visions; ing. Many aspects of PPPs introduce extensive changes to
– Use of proceeds and revenue sharing; the way things have always been done, and the changes
– Maintenance standards and hand-back provisions; may not be well understood. With this in mind, PPPs must
– Environmental safeguards; be pursued carefully, and decision makers need a set of cri-
– Labor relation issues; teria to help guide the decision between using a PPP or tra-
– Length of agreement; ditional procurement when considering their transportation
– Termination and buyouts; priorities.
– Safety and enforcement;
– Commercial development rights;
– Data privacy and ownership;
– International trade agreement implications; and Opinion/Comment from “Other Individuals/Interest
– Liability, indemnification, and insurance. Groups” Survey:
Put in place solid PPP processes that help promote the
best projects and finance plans moving forward and limit
PROJECT SELECTION AND DELIVERY the highly risky projects/schemes from moving forward.
Criteria for Deciding Whether to Use a

Public–Private Partnership Approach
Various factors have led to an increased interest in trans- OECD, in its Principles for Private Sector Participation
portation PPPs by public decision makers in recent years. in Infrastructure (2007), laid out the following four principles

12
related to the decision to provide infrastructure services by been a public sector enterprise. The enabling legislation in
the public or private sectors: nine states includes specific criteria to evaluate PPP propos-
als. Only 9% of the respondents to the DOT survey indicated
1. The decision should be based on a cost-benefit analysis that a lack of PPP criteria is not important. In addition, the
that includes all alternative procurement and delivery lack of criteria to evaluate candidate projects for PPP imple-
methods, and both financial and non-financial costs and mentation was called an important concern by one respondent
benefits should be projected over the project life cycle. of our survey of other interested parties. These respondents
2. The project sponsor should assess how the costs of suggested that the public sector needs a better understanding
infrastructure will be recovered (e.g., user-fees), and of the trade-offs inherent in PPPs, and in particular that PPPs
what other financing sources are available in case of are not “the answer when everything else has failed.”
shortfalls.
3. The selection of a PPP model and allocation of risks Several studies that address selection of PPP projects have
should be based on the public interest. been published (Zhang 2005; Abdel-Aziz 2007; AECOM
4. Fiscal discipline and transparency must be safe- 2007b). Abdel-Aziz (2007) suggests that the decision to pro-
guarded, and the potential public finance implications ceed with a PPP should depend foremost on the program-
of PPPs must be understood. matic environment. If the program environment is supportive
of PPPs, only then should project-specific characteristics be
Countries with extensive experience in PPPs have devel- evaluated. Abdel-Aziz identifies eight critical success factors
oped guidance (see Table 2) that might be useful to states at the programmatic level:
considering PPPs for project delivery. Project sponsors must
note that each PPP project is different and these guidelines 1. Availability of a PPP institutional/legal framework,
might have to be adapted on a case-by-case basis. 2. Availability of PPP policy and implementation units,
3. Perception of private finance objectives,
Not all projects present viable opportunities for a PPP. 4. Perception of risk allocation and contractor’s com-
Public decision makers need to understand the criteria for suc- pensation,
cessful projects to inform their decisions about whether or 5. Perception of value-for-money,
how to involve the private sector in what has traditionally 6. PPP process transparency and disclosure,
TABLE 2
LIST OF FOREIGN GUIDANCE DOCUMENTS FOR PPP PROJECTS
Country Guidance Document URL
United Kingdom Standardisation of http://www.hm-treasury.gov.uk/documents/
Private Finance public_private_partnerships/ppp_standardised_contracts.cfm
Initiative Contracts,
Version 4 (Mar.
2007)
Canada (province Alberta http://www.infratrans.gov.ab.ca/
of Alberta) Infrastructure and INFTRA_Content/doctype309/production/ait-p3-
Transportation, procurementframework.pdf
Management
Framework:
Procurement Process
(Sep. 2006)
Canada (province Alberta http://www.infratrans.gov.ab.ca/
of Alberta) Infrastructure and INFTRA_Content/doctype309/production/ait-p3-
Transportation, assessmentframework.pdf
Management
Framework:
Assessment Process
(Sep. 2006)
Australia Partnerships http://www.partnerships.vic.gov.au/CA25708500035EB6/0/
(Victoria) Victoria, Policy and C0005AB6099597C2CA2570F50006F3AA?OpenDocument
Guidelines (various
documents)
Netherlands Ministry of Finance, http://www.minfin.nl/nl/onderwerpen,publiek-private-
DBFM Manual, samenwerking/publicaties/DBFM-algemeen.html
Version 5 (Jan.
2008, in Dutch)
Ireland Department of http://www.ppp.gov.ie/keydocs/guidance/central/
Finance, Central PPP
Policy Unit (various
documents)
Note: URLs last accessed on May 28, 2008.

13
7. Standardization of PPP procedures and contracts, and the competitive nature of PPP procurements in one instance
8. Performance specifications and method specifications. apparently led to withholding proprietary technical informa-
tion from elected officials, even as they voted to approve a
Once a transportation agency has established a PPP program, project. In the case of The Canada Line, an extension of the
it can more effectively develop individual projects (AECOM Vancouver urban rail line, local elected officials responsible
2007b). Zhang (2005) suggests 47 project-specific critical for approving the PPP responded to public criticism by claim-
success factors in five categories: ing that they did not know the extent of the controversial cut-
and-cover tunneling method to be used on the project. Because
1. Favorable investment environment, the amount of cut-and-cover tunneling was a proprietary part
2. Economic viability, of the contractor’s bid information regarding its use that was
3. Reliable concessionaire consortium with strong tech- appropriately withheld—this did prevent the elected officials
nical strength, from not getting a complete picture of the project that they
4. Sound financial package, and approved (Siemiatycki 2007).
5. Appropriate risk allocation via reliable contractual
arrangements. If more than one project is anticipated, however, project-
by-project legislation is time and cost intensive for both the
The author surveyed both academics and practitioners with public and private sector, and standardization of PPP proce-
respect to the importance of these subfactors, and compared dures can streamline the procurement process. The United
the differences between the survey results of academics with Kingdom developed a standardized Private Finance Initiative
all those surveyed. He concluded that academics and practi- contract to simplify negotiations, enable consistent pricing of
tioners at-large generally agree on the relative importance of projects, and promote common understanding of risks among
the critical success factors. PPP projects (Abdel-Aziz 2007).
The AECOM “Guidebook” (2007b) reviews key criteria Ghavamifar and Touran (2008) conducted a comprehen-
from both public and private perspectives for identifying sive survey of the codes of all 50 states within the United
potential projects to pursue as PPPs; the criteria that are gen- States to identify enabling legislation for alternative project
eral precedents to successful implementation of PPPs by the delivery systems: design-build, construction management-at-
public partner are summarized here. risk, and PPP project. They found that an increasing number
of states are moving toward more fully authorizing alternative
• Enabling legislation in place, delivery systems.
• Urgent transportation need,
• Political and institutional support, According to a study prepared for the FHWA, state-
• Lack of internal resources to effectively deliver the enabling legislation should, at a minimum, provide an oper-
project, ating environment that allows a state DOT to enter into part-
• Leverage public resources and transfer risks to private nerships and to approve specific activities associated with
sector, that partnership. To be effective, it could designate a lead
• Expedite schedule through access to capital markets agency, such as the state DOT or a toll authority to imple-
and innovative project delivery, ment highway partnerships. The lead agency should have the
• Increase cost-effectiveness through best practices and authority to act on behalf of the state and should have certain
access to new technology, statutory powers including the power to procure projects
• Competitive market environment based on firms with through negotiation, to acquire right-of-way through eminent
proven experience, domain (or otherwise) and transfer use of it to a private part-
• Capability to manage transparent procurement/contract ner, to acquire and confer environmental permits, to confer
administration processes, and exclusive franchises, to establish a geographic non-compete
• Public accountability through monitoring of contract zone, to enter into binding concession agreements and lease
performance standards. arrangements, to regulate tolls or rates of return, to accept
unsolicited proposals, and to blend or lend state and federal
funds to a project (Apogee Research, Inc. 1995; U.S.DOT
PPP Enabling Legislation 2004). Enabling legislation may also include provisions that
define the maximum repayment term for debt (e.g., 30 years)
Enabling legislation is a necessary step for any PPP imple- and surety/performance bond requirements. Bloomfield (2006)
mentation and it can be provided on a project-by-project or warns against relaxing procurement laws too much, citing an
program basis. PPP legislation in seven states limits PPPs to example of local enabling laws that waived the need for com-
selected “pilot” or “demonstration” projects. petitive procurement for a long-term lease of a new cor-
rectional facility in Plymouth, Massachusetts. On the other
Project-by-project-enabling legislation allows public rep- hand, some terms provided by enabling legislation may dis-
resentatives to consider the details of each project. However, courage the private sector from investing in transportation

14
infrastructure. For instance, the PPP legislation in Washing- Unsolicited Proposals and the Transportation
ton State requires post-legislative approval of proposed PPPs Planning Process
after a private partner has been selected, which some observers
say appears to have discouraged private investors from sub- The use of a PPP raises concerns that private investors may
mitting unsolicited proposals, because there is no guarantee circumvent the transportation planning process set by state,
that the negotiations will be closed even after a PPP project regional, and local governments, specifically by allowing
has been selected and approved by the DOT. them to submit unsolicited proposals. The public concern is
that the private sector will “cherry-pick” the most profitable
projects, leaving the public sector with other needed, but less
Public Interest Evaluation profitable projects (Buxbaum and Ortiz 2007). Others may
argue that the most profitable projects might be those with
Some government sponsors have found value in setting out the highest projected traffic and therefore the most needed.
specific criteria that need to be met before a PPP can be Attracting private investment for these projects would leave
pursued. A recent GAO report, Highway Public-Private public funds available for other needed projects that may not
Partnerships . . . (2000a) on PPPs reported that the states of be good candidates for PPPs.
Victoria and New South Wales in Australia have developed
the following criteria that consider the public interests before
entering into a PPP agreement. In New South Wales, the pub-
lic interest evaluation is conducted before advertising the Groups” Survey:
project as a PPP, and the analysis is constantly updated as the
project moves through the procurement process, including Because a private corporation is most interested in the most
profitable project, and not the one that is most needed, they
before the government signs the PPP agreement.
may force the public agency to entertain construction of pro-
jects that are not a priority for the public—but of course the
• Victoria public will pay.
1. Effectiveness in meeting government objectives
2. Accountability and transparency, ensuring that com-
munities are informed of both public and private
sector obligations, and that there is oversight of An unsolicited proposal is a bid by a private company to the
projects government for a project for which proposals have not been
3. Affected individuals and communities, whether they solicited. Unsolicited proposals are sometimes perceived to
have been able to contribute during planning stages, serve special interests or favor individual companies. Mean-
and whether their rights are protected through appeals while, a variety of stakeholders including state representatives,
and conflict resolution mechanisms law firms, private companies, and trade associations recom-
4. Equity, ensuring that disadvantage groups can make mend elimination of state prohibitions on accepting unso-
use of infrastructure licited proposals (U.S.DOT 2004). Conversely, in a letter to
5. Public access, whether there are safeguards to ensure state DOTs, Congressmen Oberstar (chairman of the House
access to essential infrastructure Committee of Transportation and Infrastructure) and Con-
6. Consumer rights, whether the project provides safe- gressman DeFazio (chairman of the House Subcommittee on
guards for consumers Highways and Transit) (2007), asserted that states should not
7. Safety and security of the community are secured allow unsolicited proposals because they circumvent the estab-
8. Privacy, whether the project adequately protects lished planning process by favoring projects that are profitable
users’ rights to privacy. to private developers. A response from the National Governors
• New South Wales Association (NGA 2007), asserted that PPPs have been care-
1. Effectiveness in meeting government objectives fully evaluated by states to ensure that the public interest is
2. Accountability and transparency, ensuring that com- protected, and that a PPP proposal where the public interest is
munities are informed of both public and private sec- not protected should not be considered.
tor obligations, and that there is oversight of projects
3. Value for Money used to determine if the PPP
approach is in the public interest Opinion/Comment from “Other Individuals/Interest
4. Community consultation, whether affected individ- Groups” Survey:
uals and communities have been able to contribute
CONCERN: PPP may undermine comprehensive trans-
during planning stages
portation planning and work of MPOs [Metropolitan Plan-
5. Consumer rights, whether the project provides safe- ning Organizations].
guards for consumers MITIGATION: Require PPP projects to be consistent with
6. Health and safety of the community are secured state, local, and MPO transportation plans. PPP projects
7. Privacy, whether the project adequately protects need to be part of plans, not separate from them.
users’ rights to privacy.

15
The interested party’s survey done for this synthesis con- Buxbaum and Ortiz (2007) noted that short time periods
firmed this concern and provided some mitigation suggestions: for competing proposals may lead to inadequate competition
among bidders. On the other hand, a long period may dis-
• Require PPP projects to be consistent with state, local, courage private investors in submitting unsolicited proposals.
and MPO transportation plans;
• Prohibit PPP vendors from participating in project plan-
ning activities; Roles of Public and Private Sectors,
Risk Allocation, and Rates of Return
• Limit or prohibit unsolicited bids; and
• Provide sufficient time for submittal of competing The roles and responsibilities of public and private sectors
proposals. under traditional procurement are well understood by state
DOTs, architectural/engineering firms, and contractors that
International experience suggests three methods that deal are involved in the process. The introduction of a PPP changes
with unsolicited proposals in a way that introduces competi- the traditional roles of these entities in the development,
tion and transparency (Hodges and Dellacha 2007): operations, and management of transportation infrastructure.
The public sector’s goal is to provide a transportation infra-
1. The “Bonus System” invites additional competition but structure (and system) that is safe and improves user mobil-
gives a small advantage to the unsolicited bidder. Thus, ity, whereas the private sector’s main goal is to achieve a
later bidders are incentivized to submit high-quality, return on investment. Because these goals may be in conflict,
low-cost projects, but may have slightly less incentive the public sector must ensure that the assignment of roles,
to submit at all. This system is used by Chile and South responsibilities, and risk is done in a manner that protects the
Korea. public goals.
2. The “Swiss Challenge System” invites additional com-
petition and gives the unsolicited bidder the opportu-
nity to beat or match the new bids. This system is used Risk Transfer
by Guam, India, Italy, and Taiwan.
3. The “Best and Final Offer System” involves multiple The transfer and sharing of project risks is considered by
rounds of tendering and the original bidder is automat- many as one of the main benefits of PPPs. Much of the risk
ically guaranteed participation in the final round. This associated with the design, construction, financing, operations,
system is used by South Africa and Argentina. and maintenance of transportation projects is traditionally
managed by the government. In contrast, a PPP seeks to allo-
British Columbia developed its Capital Asset Manage- cate risks to the parties best able to manage them (Bettignies
ment Framework to standardize and streamline its PPP pro- and Ross 2004; U.S.DOT 2004). Three factors drive risk
curement process. The Capital Asset Management Framework sharing in PPPs. First, the private sector is in charge of a
follows a three-stage process of solicitation, evaluation/ number of activities during the lifetime of the project, includ-
negotiation, and contract award and allows for unsolicited ing financing, whereas the government usually holds a resid-
proposals, but invites competitors to submit a better pro- ual ownership right. Second, the two contracting parties in a
posal. It adopts the Swiss Challenge System (Abdel-Aziz PPP arrangement have different stakeholders and different
2007). objectives, risk perceptions, and constraints. Third, the pub-
lic and private partners may have different abilities to diver-
PPP legislation in 18 states allows unsolicited proposals sify the risk (Checherita and Gifford 2008). For example, the
for PPP projects. One of the first laws to enable use of trans- private partner can diversify the risks of construction and
portation PPP, Virginia’s PPTA of 1995, allows private financing across many projects.
entities to submit both solicited and unsolicited project pro-
posals and specifies similar steps to evaluate, select, and Concern about how this risk allocation is handled was
implement both types of projects (U.S.DOT 2004). Changes borne out by the two surveys done for this synthesis. Risk
to the PPTA law in 2005 direct the program toward solicited sharing and allocation among public and private sectors
proposals, although the Virginia DOT may still accept unso- on PPPs is considered as an either “very important” or
licited proposal by statute. In the case of unsolicited propos- “somewhat important” concern by all respondents in our
als, Virginia has developed a quality control process in which state DOT survey, with 88% responding that it is a “very
unsolicited proposals are reviewed to determine if these are important” concern. Also, most U.S. states and Canadian
in the interest of the public sector and then make a decision on provinces that have completed or are currently are negoti-
whether the project should be pursued. The Commonwealth’s ating a PPP project use risk assessments when considering
PPP guidelines provide that if the state decides to moves for- PPP proposals.
ward with the proposed project, competing proposals may be
submitted within a minimum of 90 days if the project does not One of the respondents to our interested parties’ survey
involve federal funding, or a minimum of 120 if using federal identified the need for strong demarcation of responsibili-
funding. ties between the public and private sectors. In the survey, the

16
Central Artery/Tunnel project in Boston (also known as the efforts to limit foreign involvement or state/local polit-
“Big Dig”) was cited as an example of a project where there ical and public grassroots efforts to oppose PPP with
was a “too cozy” relationship between the public and private significant foreign company involvement.
sectors leading to lack of oversight and enforcement of pub- • Political stability—Continuity of political support for a
lic interests. The Big Dig included a design and construction PPP project should there be a change in political struc-
management contract with a joint venture between two large ture or composition.
engineering firms, where considerable independent responsi- • Moral hazard—Public sponsor to avoid conflict of inter-
bility was handed over to the private sector. Another survey ests and fraudulent activities during procurement and
respondent indicated that the public sector may be unaware execution phases of the project. Public sector to hold
of what risks are being transferred and which ones remain. PPP provider publicly accountable for proper execution
of the project consistent with the terms of the contract
agreement.
• Demand/volume—Level and timing of traffic.
Groups” Survey:
• Revenue—Level and timing of proceeds from tolls or
congestion pricing of highway use.
How can distribution of transportation benefits/burdens • Environmental/archeological—Site conditions that may
and risks be decided in a strategically equitable manner?
require mitigation, and the cost of mitigation measures
Government deal making in transportation infrastructure
development may only include stakeholders and interests
and their responsibility.
of upper class membership. However, it is the role of gov- • Right-of-way costs—Uncertainty in cost of acquiring
ernment to assure that these deals benefit society as a parcels of land needed for project.
whole, including the underclasses. If the spectrum of pub- • Construction costs—Impacts from availability and cost
lic interests is not represented, inequitable distributions of of materials, labor, and maintenance of traffic, plus the
benefits, burdens, and risks may occur. There must be an cost of surety bonds.
approach to uncovering hidden and indeterminate public
• Maintenance costs—Cost of maintenance and repair
risk. In a PPP, the paradigm for business interests where
the business interest short term gain means the long-term
activities that may be affected by factors such as quality
public loss, must be changed. The public interest must be of design and construction, and changes in traffic vol-
of paramount benefit. umes, among others.
• Liability/latent defect—Potential for defects in design
or construction, and the effect on project costs and the
responsibility for paying these costs.
The FHWA’s PPP website (2008) and Table 2 in chapter • Life-cycle costs—Cumulative costs of facility mainte-
two show a continuum of public/private mixes in order from nance, rehabilitation, and reconstruction/expansion over
those of greatest public responsibility to those of greatest pri- the term of the contract and its effect on cash flow and
vate responsibility. The amount of risk allocated to each party reserves.
depends on the type of partnership, the risk profile of each • Regulatory/contractual—Changes in regulation or con-
partner, and details specified in the partnership contract. Allo- tract provisions that affect the cost exposure of one or
cation of risks among private and public partners has been more partners.
reviewed extensively in the literature (Fishbein and Babbar • Payment structure/mechanism—Effect on value of proj-
1996; FHWA 2004; AECOM 2007b; Checherita and Gifford ect participation based on source, method, and timing of
2008). Checherita and Gifford (2008) provide a comprehen- project cost reimbursement or availability payment.
sive typology of risks and identify risks most likely to arise • Transaction costs—Level of costs associated with com-
under a PPP arrangement rather than under traditional financ- pleting various transactions involved in completing the
ing or complete privatization. Risks are classified in three PPP contract agreement and responsibility for payment
broad categories: (1) fiscal risks, (2) residual value or valua- of these costs.
tion risks; and (3) bidding risks. AECOM (2007b) provides • Changes of law—New statutes and regulations, includ-
discussion of risks, as summarized here: ing design/construction standards, which affect the cost
of the project and delivery schedule.
• Public acceptance—Degree of public acceptance of the • Compensation/termination—How PPP team will be
project, its procurement as a PPP, and the means by compensated for work completed if contract is termi-
which the project will be paid (e.g., tolling). nated, depending on reasons for termination, and any
• Control of assets—Perceived loss of control, particularly penalties for early termination by the sponsoring agency.
the level and frequency of toll rate increases, physical • Economic shifts—Changes in economic activity and
condition and appearance of the facility, and protection demography of the region that could affect traffic and
of the public interest. revenue over the term of the contract.
• Protectionism—Concern about nationality of firms com- • Currency/foreign exchange—Changes in relative value
prising the PPP team, which may result in legislative of national currencies that can affect the cost of the

17
project and value of revenue to a PPP provider based on ect construction/schedule risks and traffic/revenue risks. The
another country with different currency used for project GAO report noted international examples that show the ben-
reimbursement or payment of revenue proceeds. efits of transferring the aforementioned risks to the private
• Taxation constraints—National, state, or local taxes on sector. One such project was the CityLink highway project in
the materials used in developing the transportation facil- Melbourne, Australia, which was subject to extensive delays
ity and the proceeds from operation of a priced facility and additional costs. Because all construction risks had been
that can affect financial viability. transferred to the private sector, none of the additional costs
of this project were a responsibility of the public sector. An
AECOM (2007b) also provides a detailed table summa- example of the benefits of transferring traffic and revenue
rizing risks fully or partially transferred to the private sector risks cited in the GAO report is the Cross City Tunnel in Syd-
based on 17 types of alternative PPP approaches, as shown in ney, Australia, where public officials have indicated that the
Table 3. For instance, in a DBFO agreement, finance, design, public sector has not been affected (financially) by the low
construction, construction inspection, maintenance, opera- traffic and revenues, because those risks were borne by the
tions, and traffic-revenue risk are often transferred to the pri- private sector. The project was sold in 2007 to new private
vate sector. owners, after the first concession failed.
In a PPP, risk should be allocated to the party that can best The original Pocahontas Parkway project, on the other
manage such risk. According to a 2008 GAO study, some of hand, is an example of what some might consider poor risk
the typical risks transferred to the private sector include proj- allocation on the part of the public sector. Under the original
TABLE 3
RISK TRANSFER RESPONSIBILITIES UNDER DIFFERENT PPP ARRANGEMENTS
Functional Responsibilities and Project Risksa
Environmental
Preservationb
Construction
Construction
Maintenance
Final Design
Preliminary
Acquisition
Long Term
Ownership
Operations
Inspection
Alternative PPP and
Clearance
Planning
Revenue
Finance
Traffic-
Design
Procurement
Asset
Land
Approaches
Asset Sale
Greenfield
Concession
Brownfield
Concession
Multimodal
Agreement
Joint Developmentc
Transit-Oriented
Developmentc
Build-Own-Operate
Build-Own-Operate-
Transfer
Build-Transfer-
Operate
Design-Build-
Finance-Operate
Design-Build-
Operate-Maintain
Design-Build w/
Warranty
Design-Build
Construction
Management at
Risk
Contract
Maintenance
Traditional Design-
Bid-Build
a
Functional Responsibilities and Project Risks noted with a check mark ( ) may be transferred in whole to the private
partner or shared with the public sponsor, depending on the contract.
b
Refers to long-term risk of asset failure or physical obsolescence.
c
Refers to private developer portion of infrastructure.
Source: FHWA Office of Policy and Governmental Affairs, ìUser G uidebook on Implementing Public Private
Partnerships for Transportation Infrastructure in the United States,” prepared by AECOM, July 2007.

18
PPP agreement, the Virginia DOT would operate and main- Revenue sharing provisions, refinancing regulations, and
tain the facility, thus retaining some of the traffic and revenue contract rebalancing provisions are strategies that allow the
risk by providing funding to cover operations and mainte- public sector to benefit from revenues that are higher than
nance (O&M) until the facility generated sufficient toll rev- projected and/or limit excessive returns to the private sector
enue to meet its debt obligations, fully cover O&M expenses, (Mayer 2007). In Virginia, both the Pocahontas Parkway and
and pay back the state’s investment [including both capital the I-495 Capital Beltway HOT lanes concessions include
(State Infrastructure Bank loan) and O&M]. Actual traffic provisions requiring the private partners to share toll rev-
was much lower than projections, and revenues were not suf- enues based on the rate of return achieved. Revenue sharing
ficient to pay back debt (with bond holders bearing this risk); provisions are also common in Texas’ CDA and were also
therefore, the state paid for O&M expenses on the facility included in the Northwest Parkway lease agreement.
until it was leased in 2006.
Some observers have suggested that a facility should be
Some of the risks that are better managed by the public sec- returned to the public sector once the private partner has met
tor include environmental, right-of-way acquisition, statutory/ a specified rate of return, and the French and Spanish conces-
regulatory, and public acceptance risks (AECOM 2007b). The sion models allow for termination of a concession once an
environmental process can be lengthy, especially if federal agreed upon internal rate of return is achieved, although esti-
funding is involved, and can add significantly to the project mating and determining when the rate of return has been
cost (GAO 2000b). The South Bay Expressway in California achieved could be difficult (Mayer 2007; see also section on
is a good example of the environmental risk and uncertainty: Use of Proceeds and Revenue Sharing later in the chapter).
it took almost a decade after the project had been awarded to This would allow for the benefits of private capital being used
a private partner to get environmental clearance (AECOM for transportation infrastructure, but also guard against excess
2007b; GAO 2000b). The delay resulted in increased construc- profits. However, it provides no incentive to keep costs down.
tion costs and foregone toll revenues. The original private part-
ners sold the franchise to Macquarie Infrastructure Group Another way that the public sector can maximize the work
in 2003, and shortly after construction of the facility began performed in a PPP agreement that is based on a set amount
of available funding is through “bidding scope,” which has
(AECOM 2007b).
been used by the Missouri DOT. On the I-64 reconstruction
project, the Missouri DOT set a “not to exceed” price avail-
Risks are not always fully transferred from one entity to
able for the project and provided some minimum scope items,
another. For example, some PPP arrangements include traffic/
as well as a conceptual design of the project for information.
revenue risk sharing and/or include mechanisms that help
The bidding teams were asked to propose the “most scope”
mitigate the traffic risk to the private sector (Izquierdo and
they could deliver for the set price, and this was evaluated as
Vassallo 2004). Minimum revenue guarantees (Chile) or eco-
the most significant portion of the “best value” determination.
nomic rebalancing provisions (Spain) are used to mitigate this
A similar approach is currently being considered for the re-
risk. In the case of minimum revenue guarantees, the conces- bid of Missouri’s bridge program to replace more than 550 of
sion contract also includes revenue sharing if traffic exceeds the state’s lowest-rated bridges. The Missouri DOT will set a
projections, such that the public sector also benefits from addi- price and then list all the bridges to be replaced in a priority
tional revenues. Rebalancing provisions allow for revision of order. Bidding teams will be asked to propose how many
toll rates or changes in the length of the concession if a chosen bridges from this list they would complete for a set price.
metric (e.g., traffic, revenues) falls outside a specified range.
Public–Private Partnership Valuation Tools

Rate of Return
The decision to pursue a PPP project should be supported by
The main objective of the private sector in a PPP is to achieve analytical processes that show the PPP procurement as a bet-
a target return on investment on the equity invested. The ter option than traditional procurement or public provision.
European private sector expects a return on its investment of The valuation process should include the careful selection of
7% to 17% (Jeffers et al. 2006). Data analysis by Infrastruc- inputs/variables that properly characterize the chosen procure-
ture Management Group shows that the long-term return on ment method and risk allocation, using quantitative methods
equity on recent concession deals involving “brownfield” toll that include sensitivity analysis to better assess the risk vari-
roads was expected to be around 12%, whereas returns of ables for a particular project. Several states in the United States,
14% or higher were expected on greenfield projects (Page including Florida and Alaska, as well as the United Kingdom,
2008). Buxbaum and Ortiz (2007) identified windfall rev- Victoria (Australia), and British Columbia have widely used
enues as one of the main public concerns related to long-term “value for money” as a tool to assess PPPs. Other methods
concessions. This concern was further validated by the pub- have also been used in the United States, including shadow
lic agencies surveyed in this synthesis, where all but one bids and market valuation in Texas, and asset valuation in
respondent indicated that excessive rates of return to private both Chicago and Indiana, to set a minimum value for the pro-
investors are an important concern. posed project. Proper development and use of valuation tools

19
is potentially one of the most important means of helping the oversight of PPPs in Europe (Jeffers et al. 2006). The report
public and elected officials better understand the benefits, indicates a need for personnel with skills, including value
costs, risks, and rewards of PPPs. engineering, business modeling, capital budgeting, traditional
financial problem-solving methodology, and performance
auditing. The report concludes that a state DOT team should
develop a public sector comparator (PSC) and a business
model for each PPP opportunity to determine whether the
Groups” Survey:
project can return VfM to public.
Need to adopt level-playing-field competition procedures, to
permit fair competitions that do not tilt toward either public- Grimsey and Lewis (2005) and Morallos and Amekudzi
sector or private-sector bidders.
(2008a) have thoroughly explored the VfM concept. Although
cost-benefit analysis is widespread, there are few examples
of VfM in the United States, largely because of the limited
Value for Money Analysis experience with PPPs. British Columbia, the United Kingdom,
and Other Valuation Tools and Victoria, Australia, have made PPP/public procurement
decisions for many projects using VfM analysis and have
Consideration of the PPP option can be fraught with emo- established set procedures for its calculation. Table 4 provides
tionally charged ideological rhetoric, but this debate can be a list of some of the publicly available guides for VfM analysis.
informed by well-defined and executed business case analy-
sis. Value for Money (VfM) calculates the difference between An estimate of VfM is achieved by calculating the present
the costs and benefits associated with both traditional and value of the PSC and then comparing it with one or more bids
PPP procurements. Some of the benefits to developing a finan- from private companies. The PSC examines life-cycle proj-
cial model to evaluate PPP proposals include (Oakley 2008): ect costs, including construction, operations, maintenance,
and additional improvements that will be incurred over the
• Helps establish the business case for a PPP, course of the concession term (GAO 2000b). To prepare the
• Provides important insights about the project’s ability PSC, the sponsoring agency needs to define the project scope
to obtain financing, in advance to the extent that a realistic determination of what
• Allows for testing of assumptions (e.g., toll increases, project requirements, costs, and revenues are likely to be.
traffic growth, length of agreement) early in the process, This may involve the following actions:
and
• Provides a method for “optimizing” the transaction and • Develop greater understanding of project geotechnical
encouraging competition and innovation. and site conditions through advanced reconnaissance;
• Advance project design to the point where there is a
The VfM analysis has been widely used outside the clear understanding of the key attributes of the project
United States, particularly the United Kingdom. Our state design and functional characteristics;
DOT survey confirms that the availability and consistent • Perform advanced value engineering to ensure that the
application of evaluation tools, such as VfM, are important to most cost-effective design parameters are considered;
state decision making. Of the nine states that have at least one • Revise assumptions typically used to estimate traffic
PPP project in place, two (22%) have not used VfM, and four volume and revenue potential, especially the possible
(44%) reported using VfM frequently. The preliminary size and frequency of toll rate changes when tolling is
results of a survey of VfM analysis tools in the United States involved to reflect current fiscal concerns;
conducted by Morallos and Amekudzi (2008b) showed that • Recognize the risks inherent in the inflationary effects
only one-third of the states use VfM or similar tools to eval- on the costs of project materials (AECOM 2007b); and
uate PPPs. Florida, Virginia, and Oregon reported using VfM. • Consider value of speed in construction execution asso-
ciated with minimizing public inconvenience.
Texas has used a process called “shadow bids” for two
PPPs. These involve the state, through its own resources and Once the characteristics of the project are better under-
consultants, making detailed estimates of design and construc- stood, the PSC is constructed using four components:
tion costs, operating costs, and a detailed financial model (GAO
2000b). The results of the shadow bids are compared with the 1. Raw PSC is the discounted cash flows of benefits
private sector proposals. In addition, the moratorium bill passed and costs attributable to the project assuming no pri-
in 2007 (SB 792), requires the Texas DOT to conduct a “mar- vate sector involvement. Cash flows are discounted
ket valuation” analysis for new toll roads to assess how much by a rate reflective of the government’s time value
value a facility might attract from the private sector. of money plus a systematic risk premium for risks
inherent to the project. Costs include direct and indi-
An International Technology Scanning report by the FHWA rect costs and are reduced by third-party revenues
documented best practices regarding audit stewardship and including user charges, increased demand for a facility

20
TABLE 4
VALUE FOR MONEY GUIDES
Country Document URL
United Kingdom HM Treasury, Value http://www.hm-treasury.gov.uk/documents/
for Money public_private_partnerships/additional_guidance/
Assessment Guidance ppp_vfm_index.cfm
(Nov. 2006); Value
for Money
Quantitative
Assessment User
Guide (Mar. 2007)
Canada Industry Canada, The http://strategis.ic.gc.ca/pics/ce/ic_psc.pdf
Public Sector
Comparator: A
Canadian Best
Practices Guide
(2002)
Victoria, Partnerships Victoria, http://www.partnerships.vic.gov.au/CA25708500035EB6/0/
Australia Public Sector C0005AB6099597C2CA2570F50006F3AA?OpenDocument
Comparator (2001);
Public Sector
Comparator
Supplementary
Technical Note
(2003)
Ireland Central PPP Unit, http://www.ppp.gov.ie/keydocs/guidance/central/
Value for Money and Value%20for%20Money%20Technical%20Note.doc
the Public Private
Partnership http://www.ppp.gov.ie/keydocs/guidance/central/
Procurement Process PSB%20Guidelines%20Jan%2007.doc
(2007); Compilation
of a Public Sector
Benchmark (2007)
Note: URLs last accessed on May 28, 2008.
or service, or payments received by third-party use of Besides the previous quantitative analysis, qualitative
the facility. factors could also be considered. The public agency must
2. Competitive neutrality value removes inherent com- identify the objectives and desired project outcomes and
petitive advantages or disadvantages of a government translate these into the performance standards on which to
agency compared with the private sector. This value is base the payment mechanism. The qualitative analysis con-
added to the PSC to allow for comparison with the PPP siders whether the long-term contract can meet the objec-
option. For example, public sector advantages include tives. It also considers important regulatory, public equity,
exemptions from land taxes or other taxes and fees that efficiency, or accountability issues. Does the PPP improve
would otherwise be levied from a private investor. On on traditional delivery, financing, management, operations,
the other hand, public sector disadvantages may include or maintenance structures? Is the PPP procurement option
political risks or economies of scale that would allow feasible given current market conditions, the public agency’s
the private sector to operate more efficiently. available resources (monetary and management experience),
3. Transferable risks are those that are likely to be trans- and the attractiveness of the proposed project? The GAO
ferred from the procuring agency to the chosen private (2000b) found that both the states of Victoria and New South
partner(s). The risk valuation includes estimating the Wales, in Australia, have used qualitative analysis, along with
probability of the risk occurring, and could be a simple quantitative analysis, to evaluate how the public interest is
estimation of an amount above or below the raw PSC, affected in a PPP.
or the application of Monte Carlo simulation using a
probability distribution of risk. Although VfM appears to be a useful tool to lead the PPP
4. Retained risks are those risks that the public partner decision process, there are several criticisms of the VfM
will retain. The present value of retained risks will also process. The most significant is that the PSC is a hypotheti-
be added to the cost of the private bids to reflect the cal case entirely dependent on the experience of the person(s)
true cost of the PPP options. conducting the calculation. Inaccurate or erroneous estimates
of cost and/or risk may seriously impair the PSC (Bloomfield
The four components are summed and compared with the 2006). Furthermore, the PSC is estimated using numerous
combined cost of the private bids and the cost of the public’s assumptions and projections well into the future, adding a
retained risks, as shown in Figure 1. high degree of uncertainty (GAO 2000b).

21
FIGURE 1 PSC and value for money comparison. Source: Grimsey and Lewis (2005).
Selection and Use of Assumption in PPP Valuation lower discount rate for the public monetization scenario was
equivalent to the Pennsylvania Turnpike Commission’s (PTC)
The concern about selection and use of assumptions is true borrowing cost of 4.5%, whereas the discount rate of a pri-
for other valuation tools as well, such as those used to deter- vate lease was estimated at 7.75%. The PTC discount rate
mine the value of an existing asset for potential brownfield was based on the yield of PTC’s AA/Aa3 debt in today’s
concessions. The NW Financial Group conducted a review market, and assumed that the state would pursue to public
of both long-term lease agreements for the Chicago Skyway monetization as proposed in Act 44, which includes raising
and the Indiana Toll Road, concluding that the public sector tolls on the Turnpike and adding tolls on I-80 (contingent to
could have generated as much revenue as the private sector federal approval). The higher discount rate for the private
(Buxbaum and Ortiz 2007; Enright 2007). The analyses for monetization scenario was estimated based on the weighted
both projects included key assumptions, such as periodic toll average cost of capital, assuming 6.65% for private borrow-
increases, that are uncommon and politically difficult under ing costs (for Baa rated corporate bonds), a cost of equity of
public ownership. Similarly, a Pennsylvania Turnpike valu- 12.5%, and assuming an equity/debt ratio of 19% to 81%
ation (Foote et al. 2008) showed that public monetization (based on the Indiana Toll Road concession equity/debt ratios).
would provide the best value ($26.4 billion for Act 44 com- A critique to the Foote et al. analysis (Poole and Samuel 2008)
pared with $14.8 billion for a 50-year asset lease), assuming suggested that the PTC discount rate should have been raised
that tolls are applied on I-80, which is an assumption that to account for risk, owing to the uncertainty of adding tolls
carries a very high risk. Later, a private offer for the Penn- on I-80. Grout (2003) recounts a decades-long controversy
sylvania Turnpike actually yielded $12.8 billion for a over this issue, and concludes that there are powerful argu-
75-year lease, which is about $2.0 billion less than Foote et ments for using a higher discount rate for the PPP delivery
al. estimates, for a longer lease term, which might be the mechanism.
result of current market conditions.
Valuation After PPP Contract Award

Discount Rate for PPP Valuation
Observers maintain that VfM analysis should be assessed even
There are highly contentious arguments among critics over after the contract is awarded so that prices and risks may be
using a higher or lower discount rate for the PPP. A recent readjusted as necessary to maintain VfM. However, it may be
analysis of the procurement options for the Pennsylvania impossible to compare the actual costs of the project with the
Turnpike monetization (Foote et al. 2008) used different dis- original PSC as the PSC quickly becomes obsolete; the origi-
count rates, further supporting this argument by applying nal PSC is only valid before the PPP implementation (Edwards
lower discount rates to the public monetization scenario. The 2004; Stambrook 2005). Presumably this comparison cannot

22
be achieved because the original PSC would represent some credit crunch that is causing interest rates to increase, along
ideal conditions that could have changed if the public sector with increases in the cost of bond insurance (although the
implemented the project, and the actual PPP costs represent latter affects both public and private debt). Foote’s evalua-
real conditions. Furthermore, the value of the PPP will con- tion concluded that because of the higher borrowing costs of
tinue to change over time, and the actual value will be realized the private monetization, toll rates under Act 44 (i.e., public
when the lease period expires, which, in the case of recent monetization through the existing Turnpike Commission)
PPP projects in the United States, will occur many decades were estimated at 71.5% the private toll rate. However, the
from today. use of public debt to support transportation infrastructure
may be restricted by a state’s or toll authority’s debt capacity
and statutory debt limits, and the unwillingness on the part of
Life-Cycle Costs decision makers to regularly raise tolls to meet debt require-
ments (Buxbaum and Ortiz 2007). In addition, some financial
As noted by Buxbaum and Ortiz (2007), future expansion experts indicated that some tax benefits available to private
and/or extensions, or other major capital improvements investors (e.g., interest deductions and accelerated deprecia-
throughout the lease period, must be identified and the respon- tion) can help bridge the gap between tax-exempt and private
sibilities for such investments should be defined in the con- debt (Florian et al. 2007). Furthermore, these federal tax pro-
cession agreement and included in the valuation process. The visions, combined with availability of other finance tools
use of life-cycle cost analysis that includes the costs of initial (e.g., Private Activity Bonds and TIFIA), may substantially
construction, operations, maintenance, and other costs antici- reduce the cost difference between private and public debt
pated during the life of a project has been encouraged by orga-
(Goldman Sachs 2008).
nizations such as the ASCE. The use of life-cycle cost analysis
may lead to higher project costs in the short term, but may
The financing package for some PPP projects included the
lead to long-term savings in O&M (Lehman 2007). In addi-
use of tax-exempt debt, such as debt issued by 63-20 corpo-
tion, for PPP projects that either include transfer O&M over a
rations in the 1990s (e.g., Pocahontas Parkway) and, in more
period of time or have warranty requirements, the private sec-
recent deals, the use of TIFIA and/or private activity bonds
tor is provided incentives to provide a higher quality of design
for toll road projects (e.g., I-495 Capital Beltway HOT
and construction (Grout 2005) to minimize O&M costs.
lanes). GAO (2004) estimated federal foregone tax revenues
of between $25 and $35 million in 2003 from outstanding
debt for the Pocahontas Parkway, Southern Connector, and
Additional Costs of PPP
Las Vegas Monorail projects.
The use of PPP for transportation infrastructure brings some
additional costs compared with traditional procurement (GAO The last three items on the list are related to the additional
2008). The valuation and decision-making process to pursue a procurement and performance monitoring costs incurred by
PPP should account for these to estimate the real costs of PPPs. the public sector when deciding to have a PPP program. For
These additional costs include: example, unsolicited proposals require the state to devote
time and resources for review (Buxbaum and Ortiz 2007).
• Higher cost of borrowing (for private debt), although Although some PPP legislation allows states to charge a pro-
there are ways that the private sector can lower this, for posal fee, it may be insufficient to cover the actual costs of
example, with private activity bonds; reviewing the proposal. Having a PPP program also requires
• Foregone tax revenue, when tax-exempt debt is used, the state DOT to either develop in-house expertise to evalu-
although this is revenue that may not have materialized ate and execute these deals or contract with legal and finan-
in any case; cial experts, both resulting in additional costs to the agency,
• Cost of reviewing unsolicited proposals; compared with the status quo (i.e., using only traditional pro-
• Cost of contracting financial and legal advisors, and/or curement). Beyond procurement, the agency will also incur
developing PPP expertise in-house; and monitoring costs, especially if the contract specifies perfor-
• Cost of performance monitoring. mance measures to be met by the concessionaire.
The first two items are related to the financing of the PPP
project. The borrowing costs of private debt are higher Opinion/Comment from “Other Individuals/Interest
than public tax-exempt debt; therefore, those higher costs Groups” Survey:
are passed onto the public, either through a lower up-front
[If deciding to pursue a PPP] “It must be clearly estab-
payment (compared with the public sector issuing debt to
lished that the same up-front borrowing could not be
raise money) or through higher toll rates than under public done more cheaply by public entities. The public should
ownership—assuming tolls are part of the finance plan not pay a premium for higher private borrowing costs,
(Baxandall 2007). And, as discussed by Foote et al. on their oversight costs for monitoring private entities, and share-
Pennsylvania Turnpike monetization analysis, the cost of holder profits.”
borrowing is expected to rise in the near term, with the current

23
Bonding, Bonding Capacity, Letters of Credit, formance warranties. Under the former, the contractor is
and Initial Construction Warranties responsible only for defects caused by poor materials and
workmanship. Under the latter, the contractor is responsi-
Bonding Capacity of Contractors ble for the facility meeting certain agreed upon performance
thresholds over an agreed upon period of time irrespective of
Many PPP projects are of such a size (more than $100 mil-
lion) that small contractors may have difficulty obtaining whether materials and workmanship meet initial require-
financing. And, even if a smaller contractor had the financing ments (U.S.DOT 2004).
capacity, the level of financial risk would negatively affect its
bonding capacity. Performance bonding is an important ele- Warranties may have a higher initial cost because con-
ment to a PPP, as it provides the public sector some assur- tractors may increase their initial bids to include contin-
ance that a project will get completed if the concessionaire gency funds for correcting problems during the warranty
has financial difficulty. period. However, warranties may result in lower life-cycle
costs than those of traditionally contracted projects because
In its Report to Congress on Public-Private Partnerships there is an improvement in the quality of the initial project
(2004), U.S.DOT identified bonding capacity and warranty (U.S.DOT 2004). The Wisconsin DOT explored the rela-
requirements as potential impediments to small businesses tionship between quality and whether or not the project had
competing for PPP projects. This concern was echoed at a a warranty, and found that warranted pavements performed
House Committee on Transportation and Infrastructure significantly better. The Wisconsin DOT study indicates the
hearing on innovative contracting (April 2007) by various warranted pavements are performing better than similar non-
industry representatives. According to Thomas (2007), few warranted pavements based on the measured International
sureties are willing to accept risk exceeding $250 million Rough Index and Performance Distress Index (Carpenter
under any given bond. This situation is further affected by the et al. 2003).
requirement for extended warranties in many of these PPP
projects. Warranties require larger bonds, driving project However, despite the performance advantages of war-
costs up, limiting participation as prime contractors of small ranties, some state transportation agencies cite the additional
and mid-sized companies. However, these companies can resources and expertise required to specifying them as a
and do still participate as subcontractors. disadvantage. As mentioned earlier, the warranties require-
ment may preclude smaller contractors from competing
In contrast, an FHWA representative stated in his testimony against larger firms that have the financial capacity to acquire
that, in the case of design-build, the higher bond requirements, large bonds that support the warranty requirement. Also,
among other factors, do not appear to affect small businesses some contractors are reluctant to enter into warranty agree-
participation (Ray 2007). In his written testimony, Ray indi- ments owing to the increased liability and risk (Carpenter
cated that data on design-build contracting show that “the per- et al. 2003).
centage of design-build project costs going to small businesses
is almost the same, on average, as the amount under the tra- Initial construction warranties (along with maintenance
ditional design-bid-build” contracting. standard) were considered as an important concern by all
respondents in our state DOT survey, with almost three-
A related concern is that states need to verify that their quarters of the U.S. respondents considering it as “very
performance and payment bond statues allow flexibility that important.”
the private sector can respond to, because the amount and
term of typical state statute bonds are not available in the Examples of warranties in practice are Virginia’s State
marketplace. Route 288 and New Mexico’s US Highway 550 (former
SR-44). For Virginia’s State Route 288, a design-build-
Warranties warranty approach, was chosen for the construction of
10.5 miles of new highway, expansion of 7 miles of exist-
Warranties have been used for years in a wide variety of con- ing highway, construction of six new interchanges, modifi-
sumer products to protect consumers from inferior workman- cation of two interchanges, and construction of 23 bridges
ship. Historically, however, state DOTs have not used war- along the roadway to finish the road quickly and with min-
ranties for road construction but have internalized the risk of imal delays. The project is thought to have been completed
poor workmanship. Warranty clauses in PPP agreements guar- 3.5 years earlier than if a traditional DBB approach was used
antee that a roadway will meet a certain level of quality or else (U.S.DOT 2004). The state saved $47 million in construction
repairs will be made at the private contractor’s expense. The costs, and the project was completed seven months ahead
intent is to create incentives for the contractor to deliver a high of schedule.
quality product to reduce future maintenance and repair costs.
New Mexico’s construction of US Highway 550 encom-
Two types of warranties are used in highway construc- passed an innovative warranty concept. In 1998, the state
tion: (1) materials and workmanship warranties and (2) per- entered an agreement with a private partner to design, manage

24
construction, and provide innovative warranties for the Both the Regional Plan Association of New York, New
118-mile highway segment. The warranties expire based Jersey, and Connecticut (Regional Plan Association 2007) and
on time (20 years for pavement, 10 for structures), money the U.S. Public Interest Research Group released position
($110 million for pavement, $4 million for structures), or papers highlighting the importance of transparency as vari-
equivalent single axle loads (ESALs) ($4 million for pave- ous states (including New Jersey, Pennsylvania, and Texas)
ment, $2 million for structures), whichever comes first. An unveiled their intentions to pursue long-term concessions on
ESAL is defined by the FHWA as “the damage per pass to existing and new toll facilities. The RPA (2007) suggests full
a pavement caused by a specific axle load relative to the disclosure of:
damage per pass of a standard 18,000 pound axle load mov-
ing on the same pavement.” The warranties cost $60 mil- • Current and proposed contract standards,
lion for pavement and $2 million for structures, essentially • Toll policy under PPP,
leaving the private partner with a maximum monetary risk • Revenue losses related to tolls used for other invest-
of $50 million for pavement and $2 million for structures ments,
(from the total monetary value of $114 million of the war- • Noncompete clauses or potential limitations to expan-
ranty). New Mexico DOT has been independently verify- sion of other transportation infrastructure, and
ing ESAL calculations provided by the private contractor. • Transaction costs incurred by public sector.
Accurate calculation of current ESALs and projection of
future ESALs is important because over-calculation could RPA further suggests that adequate opportunities for pub-
result in early termination of the warranties, and much of lic input and legislative review are needed. Baxandall (2007)
the expensive maintenance work is expected to take place proposed that contract documentation should be available for
towards the end of the contract. Findings of a recent report public scrutiny at least six month before a deal is signed, and
indicate that whereas expected ESALs in the early part of that legislators should have a vote on the final terms of a PPP
the contract were overestimated, the growth rate of ESALs deal. However, private parties may not be able or willing to
was underestimated. However, recent data suggest growth hold their financial offers for such extended periods of time,
in ESALs appears to slowing down (McClure et al. 2008). and the political risk that this would entail could discourage
Yet, if the higher growth experienced over the first few private entities from submitting proposals.
years is sustained, the date of warranty expiration might be
accelerated, requiring the New Mexico DOT to incur pave-
ment maintenance expenditures toward the later years of
the infrastructure life cycle. Opinion/Comment from “Other Individuals/Interest
Groups” Survey:
Balance needs for temporary confidentiality with full dis-
TRANSPARENCY closure of selection criteria, scoring, and concession agree-
ment details.
PPP agreements are complicated, and there have been criti-
cisms over deals being rushed through without the public or
their elected officials understanding the implications. The
In our survey of state DOTs, only one state considered
following sections address issues related to public participa-
transparency as a “not important” concern, and this state has
tion in general, and involvement of the legislative branches
not considered or used PPPs to deliver highway projects.
of state government.
Approximately 30% of the interested parties survey respon-
dents mentioned transparency as one of the main concerns
related to and a factor to consider by decision makers on
Transparency and Public Participation
PPPs. When asked about measures used to protect the public
The lack of transparency in the PPP process has been voiced interests, only one state (of 26 respondents) indicated that
as one of the main concerns throughout the literature review, public access to information related to a PPP proposal was
not important, whereas six states indicated this measure to be
including the newspapers and media reports, and it is men-
not applicable in their PPP process.
tioned as an important issue by both supporters and opponents
of PPPs. Buxbaum and Ortiz (2007) noted that transparency
in the PPP process is key for public support of long-term con-
cession agreements. The Chicago Skyway and the Indiana Opinion/Comment from “Other Individuals/Interest
Toll Road concessions are particularly noted as examples in Groups” Survey:
which transparency was lacking from the public perspective The private entity needs to be held to the same standard
(as reported through the news media), even though public of access to documents and information as a state DOT
officials involved in these deals believed the process to be would be and implement full, effective public engagement
transparent and both transactions were subject to legislative methods.
review and approval of final terms.

25
A PPP delivery system is characterized by a multistage practice was actually the cause of a transparency issue in
process for contractor’s selection (expressions of interest, con- the case of The Canada Line. Siemiatycki (2007) reviews
tractors’ qualifications, proposals, and best offer and nego- the confidentiality maintained during the tendering process
tiation), a multi-criteria evaluation process for contractor’s of the extension of Vancouver’s urban rail system by obtain-
submissions for each stage, and an agreement that generally ing original technical, financial, and planning documents
covers all project phases of design, construction, and oper- after bidding had ended. Using standards developed by the
ation (Abdel-Aziz 2007). Because this method seeks more Australian National Audit Office (2001), he found that the
innovation from private partners, those partners have more tendering process followed, and in some case exceeded, best
intellectual property to protect, and thus transparency is practices for maintaining confidentiality. These practices
necessarily lessened. included withholding select technical and financial infor-
mation from public scrutiny during the competitive tender
Although public scrutiny of decision-making is impor- process, releasing entire evaluation reports at the conclusion
tant to accountability of government spending, all rationales of the procurement process, and commissioning a series of
for maintaining confidentiality during the proposal process independent reviews from consultants and a former Auditory
relate to ensuring a competitive tendering process that pro- General of British Columbia.
vides private bidders with incentives to deliver innovative
designs for the lowest possible cost (Siemiatycki 2007). In Siemiatycki concludes that despite these attempts at
the USC study, Buxbaum and Ortiz (2007) suggested that transparency, resulting public and elected public official dis-
the public sector should be clear and up front about what type satisfaction with one of the chosen implementation methods
of information should remain confidential and provide an could have been alleviated by: (1) appointing an independent
explanation as to why confidentiality is necessary during the information commissioner to hear cases for and against dis-
proposal process. Confidential information, however, could seminating information to the public, (2) sharing all infor-
be kept at a minimum to ensure public support. A balance mation with elected officials so that they may better decide
between temporary confidentiality and full disclosure of selec- whether to approve or reject a project, and (3) requiring a
tion criteria, scoring and agreements was proposed in our government auditor general to certify that each summary
interested parties’ survey as a mitigation measure to the report released throughout the project procurement repre-
concern of transparency. It should be noted that final awards sents the full range of issues contained within the full length
and contracts between the public and private sectors are sub- document.
ject to the state freedom of information acts. Both Victoria,
Australia, and British Columbia, Canada, have developed Jeffers et al. (2006) similarly recommend that an indepen-
public disclosure policies that are aimed at achieving trans- dent process auditor ensure that all necessary legal, account-
parency in procuring PPP projects. The guidance developed ing, business plan, and policy issues are addressed from the
by Partnerships British Columbia on public disclosure (2007) development of a PPP proposal through the final bid accep-
includes guidance on the level of disclosure by milestone of tance. Furthermore, states need to develop in-house capabili-
the PPP process. ties to negotiate with, and oversee the operations of, private
sector partners (Jeffers et al. 2006; Oberstar and DeFazio
Best practices have been developed to promote trans- 2007). Non-in-house auditors and consultants may potentially
parency in the PPP procurement process (Australian National have clients on both sides of an agreement and therefore may
Audit Office 2001). The International Technology Scanning have conflicts of interest.
report issued by Jeffers et al. (2006) similarly notes the impor-
tant role auditors play in the procurement of PPP projects. The The complexity of a PPP can make it easy to hide true
scanning team’s recommendations include: costs and benefits related to a project from the public
(Bloomfield 2006). One of the true ‘innovations’ brought
• Implementing the use of a process auditor position for on by lease–purchase agreements is that payments made to
each PPP project; the contractor are treated as operating expenses rather than
• Conducting audits throughout the project life cycle, not capital expenditures. Thus, the public sector can enter into
just of the end construction costs; long-term leases without obtaining voter approval, maintain
• Involving internal audit staff and financial experts early compliance with statutory debt limits, and avoid reporting
in the tendering process to improve the quality of high- long-term lease obligations as debts. These “off-budget” or
way project Request for Proposal (RFP); and “off-balance-sheet” financing methods avoid restrictions on
• Specifying outcomes desired and allowing contractors debt, but do not avoid debt itself. Bloomfield recounts an
the opportunity to determine the detailed specifications example in Plymouth County, Massachusetts, in which
to construct, maintain, or operate the project based on misleading language suggested to the public that a private
the outcome specifics. investor was paying for a new correctional facility, whereas
tax payers were required to pay the entire project cost. Exam-
Although specifying outcomes rather than outputs is a ples such as this underscore the need for government to make
major driver of the innovation found in a PPP, this best the PPP process as transparent as possible to the public.

26
The Virginia DOT has developed a process to review PPP demanded that the administration make the study public,
submission that incorporates transparency and public par- even resorting to court action, after being denied access to the
ticipation. PPP proposals are reviewed by an Independent report. The governor released his plan during his State of the
Review Panel that is comprised of members from various State address in January 2008, and in an effort to gain sup-
stakeholder groups. Furthermore, proposals are distributed to port, the administration held public meetings in each county
affected jurisdictions, and these are provided with a 60 day to present the plan.
period to review and submit comments.
Almost 60% of the respondents (26 states) in our state
Transparency is not limited to the procurement process, DOT survey consider the lack of opportunities for public
and it is important that it remain beyond the procurement input as a “very important” concern. Only 7% (three states)
process, particularly when revenue sharing provisions are considered this issue to be “not important,” all three of which
included in the PPP agreements (Samuel 2005). The public are not considering highway PPPs.
should have access to annual traffic and revenue information,
audited financial statements, and other documents used to As mentioned earlier, several respondents of our inter-
determine the toll revenue returned to the public sector. The ested parties’ survey included transparency as one of the
concession agreements for Chicago Skyway, Indiana Toll main concerns and factors to consider in a PPP, citing items
Road, and SR 125 in California mandate public disclosure of such as public access to concession documents, applying
annual finances and performance (Replogle 2007). the same standards of public disclosure in the public sector
to private entities in a PPP, delineation/limitations of what
is proprietary information and what is not in the contract,
Public Participation and public oversight at all stages (i.e., from procurement,
throughout construction, and operations of facility).
Any transportation planning exercise involves public partici-
pation to varying degrees. PPPs are new, and there are so According to the recent GAO report on long-term conces-
many misconceptions about how they really work. Therefore, sions (GAO 2000b), both Victoria and New South Wales, in
public participation in PPP projects is even more important. Australia, require transparency in their PPP process, by keep-
ing the public informed, as laid out in the public interest cri-
The decisions surrounding the long-term lease of the Indi- teria shown previously in Table 4.
ana Toll Road to a private concessionaire was the subject of
intense debate and controversy both during and after the
Adequacy of Legislative Branch Review
actual transaction. There are conflicting accounts on how
well the public was kept informed about the facts of the trans- The use of PPPs for transportation requires enabling legisla-
action. Some legislature members complained that the deal tion allowing the public sector to enter into agreements with
was done in “secrecy” (GAO 2000b). That the Daniels admin- the private sector to provide transportation infrastructure.
istration held hearings after formally announcing the lease According to FHWA’s PPP website, 23 states and Puerto
was also a subject of legislative criticism (Replogle 2007). Rico have enabling legislation for PPPs. Some states’ legis-
On the other hand, staff from the Indiana DOT and the Indi- lation only provides authority to implement specific projects
ana Finance Authority who were interviewed for the USC contained in legislation. For instance, legislation in Indiana
study (Buxbaum and Ortiz 2007) indicated that legislative specifically approved the Indiana Toll Road concession,
hearings were held between January and March 2006, as part and future PPPs in this state will require further legislative
of the process to create enabling legislation for the Indiana approval. Design-build has been used more extensively, with
Toll Road concession, and these hearings were open to the 30 of the 44 states in our survey having used this PPP option,
public. After PPP legislation approving the deal was enacted, and 36 states indicating that they have considered design-
additional hearings were conducted in Indianapolis and in the build. Individual PPP proposals must be approved by the leg-
area where the toll road is located. islature in Alaska, California, Delaware, Florida, Indiana,
Louisiana, Tennessee, and Washington State—about one-
The perception of a lack of transparency has plagued other third of the states that have PPP-enabling legislation. In some
recent PPP deals, (e.g., the SH-130 in Texas), but after the of these states, projects are limited by a specified number of
public backlash, some PPP proponents and decision makers greenfield projects (e.g., Alaska, California, and Tennessee),
took notice and are making an effort to communicate and whereas others only require legislative approval for brown-
involve the public in the process. In New Jersey, the gover- field concessions (i.e., Florida).
nor began to explore the feasibility of leasing public assets,
including toll roads, eventually moving to pursue an asset Over the last two years, a few high-profile long-term con-
monetization through the creation of a public corporation. cession agreements intensified the debate of PPPs in general,
The study conducted to develop the asset monetization plan and raised concerns about the extent to which the legisla-
was kept “under wraps” for several months, and legislators tive branches of government have an opportunity to review,

27
understand, and influence PPP deals. Several events of 2007 Because toll roads were developed and operated almost
demonstrate that state legislators are concerned about the exclusively by government and quasi-government toll author-
speed and transparency of long-term concession contracts: ities for the last century, non-U.S. companies are now best
positioned to finance and operate private toll roads in the United
• The Texas legislature imposed a two-year moratorium States (Gilroy 2007). For example, Spain has a long history
on PPPs and directed the Texas Transportation Com- of toll concessions, with enabling legislation dating back to
mission to accept a new bid from North Texas Tollway the 1950s, and Spanish companies have a strong presence
Authority for the construction of SH-121, which had in toll road concessions in other countries (Izquierdo and
been originally awarded to a private consortium; Vasallo 2004). Cintra, a Spanish concessionaire, is an equity
• In Pennsylvania, the legislature moved to enact Act 44 partner in the Chicago Skyway, Indiana Toll Road, Trans Texas
to allow a “public-public” partnership between the Corridor 35, and SH-130 in Texas, and also led the consortium
Pennsylvania DOT and the Pennsylvania Turnpike for the Highway 407 Express Toll Route (ETR) in Toronto,
Authority, after the governor had issued a request for Canada.
“expressions of interest” for the potential lease of the
Pennsylvania Turnpike; Another reason foreign companies have flocked to the
• New Jersey legislators filed a lawsuit against the United States is that they are attracted by the stability of the
Corzine administration to make public a feasibility U.S. government and its legal system that enforces contracts
study on the “monetization” of existing toll roads in the (Buxbaum and Ortiz 2007). Private investors are hesitant to
state; and participate when the public partner has poor credit quality or
• The House Transportation and Infrastructure Commit- political, legal, economic, and commercial circumstances
tee held hearings on PPP topics, including protecting that are unstable (Zhang 2005). As the United States mar-
the public interest, and Congressmen Oberstar and ket has matured, joint ventures between U.S. and non-U.S.
DeFazio issued a letter cautioning states entering into companies (e.g., Fluor/Transurban, Zachry/Cintra, Kiewit/
PPP agreements for transportation infrastructure. Macquarie, and JP Morgan/Cintra), and U.S. financial insti-
tutions have created multi-billion-dollar infrastructure invest-
In contrast to these legislative reactions, our “state DOT” ment funds (Samuel 2007).
survey found that a significant number of the respondents
(18%) considered the concern of lack of time for legislative Despite increased United States participation in conces-
review or no legislative branch review as “not important” sions, other concerns remain, particularly related to whether
when compared with other PPP concerns from the survey. local contractors and smaller firms will have an opportunity
On the other hand, a respondent of the interested parties’ sur- to participate. The question is whether a private concession-
vey, who represented an interest group that advocates for aire will use local contractors for construction work and/or
have open bids for other tasks that might be contracted out,
public interests, proposed that legislatures should not only
similar to current public sector practice. In Indiana, con-
provide enabling legislation for PPPs, but also approve final
struction unions were demanding that the concessionaire
concession agreements.
sign a labor agreement to give 95% of the contracted work to
trade unions, based on their estimated share of contracts
Perceptions of Foreign Control of Domestic before the Indiana Toll Road lease (“Unions Want Indiana
Assets and the Role of Local Contractors Toll Road Jobs” 2007). The concessionaire indicated that
no such deal would be signed. The concession agreement,
Concerns of foreign control of public assets are based on the however, requires that at least 90% of the concessionaire
impression that allowing a foreign firm to control our expenses be awarded to companies in Indiana, and it also
nation’s roadways may lead to national security and/or trade sets goals for minority business enterprise and women busi-
agreement issues. This concern has two potential compo- ness enterprise participation (“ITR Concession Company
nents: foreign government control versus foreign private firm Contracting Goals Are Being Met” 2007).
control. In PPPs, foreign control concerns are mostly related
to the latter, although the former could be a factor when dis- Organizations related to the construction industry, such as
agreements over PPPs may affect trade agreements with for- the National Asphalt Pavement Association, the Associated
eign governments. General Contractors of America, and the American Road &
Transportation Builders Association, have stated their sup-
Some commentators frown upon allowing foreign com- port for PPPs as one tool to pay for infrastructure, among
panies to operate, maintain, or control U.S. infrastructure other funding and financing options.
(Dobbs 2007). In Tennessee, for example, the senate passed
a bill (in March 2008) to limit contracting with foreign con- Foreign control of domestic assets was an important
cessionaires. This type of restriction, however, may violate concern for 75% of the state DOTs that were surveyed
bilateral trade agreements, such as those between the United (33 states). The Canadian respondents, however, were less
States and Australia. concerned, with 60% (three provinces) reporting that this

28
was not important. Of all the concerns evaluated in the sur- Agreements: Guidance for Municipalities” in 2003 to pro-
vey, this is one of few that received the highest response of vide general guidance and information on the subject. It
“not important.” should be noted that there may be trade principles and treaties
that bar discrimination against foreign investors, and such
On the other hand, the opportunity for local contractors discrimination could be quite disruptive to many sectors of
and consultants to participate in PPPs was considered an the economy.
important concern by most states, with only two negative
responses. The latter came from states that are not consid- An example of the potential conflict of trade agreements
ering PPPs. related to highway PPPs comes from the Highway 407 ETR
in Toronto, Canada. As part of the political campaign in
2003, the liberal party promised to reduce tolls on this pri-
National Security Concerns vately operated facility. The government brought the case to
court and arbitration several times, but the court always
After the events of September 11, 2001, the concern about ruled in favor of the concessionaire, who had contractual
national security and the call for protecting this country rights to set and increase toll rates. In addition, the dispute
has become one of the top priorities of the government. between the government and the concessionaire for 407 ETR
Some critics of PPPs have raised concerns about the for- escalated over time with several other issues, and included
eign origin of concessionaires and the possibility that this an attempt by the concessionaire to compel the Registrar of
may be a threat to national security. During the Indiana Motor Vehicles to deny vehicle plates and permits to drivers
Toll Road deal, opposition to the lease was fueled after with outstanding toll payments. Both parties reached a set-
public disclosure that the U.S. ports were operated by a tlement on all their issues in spring 2006. However, during
company owned by the government of Dubai (Buxbaum the dispute period, the government of Spain threatened to
and Ortiz 2007). Although there was no direct relation veto a trade agreement if the government of Ontario contin-
between these two deals, the latter served to strengthen and ued interfering with the 407 ETR concessionaire’s right to
raise additional concerns about leasing the toll road to for- control tolls (Redlin 2004; TollRoadNews, various articles).
eign investors. It should be noted that foreign investments
in highways that could affect national security are subject Of all our state DOT survey respondents (including U.S.
to review by the Committee on Foreign Investment in the DOTs and their Canadian counterparts), about 29% consid-
U.S., under the Foreign Investment and National Security ered trade agreement implications to be “not important,” all of
Act of 2007. which came from U.S. respondents. Over half of the respon-
dents considered this concern to be “somewhat important,”
The “non-DOT” survey brought up the national security including all five Canadian agencies.
concern as well by one respondent, specifically in defining what
entity will have final oversight and decision making on PPPs,
whether it is the public sector or the private concessionaire. The TERMS OF PUBLIC–PRIVATE
GAO (2000b) found that the federal government’s involvement PARTNERSHIP AGREEMENTS
with PPPs has been limited to projects that have used or will use
federal funding; however, some of these deals may have impli- Many of the public concerns related to PPPs are mainly
cations of national interest, such as interstate commerce or related to the loss of public control over the facility, and
national security. The GAO recommended a reexamination whether the contract clauses adequately protect the public
of federal programs that will include a definition of national interest. PPP agreements include hundreds of pages of con-
interests on PPP and how these interests can be protected. tract terms and standards that should be met by the conces-
sionaire, and are developed to best address risk and the
interests of both parties entering into the agreement. And,
International Trade Agreement Concerns as the public sector builds experience in PPPs, many of the
issues experienced in early PPP agreements become “legacies
PPPs can raise international free trade issues. According to a of the past” (Buxbaum and Ortiz 2007), which are reflected in
website maintained by Cornell University (http://government. the use of more “limited-compete” instead of “non-compete”
cce.cornell.edu/doc/reports/freetrade), state and local gov- clauses (see the section on Non-Compete and Other Unantic-
ernments are concerned about losing some of their authority ipated Event Provisions later in this chapter), or revenue shar-
because federal law preempts state and local law where there ing as opposed to a one-time up-front payment. Furthermore,
is a conflict. Furthermore, under free trade agreement regula- PPP agreements include performance requirements and/or
tions, foreign investors “have a right to bring nations into specifications that must be met by the concessionaire.
international arbitration to defend government measures that
affect their investments (property) negatively” (Gerbasi and
Warner, n.d.). Literature addressing this concern in particu- Asset Control and Ownership
lar was found from the Canadian Council for Public-Private
Partnerships. The Council, an organization that supports In a PPP, the facility remains under ownership of the public
PPPs, published the “Public-Private Partnerships and Trade sector; however, certain responsibilities are transferred to the

29
private partner, as specified by contract (Samuel 2005); these be a “very important” concern; however, a significant share
responsibilities revert back to the public sector once the con- of the respondents (18%; i.e., six states and three Canadian
tract expires. Regardless of this, however, there is a tendency provinces) still indicated that it is “not important.”
to equate a PPP with complete “privatization” (Samuel 2005;
Baxandall 2007), especially on very long-term deals. There The PPP debate, specifically related to long-term conces-
was a consensus among the states surveyed that asset control sions paid through tolls, is caught in the middle of a debate
is an important issue, with more than two-thirds of the states about tolling policy. In the past, most toll authorities acted on
surveyed rating it as “very important.” a toll policy (not necessarily explicit) of keeping tolls as low
as possible to meet debt obligations on a toll facility or sys-
The GAO and U.S. Public Interest Research Group reports tem of facilities. Toll increases were typically done as a last
on PPPs, and responses from our interested parties’ survey resort, and only after much agonizing public debate—similar
identified the concerns on asset control and ownership: to debates on transit rate increases. Unlocking the value of a
transportation asset actually means allowing toll rates to be
• Toll rate setting, where toll rate changes do not require set at market levels and/or permitting them to increase in
public sector approval. This includes annual increases accordance with inflation, and leveraging that future revenue
and maximum rates allowed by contract, and public stream into up-front cash. When tolling as a revenue source
sector inability to modify toll rates for transportation and PPPs as a project delivery mechanism are pursued at
network management. the same time, toll rate setting control appears to move from
• Non-compete clauses (such as those included in the the public sector, where elected officials are accountable, to
SR-91 in California concession agreement) that pre- private companies that are motivated by rates of return. Both
vented modifications to the leased asset or to competing the Chicago Skyway and Indiana Toll Road long-term con-
facilities, or limited-compete clauses that allow mod- cessions were done with the explicit purpose of increasing
ification and/or construction of competing facilities, the asset value of the project through taking rate setting con-
albeit at a cost. This could include implementation of trol away from politically motivated officials. The contract
regional or state transportation plans to accommodate terms for both of these agreements allows for toll increases
changes over time. well above increases that have generally been seen in the
• Some PPP agreements may create a “tax” on normal United States, and elected officials no longer have the ability
policy making, by including compensation clauses that to intervene in toll increases that are within the caps specified
require the public sector to pay the private partner for any in the contracts.
revenue losses as a result of transportation improvements
sponsored by the public sector.
• Safety and maintenance standards. Inability to guaran- Opinion/Comment from “Other Individuals/Interest
tee state-of-the-art safety and maintenance standards on Groups” Survey:
the leased facility. These can always be included in a
In light of the fact that we can’t just raise tolls, the P3 is the
contract, but represent an additional cost that will affect
next best answer.
the cost or valuation of the facility.
• Project oversight. Reduced ability to control various
aspects of transportation asset management, from con-
struction to maintenance and operations. Indeed, the concept of “unlocking the trapped asset value”
of transportation assets has been used as a key argument in
These asset control and ownership issues are major elements favor of PPPs (Gribbin 2006; Replogle and Funderburg
in the formulation of PPP contract terms and are discussed in 2006). By moving to PPPs, elected officials are removed
more detail in the subsequent sections. from the mix on individual toll rate setting decisions in
legally binding contracts (although they do approve the over-
Tolling Policy
all structure allowing for future increases). This added value
can then be used for a variety of public projects, in addition
Highway PPPs are paid for either with direct user fees (such to providing a profit for the private concessionaire.
as tolls), government payments (generally from taxes or
other general revenues), or both. Most government entities in Allowing toll rates to escalate does increase the value of
the United States are struggling with the ability to keep the the transportation asset, but this is a public policy decision
cost of developing, operating, and maintaining highway that arguably should be separate from the decision to pursue
infrastructure under control, and also find it difficult to raise PPPs (Buxbaum and Ortiz 2007). However, this is not clear
either general purpose taxes or motor fuel taxes. Recent sur- because the public sector has historically been unwilling or
veys have found that there is higher support for the “user unable to raise tolls, derailed by political debate or popular
pays” concept of tolling than for taxes (Zmud and Arce 2008). disquiet (European Commission 2003; Gilroy 2007). The
Overall, more than two-thirds of our DOT survey respon- Florida Legislature has attempted to reverse this trend by
dents considered the toll setting policies related to PPPs to passing a provision that requires annual toll rate indexing by

30
Consumer Price Index (CPI) no less than once every five reality, toll rate increases in the 407 ETR have exceeded the
years (Buxbaum and Ortiz 2007). growth rates established by contract. For instance, in 2008,
the rate for off-peak travel went from 16.8 cents/kilometer
Responsibility for setting tolls depends on the nature of to 18 cents/kilometer, a 7.1% increase. By December 2007,
the partnership. Long-term lease agreements, otherwise the rate of inflation in Canada, according to statistics from the
known as concession agreements, have received a great deal government of Canada was 2.4%. Therefore, the actual growth
of attention because they allow the concessionaire to set the rate over the last year was significantly higher than the growth
tolls. Public control of toll setting policies is established rate allowed by contract (e.g., 2.4% inflation + 2% = 4.4%),
within the contract and typically includes toll growth caps following a trend of excessive increases (compared with con-
that cannot be exceeded by the private concessionaire. PPP- tract specifications) for several years.
enabling legislation could include toll setting policy that has
been agreed on by decision makers, and with public input Toll Setting Is Not Always About Profit
(Buxbaum and Ortiz 2007).
User tolls are said to lessen social inequities related to who
Some suggest that the private sector cannot be trusted to pays and who benefits by charging drivers for the actual use
raise tolls because it will do so inordinately to maximize of highways, tunnels, or bridges. User charges normally
profits. The private sector will set tolls based on market are set to recover the cost of the road project and maintain the
factors, which will be highly correlated to the level of com- predetermined operating condition of that road and are high
petition from alternative facilities or modes (GAO 2000b); enough to allow for the private partner’s return on investment
therefore, if competition is limited, the private sector may set (Jeffers et al. 2006). Although user fees and congestion pric-
toll rates within the allowable maximum rates by contract, ing schemes are often favored by economists as a way to
and yet realize revenues that exceed the cost of the road and manage demand, Congressmen Oberstar and DeFazio (2007)
a reasonable rate of return. The concern is that besides goug- asserted that tolls are regressive because they charge drivers
ing users, the private sector may be taking money that could of all income levels the same amount and suggest that elec-
be going to the public agency. Some suggest that it is not tronic toll collection technology can reduce or eliminate tolls
always in the best interests of private partners to raise tolls by paid by low income drivers. The RPA (2007) suggests con-
the maximum allowable amount if it drives some users to sidering the effect to middle- and low-income groups when
alternative routes, thus eroding profits (Samuel 2007). developing the toll-increase schedules, such that these groups
are not disproportionately affected.
Careful contract negotiations can constrain maximum toll
increases. The recent National Surface Transportation Policy PPP legislation and/or concession agreements may in-
and Revenue Commission report recommended capping toll clude provisions setting toll rates lower than required to
rate increases at the level of the CPI, adjusted by produc- support financing; however, in exchange, the public sector
tivity. Tolls on the Indiana Toll Road are scheduled by the would provide funding or subsidies to attract private sector
Indiana legislature through June 2010. Thereafter, maximum participation. In Chile, the public sector establishes the
annual increases for all vehicles are capped at the greater maximum toll rate, and the evaluation of PPP proposals
of 2%, CPI, or per capita nominal growth in gross domestic takes into account the proposed toll rates, among other fac-
product (GDP). Tolls on the Chicago Skyway are scheduled tors (Izquierdo and Vasallo 2004). Similarly, some PPPs in
in the lease agreement until 2017, with maximum annual Australia have been awarded to bidders that propose oper-
increases capped at the greater of 2%, CPI, or per capita ating the facilities with the lowest toll (GAO 2000b). Six-
nominal GDP growth beyond 2017. Tolls on the Pocahon- teen of the states with PPP-enabling legislation already
tas Parkway in Richmond, Virginia, are specified until 2016, allow the combination of public sector funding with private
and annual increases are capped at the greater of 2.8%, CPI, funding on a PPP project (FHWA PPP enabling legislation
or per capita real GDP growth thereafter (Subcommittee on survey 2007).
Highways and Transit 2007a). Real GDP growth over the last
10 years has ranged between 0.8% and 4.5%, whereas CPI Shadow Tolls and Availability Payments
has fluctuated between 1.5% and 3.4%. The recent economic
forecast from the Congressional Budget Office (2008) esti- Direct user fees are not the only way that private concession-
mated long-term CPI growth at 2.2% and real GDP growth at aires can be compensated. With shadow tolls the govern-
2.3%. However, Replogle (2007) cautioned Congress against ment pays the private partner to operate and maintain the road
setting toll rate caps that may limit or impede the application based on throughput of vehicles on the highway, which means
of value pricing to maintain free flow operations, which is in that the private partner shares in the risk of how many people
line with environmental objectives. actually use the highway. In the case of availability pay-
ments, payments made to the private partner are directly
In the case of the 407 ETR in Ontario, Canada, the long- related to performance standards stated in the contract, and
term concession agreement specifies toll rate increasing at all demand risk is allocated to the government. Both options
inflation plus 2% over the first 15 years of the concession, provide incentives for the private operator to maintain the
and then increasing at the rate of inflation only thereafter. In facility to high standards. In the case of the shadow tolls, if

31
maintenance standards decline, fewer cars will use the road Private Sector Toll Setting and Diversion Impacts
and government payments will decline. However, with this
model, the private partner also assumes financial risks caused A private firm operating a single highway may not consider
by other declines in demand. the network effects of its road pricing. Its toll schedule may
be set up to maximize profits, but this can move traffic to
Both methods drive innovation and competitive costs other roads, costing municipal and state governments more
because they allow the private partner flexibility in design and in the long run as a result of increased local congestion and
approach. Instead of having to comply with materials stan- damage done by trucks to local roads (Regional Plan Associ-
dards used by the agency, performance-based specifications ation 2007). Also, given that the toll setting rights are trans-
focus on the outcome of the end product. Performance speci- ferred to the private sector, the public sector is restricted from
fications are established for each element of the asset and then controlling the effect of traffic diversions into public roads,
clearly defined as to the minimum acceptable performance and would not have the power to reduce tolls to restore “nor-
level and response time to fix deficiencies (Abdel-Aziz 2007). malcy” in other parts of the highway network. Past experi-
Availability payments/shadow toll agreements can also be ence shows that significant toll increases will divert traffic, as
designed to meet environmental objectives, by rewarding was the case in New Jersey and Ohio, where toll increases
greater mobility and reduced congestion, which minimize were eased because of significant truck traffic diversions into
emissions and fuel consumption (Replogle 2007). local routes.
Shadow tolls are widely used in Europe; however, there Several attempts have been made to quantitatively study
are indications of a move to more transparent methods of the relationships between toll increases and traffic diversion
direct user charges there. Private financing of roads and that might come about from PPP projects. Belzer and Swan
bridges paid with shadow tolls or availability payments does (2008) construct a regression model to demonstrate the diver-
not provide new revenue and does not create a relationship sion effects of private companies setting tolls based on profit
between who pays for the improvement and who gets the maximization policies. Using historic data along the Ohio
benefit (Jeffers et al. 2006). Shadow toll payments in Europe Turnpike, the research suggests the existence of toll rates
typically come from general funds. that would simultaneously maximize private profit and shift
a significant number of cars and trucks to alternate compet-
In British Columbia, Canada, the Golden Ears Bridge ing routes. Diversion to these competing routes, many of
will combine real tolls with availability payments. TransLink which are non-limited-access, could pose significant safety
(public partner) will collect toll revenues that will be used hazards and maintenance costs to the road system overall.
to compensate the DBFO concessionaire through avail- Although not necessarily questioning the wisdom of pricing,
ability payments that have been established by contract. the authors suggest allowing private operators to control
The Port of Miami Tunnel, a 35-year PPP agreement, will individual roads will erode system performance overall,
be financed through annual availability payments that will create economic inefficiencies (deadweight), and curtail inter-
be indexed annually for inflation. The availability payment state commerce.
will be reduced if the tunnel is not open to traffic or other
major performance measures are not met by the private oper- In Oklahoma, opposition to a toll bridge PPP led residents
ator. Although still in the negotiation process, the concession near the proposed location for the bridge to take the case to
was awarded to the private investors who offered the lowest court on the grounds that the public did not vote on the pro-
availability payment of $33 million (in 2007 dollars), com- posal and there were no open bids. One of the main concerns
pared with the public estimate of $55 million. of this group was that the surrounding infrastructure could
not handle potential traffic growth. The court struck down
As PPPs continue to evolve in the United States, availabil- the project, although not for these reasons, but because the
ity payments may become more common, as suggested by alignment for one of the bridge approaches fell outside the toll
more recent deals. The public sector retains the demand risk, authority jurisdiction (“Municipal Toll Roads Become Likely
and it requires additional performance monitoring that should Path” 2008).
be accounted for as an additional cost to the public sector.
States are aware and recognize the importance of this
concern, as expressed through the state DOT survey. All
respondents indicated that the impact of PPPs on the overall
Groups” Survey: transportation networks was important.
Our experience with availability payments has been
extremely positive . . . Emphasis could be given to institu- Non-Compete and Other Unanticipated
tionalizing the P3 process and providing the necessary Event Provisions
training to make P3 part of the everyday toolkit for project
implementation. PPP contracts typically provide protections of the future
revenue stream when tolls are the finance mechanism. In

32
addition, addressing other unanticipated events is also a competition zone, may be compensated for using a formula for
key element of any contract, including a PPP. any damage done to toll revenues.
Recent deals have included such limited-compete clauses.

Non-Compete Clauses For example:
Non-compete clauses limit improvements the public part- • The Pocahontas Parkway includes a 6 mile non-compete
ner can make to nearby facilities so that demand for the PPP zone, whereas the Indiana Toll Road agreement defines
facility is not eroded. A more appropriate name for such a 10 mile competition zone in which the state could pro-
clauses may often be “limited compete” if they do not ban vide compensation for projected loss revenues from
improvements outright, but contain negotiated provisions building a new four-lane limited access highway, but
for remedies. By limiting competition, the up-front value of can build anything else along the corridor (Buxbaum and
a concession would increase; therefore, this becomes a Ortiz 2007; Samuel 2007).
trade-off consideration for decision makers. • Denver’s Northwest Parkway concession agreement
requires the public authority to compensate the conces-
Non-compete clauses are often cited by PPP critics, who sionaire if road or transit projects not already planned
object to tying the hands of government to deliver needed are built in the corridor and cause a loss in revenue. If
transportation improvements, and most states in our state the authority cannot pay, the concessionaire may keep
DOT survey agreed that this is an important concern. The revenue sharing money, increase tolls beyond set limits,
most-cited example of the dangers of non-compete clauses in or extend the lease (“Northwest Parkway Set to Close in
the United States is California’s SR-91. In the non-compete October” 2007).
clause, the California DOT agreed not to make improve- • The concession agreement for the CityLink in Mel-
ments within one-and-a-half miles of the HOT lanes on bourne, Australia, allows for compensation if a new
SR-91 without consulting the private operator, California project takes away traffic from the facility, either
Private Transportation Company (CPTC). In 1999, when the through cash or contract extension. Transurban has
California DOT sought to add merging lanes to the existing filed a $36 million claim for the construction of the
free lanes for safety reasons, the CPTC objected. This objec- Wurundjeri Way, and is contemplating filing another
tion raised public opposition and ultimately led to a lawsuit claim if the government proceeds to build a new east–
seeking nullification of the non-compete clause. In 2003, the west toll tunnel (Millar 2007).
Orange County Transportation Authority purchased the toll
lanes from CPTC for $207.5 million and the non-compete The Chicago Skyway agreement is the exception in which
clause was eliminated (U.S.DOT 2004; Subcommittee on no “non-compete” clauses were included in the lease agree-
Highways and Transit, House Transportation and Infra- ment. However, the urban nature of the corridor makes it very
structure Committee 2007a). difficult and costly for the public sector to make capacity
improvements on parallel, competing facilities (Samuel 2005).
Other instances have been cited in Australia where the
public sector has been unable to improve toll-free routes Contract terms also regulate the roles of the public and pri-
owing to similar agreements. In 2006, one concessionaire vate sectors as a result of unanticipated events. For exam-
convinced the local government to close several competing ple, in Portugal, concessionaires are compensated for revenue
local roads to through traffic to force drivers to use the tolled losses owing to “force majeure” (Izquierdo and Vassallo 2004).
facilities, which were lagging traffic and revenue expecta-
tions (AECOM 2007a).
Use of Proceeds and Revenue Sharing
As a direct result of such cases, Congressmen Oberstar and
DeFazio (2007) suggested avoiding non-compete clauses alto- Several projects, including the Indiana Toll Road and the
gether. The 2005 federal SAFETEA-LU transportation law Chicago Skyway, yielded large up-front payments to govern-
Section 1604(c) bars states from including such non-compete ments by concessionaires in exchange for the right to operate
agreements for the Interstate System Construction Toll Pilot transportation facilities. Proceeds from the Chicago Skyway
Program (Regional Plan Association 2007). Samuel (2007) concession were largely spent on repaying debt, creating a
agrees that earlier approaches such as SR-91 were flawed, but trust fund, and funding public social initiatives. Proceeds
asserts that non-compete agreements are necessary in some sit- from the Indiana Toll Road were used to repay debt and fund
uations to protect private partners from unfair competition aris- the state’s ten year transportation plan (Subcommittee on
ing from government subsidies. Most recent agreements Highways and Transit, House Transportation and Infrastruc-
include “limited-compete” clauses, generally allowing public ture Committee 2007a). However, both deals have raised con-
partners to build everything in its current long-range trans- cerns regarding proper valuation of concession deals, the
portation plan. Future roadways a state might build that are not trade-offs between up-front and long-term payments, and
in its existing plan and that do fall within a narrowly defined who benefits and who pays (Baxandall 2007; Enright 2007).

33
The aforementioned concession deals transferred toll col- mechanisms to ensure that projects can be funded over the
lection and road operations for 75 to 99 years to the private life of the lease. By investing up-front or recurring revenues
sector. Although the money has been used to meet immedi- in capital projects, particularly from brownfield concessions,
ate financial needs, and the repayment of debt benefits the the public receives the benefit from other system improve-
government in the long term, the reality is that future gener- ments by monetizing the future revenue streams of an exist-
ations might be paying for benefits that were substantially ing facility. Replogle (2007) recommended that surplus
realized in the early years of the concession. On the other revenues (specifically in toll-managed lanes) be used for
hand, up-front payments could also be invested in capital transit and impact mitigation.
projects that may have a useful life beyond the term of the
deals and generate public benefits over the long term. PPP-enabling legislation in 12 states prohibits revenues
from being diverted to the state’s general fund or for unrelated
uses. According to our state DOT survey, most states (exclud-
Use of Proceeds ing five respondents) consider the use of up-front proceeds to
be an important concern. The Pennsylvania Turnpike valua-
Large up-front concession fees, typical of brownfield conces- tion analysis by Foote et al. (2008) raised the concern that
sions, are popular with politicians managing governments in under a PPP agreement, up-front revenues from leasing the
financial difficulties (Thornton 2007). They provide a bud- Turnpike might be redirected for non-transportation uses
getary windfall that can be spent flexibly on any public pur- (such as budget relief), because there are no constitutional or
pose, transportation or otherwise (Brown 2007). Besides statutory protections that could prevent such action, although
paying down debts and funding social programs, $500 mil- the reason for considering a long-term lease of this facility is
lion from the Chicago Skyway deal placed in a “rainy day” to provide much needed transportation funding. In Virginia,
fund is earning $25 million annually, as much as the city used any up-front payments are to be used in the project corridor.
to earn from operating the Skyway itself (Thornton 2007).
Applying proceeds in such ways can be seen as fiscally respon- The appropriate amount that up-front payments should be
sible ways of improving a city’s credit rating and risk assess- is also difficult to calculate. Assumptions regarding discount
ment. It is also possible to have the proceeds come as an rates, travel demand, or maintenance schedules may have a
annual rather than up-front payment. Although this appears profound impact on the value of the project. The value of the
to be an option, no specific examples were found through the facility is also driven by the length of concession, toll rates
literature review of PPP deals where the public sector is col- and toll increase assumptions, private equity, and risk. Some
lecting annual payments from a concessionaire. A policy brief commentators are concerned that the public sector may be
on greenfield PPPs from the Reason Foundation (Gilroy et al. achieving less value than it should for its capital infrastruc-
2007) indicated that this type of concession arrangement has ture (Baxandall 2007; Enright 2007).
been used in Europe.
For example, there are several instances in Europe of
Fitch Ratings, however, noted the need to match invest- private partners earning so-called “super profits”—profits
ment decisions made today with long-term sustainability of that grossly exceed the expected profits projected in the orig-
transportation. Fitch considers the choice of high up-front inal contract (Jeffers et al. 2006). Such profits can result from
payments a risk to the government’s fiscal position, as it unanticipated demand and windfalls from refinancing debt.
may limit its flexibility to meet future transportation needs. To remedy this, European countries and some Australian states
However, Fitch positively assesses deals that generate large generally include a clause in PPP contracts that requires shar-
up-front payments “if proceeds are invested in comparable ing of any refinancing profits that may otherwise provide
long-term assets that provide lasting economic benefits.” windfall profits for private partners. In the case of TIFIA
Conversely, it will view negatively “the use of proceeds for loans (a type of federal government subsidized loan), profits
short-term operating needs of the government” (Fitch Ratings from refinancing could be used to expand or complete the
2006; Checherita and Gifford 2008). project for which the loan was issued (Hedlund 2007).
However, revenue sharing related to refinancing may not be
The use of the proceeds is an important consideration, and appropriate in some contracts, because the value of the
most observers agree that it could be used for transportation; refinancing may have been included in the initial valuation
otherwise, government would be taxing future infrastructure analysis (GAO 2000b). In the case of the Chicago Skyway,
for general needs today. Buxbaum and Ortiz (2007) recom- equity was reduced after refinancing, but, according to an
mended that decision makers consider debt service, trans- investment banker involved in the deal, no refinancing gains
portation programs, and reserve funds as potential uses for were realized, because this had been assumed in the financial
concession proceeds, and that if revenues are used for non- offer to the city (GAO 2000b).
transportation uses, decision makers should make a case for
the relationship between the source and the uses of funds. In Profit can be difficult to measure, because this involves
addition, the study suggests that funding could be allocated delving into the detailed accounting practices of companies
to projects that benefit the users of the lease facility and find that may have many lines of business and/or a portfolio of toll

34
projects that they spread management expenses among. In paying customers, where tolls are involved. However, the
response, European PPP sponsors suggest structuring profit- public sector needs to be vigilant that the standards are being
sharing models based on revenue rather than profits because adhered to (Buxbaum and Ortiz 2007).
revenue is easier to monitor. They also suggest incorporating
contract clauses that allow for the review of the concession
contract clause every 7.5 years (Jeffers et al. 2006). Rebal- Hand-Back Provisions
ancing provisions, which bring the contract terms back into
the financial balance achieved in the original negotiation, are At the end of the concession, the O&M of the facility, along
currently used in Spain and Portugal (Izquierdo and Vasallo with the right to collect tolls (if any), reverts back to the
2004; Mayer 2007; GAO 2000b). public sector. It is in the public interest that the facility is
returned in good condition, preferably requiring none to
minimal public investment. The PPP contract terms could
Revenue Sharing specify the condition at which the facility must be returned
to the public, and may include penalties to the private sector
Revenue sharing usually comes at the cost of a lower up-front for not meeting these requirements.
payment. But, the public sector does benefit from future profit-
sharing revenue, which can offset the reduction in up-front
payment. A respondent in our interested parties’ survey rec-
ommended the provision of policy that allows for sharing of
Groups” Survey:
upside revenue on toll lease (particularly for “brownfield”),
and that such policy should be flexible enough that it can be Not clear whether the private lessor will exercise good
tailored for each individual project. Texas’s State Highway stewardship for the facility. When the lease is up, in what
condition will the facility be returned to the public?
130 and Virginia’s Pocahontas Parkway PPPs provide exam-
ples of revenue-sharing agreements. Both include tiered rev-
enue sharing that depend on the equity return and internal
rate of return of each of the projects, respectively (AECOM For example, hand-back requirements in the Port of Miami
2007b). However, given the high return thresholds, it is agreement include a hand-back reserve, which is built annually
unlikely the public partners will share significant revenues in the later years of the concession term. The hand-back reserve
under these agreements (Page 2008). is used to ensure that the facility is turned over to the Florida
DOT in top condition. Failure by the concessionaire to provide
annual deposits to the hand-back reserve will result in deduc-
tions to the annual availability payments (Clary 2008).
Groups” Survey:
The PPP agreement for the I-495 HOT lanes in Virginia
There should be strong consideration for policy provisions requires the concessionaire to provide a letter of credit or per-
that require the governmental entity to share in the upside formance bond that can be used by the Virginia DOT if the
revenue on the lease of toll roads. This should not be overly
hand-back requirements are not met. A PPP contract with
prescriptive, but give the flexibility needed for each state to
work within an overall policy and then apply this based on
heavy emphasis on performance standards for compensation
the specific situation. could also protect the public interest by ensuring that a specific
condition is maintained on the facility throughout the full con-
cession term. In the United Kingdom, the Highway Agency
retains 40% of the payments during the last five years of
Maintenance Standards and the concession, and disburses the payment to the concession-
Hand-Back Provisions aire once it determines that the facility has been returned to the
government in good condition (Izquierdo and Vassallo 2004).
Maintenance Standards
PPP contracts, especially those that transfer O&M for a Environmental Safeguards
period of time to the private sector, will have extensive terms
related to maintenance standards. The goal of the public sec- A PPP can potentially raise, but must not be permitted to
tor could be to ensure that the leased facility meets or exceeds lower, environmental standards for highway operation. In late
these standards, and that these standards are in line with the December 2006, the Sierra Club and other groups spoke out
public interest. In addition to these legally binding obliga- against a potential PPP in New Jersey because environmental
tions, the private partner will have other interests in keep- standards might not have been sufficiently met by the private
ing up with maintenance needs, because these provide the best sector. In that case the organization was concerned that the
long-term return on their investment—small maintenance operator would choose to use less expensive de-icing prod-
costs now can avoid larger repair bills later. Also, extreme ucts that damage the environment (Regional Plan Association
neglect will lead to the facility being less attractive to toll 2007). Other environmental considerations included the effect

35
of congestion and emissions on the environment. In his testi- final design nor construction can be initiated before the NEPA
mony to Congress in May 2007, Replogle, representing the process is complete. The rule also requires that the design-
Environmental Defense Fund, expressed support to PPPs and build contract should include provisions ensuring that all envi-
tolls, as long as these are used to better manage demand and ronmental and mitigation measures identified through the
promote alternative transportation modes and environmentally NEPA process will be implemented, and precludes the design-
sound behavior. Performance-based contracts that compensate builder from having any decision-making responsibilities in
the concessionaire for providing free-flow service and meet- the NEPA process and from preparing the document. The pro-
ing environmental goals, variable toll rates for traffic manage- visions in the final rule appear to address the aforementioned
ment, and the use of revenues to support public transportation concerns related to PPPs and the NEPA process.
are some of the strategies presented in his testimony.
Environmental risk is typically better managed by the pub-
PPP contracts can make environmental performance stan- lic sector (GAO 2000b), and as such the public sector typically
dards enforceable as part of the environmental approvals retains this risk in a PPP. In Texas, for example, concession-
process, as well as through incentive-based methods such aires are not involved in the environmental assessment process,
as performance bonds, funding set-asides, and enforceable which remain under the responsibility of the Texas DOT;
contingency measures (Regional Plan Association 2007). however, this is not always the case. The original investors
Other strategies used to address environmental issues in for the South Bay Expressway (SR-125) in the San Diego area
PPPs include: took on environmental risk and had to deal with an environ-
mental planning process that took many more years and
• Holding regular meetings with local community groups dollars than what the investors had anticipated, as discussed
during both construction and implementation phases to in the section on Roles of Public and private Sectors, Risk
identify and mitigate construction-related impacts and Allocation, and Rates of Return.
operational impacts once opened;
• Negotiating agreements with major opposition groups
Labor Relation Issues
and including environmental mitigation conditions in
the concession agreement, such as the use of noise- Labor relation issues are varied among PPP types. In a brown-
reducing asphalt; field concession, labor issues are related to displacement of
• Conducting comprehensive environmental studies before existing employees, ranging from engineers to administra-
plan development including extensive public outreach tive staff to road maintenance workers and others, including
and stakeholder communications; and toll operators. Displaced (or potentially displaced) workers
• Integrating environmental mitigation and improvement will have broad employment concerns including the contin-
mechanisms early in the preliminary design process uation of employment, wages, health insurance, pensions and
(AECOM 2007a). other benefits, working conditions, and, where applicable,
union representation. In a greenfield project these issues are
Oberstar and DeFazio (2007) warned that states should not related more to the private sector meeting prevailing wage
turn to privately financed projects to avoid meeting environ- requirements. PPPs have created significant labor issues in
mental requirements that come with federal funding. Most Canada, the United Kingdom, and other European countries,
states in our survey (98%) indicated that environmental safe- even though it could be argued that the PPP enabled more proj-
guards are very important in PPP contracting. Among other ects to be built, thereby increasing employment, especially in
requirements, federal funding forces states to comply with the construction industry. In the United States, construction
the National Environmental Policy Act (NEPA). In addition unions in Indiana demanded that the Indiana Toll Road’s
to federal requirements, many states have their own environ- new operator, ITR Concession Company (ITRCC), provide
mental laws and requirements that should be met for any proj- them 95% of the construction work on the facility. However,
ect. A respondent of the interested parties’ survey suggested ITRCC’s concession agreement does not require it to follow
that PPP agreements should not be approved until after the public notification and bidding rules.
completion of the NEPA process to ensure:
On the other hand, the concession agreement for the
• A full, fair, and open planning process for transportation Chicago Skyway, also owned by Cintra and Macquarie
projects; (owners of ITRCC), requires all contracts to contain prevail-
• Adequate consideration of all transportation alterna- ing wage language. All contractors are required to submit
tives; and certified pay vouchers corresponding to a particular job. Thus,
• Unbiased analysis of viable project alternatives and envi- the concessionaire can ensure its contractors are following
ronmental impacts. predetermined wages as set by the Illinois Department of Labor
(“Unions Want Indiana Toll Road Jobs” 2007). Nonetheless,
FHWA’s Design-Build rule was amended in 2007, allowing even with these protections, local and smaller engineering
states to release requests for proposals and award design- and design firms may be excluded from benefiting from
build contracts before the completion of NEPA, but neither the work generated by a large PPP project, because large

36
engineering firms can have the design work done in other Samuel (2007) suggests that workers who are paid reason-
offices throughout the country, without tapping local resources able labor-market wages and benefits are likely to be offered
(KCI Technologies 2005). work by a private toll company because they have valuable
skills and local knowledge. He also noted that government
Also at issue are the potential for less favorable terms of toll authorities are cutting back on staff themselves as elec-
employment in the private sector and the immediate reduction tronic toll collection reduces or eliminates toll booths. Private
in headcount for those employees who operate the facilities. sector groups agree that using local firms saves money and
To resolve these issues, labor protections have been incor- has the added benefit of existing relationships with the public
porated into some PPP agreements. Several countries have sector (KCI Technologies 2005).
legislation that specifically addresses the transfer of public
sector workers to the private sector with some or all of their Another labor issue relates to the increase in contracting
benefits (Subcommittee on Highways and Transit, House out of services that have been conducted in-house in the past,
Transportation and Infrastructure Committee 2007b). such as design and oversight of public works. The GAO
(2008a) found that the most important factor in a state DOT’s
On greenfield projects with federal funding, federal labor decision to contract out some of these services “is the need to
and contracting requirements (Davis–Bacon act) can address access the manpower and expertise to ensure the timely deliv-
this concern; many states also have “little Davis–Bacon” ery of their highway program”; cost savings is a secondary
laws that ensure the prevailing wage for projects. The New consideration. It reported that states protect the public interest
Jersey privatization legislation provides compensation for through prequalification of contractors and consultants, regu-
toll road workers (Samuel 2007), guaranteeing employment lar monitoring procedures, assessment of work performed,
to union employees for up to six years. However, omitting and standards and requirements for certain types of work.
such specifications from the PPP contract can permit private Nevertheless, it appears that state DOTs are still facing some
contractors to reduce staff levels or hire non-union employ- challenges in providing oversight, as they struggle to maintain
ees, reducing costs, increasing private profits, and increasing the required in-house expertise to address demand. This
the value of the project for the public sector. These benefits, concern was also mentioned in our interested parties’ survey,
however, may conflict with state labor policies, lead to public indicating that as more projects are contracted out, it becomes
disapproval, and could result in potential litigation (Regional more difficult for state DOTs to attract and retain talent.
Plan Association 2007).
In testimony to Congress in April 2007, the Professional
In the United States, recent PPP agreements have included Engineers in California Government (PECG), which represents
contract provisions that address some of the concerns related public employees, presented its position on PPPs. The PECG
to workforce protection in both long-term leases of new or recommends that all construction inspection be conducted by
existing toll roads. In the Chicago Skyway, the contract public employees, and that if the public agency is liable for a
required the concessionaire to employ all unionized employ- facility, then the public sector could design, construct, and
ees, and employees were given the option to move onto other inspect the facility. Furthermore, PECG indicated in the inter-
city jobs. Most of the employees (100 of 105) took other city ested parties’ survey that PPPs should require public oversight,
jobs, whereas the reminder chose to keep their jobs with the design, and inspection to ensure public safety and cost control.
Skyway (GAO 2000b). The legislation that will allow the The group claims that design-build has been unsuccessful in
lease of the Midway Airport in Chicago has a range of labor California, resulting in higher project costs. Other respondents
provisions that include requiring the concessionaire to pay in the interested parties’ survey brought similar concerns,
employees in line with the city of Chicago wages and bene- drawing specifically from the “Big Dig” experience in Boston.
fits (Illinois Public Act 094-0750). In Indiana, employees The Big Dig had cost overruns, delays, and several issues,
were guaranteed that pay and benefits would not be reduced including a fatal accident, owing to flawed construction.
if they took a job with the concessionaire. About 85% of the According to a labor union representative, oversight and
employees took jobs with private operator at the same or enforcement for this project was not properly conducted and
higher pay, whereas others stayed with the state (GAO 2000b). there was no demarcation between the public and private sec-
A newspaper report from November 2007 indicates, however, tor responsibilities, given that the relationship between both
that promised salary increases have not materialized for parties was “too cozy.” From the state DOT perspective, most
toll road collectors, prompting workers to become unionized states reported that labor relations are a “somewhat important”
(Potter 2007). The Texas’ SH-130 lease agreement requires concern; six states considered this a “not important” concern.
payment of prevailing wages to construction workers in accor-
dance with governing law and the concessionaire should meet Length of Agreement
goals for hiring minorities, women, and disadvantaged business
groups. The United Kingdom ensures workforce protection by Long agreement terms, such as the 99 years for the Chicago
requiring that new and transferred employees of concession- Skyway, 85 years for the Capital Beltway HOT Lanes, and
aires are offered “fair and reasonable” employment conditions 75 years for the Indiana Toll Road are a frequent criticism of
(GAO 2000b). PPPs, in particular for DBFO or long-term concessions. Our

37
state DOT survey confirms the importance of this concern. instead of the entire term of the lease (Subcommittee on
Some respondents of the interested parties’ survey suggested Highways and Transit, House Transportation and Infra-
concession terms of no longer than 30 to 35 years. A study structure Committee 2007a). This amounts to a government
by Virtuosity Consulting for the OECD and the European subsidy to the concessionaire that may significantly reduce
Commission of Ministries of Transport on successful exam- corporate taxes if the project proves profitable. Longer-
ples of PPPs concluded that the optimal concession length is term agreements thus allow the private partner to depreci-
between 30 and 35 years; a concession may be sub-optimal ate the asset in the most attractive manner possible and will
for taxpayers beyond that range (Stambrock 2005). be reflected in the amount the private partner is willing to
pay for the concession (Giglio 1997; Brown 2007).
The Chicago Skyway and Indiana leases specified long
terms to encourage larger up-front fees. While private opera- Termination and Buyouts
tors aim to maximize the length of concessions to safeguard
future cash flows, the European Commission (2003) aims to All PPP contracts could incorporate clear terms addressing
promote open competition and fair market access, reduce the termination, buyouts, and hand-back provisions, and define
possibility of monopolies, and ensure the public benefit. These the roles and responsibilities of both public and private part-
objectives would suggest shorter concession agreements. ners if such circumstances arise during the concession period.
It is up to the state and its legal advisors to include provisions
As the experience level has risen, European Union countries that protect the public interest.
have restricted the length of PPP contracts to 21 to 35 years.
(Jeffers et al. 2006). The shorter concession terms correspond The termination clause of a contract specifies how the PPP
with the accepted lengths of government bonds, commercial contractor will be compensated for work completed if the
mortgages, and reasonable risk assessments. In addition, sev- project or the contract agreement is terminated, depending on
eral countries include review and renegotiation of payments the reasons for termination, and any penalty clauses for early
every 7.5 years to prevent private partners from earning more termination by the sponsoring agency (AECOM 2007b). The
than could be earned through other investments given the same majority of the states responding to the survey agreed that
risk environment, so-called windfall profits. Some innova- these are “very important” concerns. Performance contracts
tive procurement methods propose short concession terms that commit the private partner to specific results are held to
(10–15 years), after which the state pays a residual value to be the key to successful risk allocation, and contractual per-
the concessionaire, recouping this payment through another formance guarantees and termination provisions are safe-
concession (Izquierdo and Vassallo 2004). guards that minimize the risk to the public of long-term
contracts (Bloomfield 2006).
Abdel-Aziz (2007) advises against legislating maximum
lengths of concession agreements, maintaining project time- In the case of bankruptcy, the public sector may step in and
lines could be decided on a project-by-project basis consid- take over operations of the facility, or contract with another
ering unique conditions, whole life-cycle cost, likely term of private entity (Hedlund 2007). It also could allow the conces-
senior debt, and financial structure. Public and private part- sionaire to increase tolls or provide funding to avoid default
ners, for example, may decide to end the concession once the (Stambrook 2005). In the case of the Indiana and Chicago
private debt is retired. A limit on the length of concessions; long-term lease deals, the lenders have the opportunity to
for example, the 35 years in California’s AB 680 or the 50 years “cure the default,” and they could take over the operation of
in Texas HB 2702, unless established for specific reasons, the facility or assign a “successor,” before the state could
might unnecessarily affect achieving the best value for money. step in and regain control of the roadway (Foote et al. 2008).
The experience in Mexico shows how very short concession Ultimately, whether a facility immediately reverts back to the
terms (maximum of 12 years, and in some cases 5 years) public sector as a result of bankruptcy will depend on the
resulted in high toll rates and uncertainty in traffic demand, contract provisions that address this situation.
which led to the failed concessions in the 1990s (Izquierdo
and Vassallo 2004). Buyback provisions specify the terms and compensation to
the private sector of purchasing the rights to operate the facil-
The length of concession agreements will affect the ability before the end of the concession term. Typically, the state
ity of the concessionaire to realize tax benefits from depreci- would pay “fair value” to the private operator in a buyback
ation. Although lessees (concessionaires) of toll roads are not situation (Hedlund 2007). The “fair value” is estimated by cal-
owners, if the term of the lease exceeds the remaining design culating the net present value of net revenues over the remain-
life of an asset at the time of the transaction, the Internal ing contract term (Poole 2007). This was the method used to
Revenue Service treats the lessee as the owner for tax pur- estimate the buyback price for the SR-91 Express Lanes in
poses (Subcommittee on Energy, Natural Resources, and California. Legislation in Texas (approved in 2007) allows the
Infrastructure 2008). Thus, the lessee may depreciate the por- state to buy back profitable toll roads from private operators,
tion of its up-front payment allocated to tangible physical with the buy-back amount based on the original estimates of
assets in an accelerated manner over a period of 15 years toll revenues for the life of the project. According to Fitch

38
Ratings (2006), a buy-back at fair value may lead to higher The Massachusetts Route 3 North Project was a Design-
taxes or high toll rates to support a termination payment, Build-Operate-Maintain project, financed through debt issued
especially if valuations are much higher in the future. by a 63-20 corporation. Debt service and O&M costs are paid
by MassHighway through annual appropriations. The PPP
agreement allows the developer to generate non-project
Safety and Enforcement Issues revenues through ancillary development in the corridor. The
developer receives 40% of the revenue generated through
In a PPP, the private sector is expected to maintain safe oper-
development in the corridor (FHWA PPP website; AASHTO
ations of the facility, as regulated by the contract terms. Again,
Innovative Finance.org).
the public is concerned that the private sector will not provide
proper maintenance to increase profit, leading to unsafe condi-
tions. This argument is countered by the notion that private Data Privacy and Ownership
investors are encouraged to provide safe conditions to attract
users (Buxbaum and Ortiz 2007) and to avoid liability. Data privacy and ownership is a concern raised for toll roads,
for both privately and publicly operated, especially with the
Law enforcement services on highways are typically introduction of electronic toll collection, and as such, the con-
provided by police and paid by the state DOT or public toll cern was not further investigated for this synthesis. Toll road
authority. In a PPP these services can still be provided by the users are particularly concerned of the potential for tracking
state, but paid by the private concessionaire, as was stipulated and being able to pinpoint their trips through the facility, as
in the Texas SH-130 contract. in some cases these data have been released, for instance,
as evidence for criminal and civil cases.
Safety concerns also relate to design standards that pro-
vide safe operation on these facilities and whether these are
enforced and met in a PPP project. The 407 ETR in Toronto Liability, Indemnification, and Insurance
has been criticized for adhering to only minimum highway
As any agreement between two parties, PPP contracts will
safety standards, not only after it opened to traffic in 1997,
include clauses that define liability, indemnification obliga-
but also after it was leased to private investors (Mylvaganam
tions, and insurance requirements for both the public and
and Borins 2005; Wikipedia 2008). According to the Ministry
private sectors. It is expected that these clauses are crafted
of Transportation, compared with the 407 ETR, publicly
such that the interests of each party entering the agreement
owned facilities typically exceed highway safety standards.
are protected.
Commercial Development Rights The FHWA PPP website describes some of the provisions
that limit liability and the indemnity obligations of each party
The literature review found few references to this topic. In the for some PPP projects, including the Chicago Skyway, the
case of Denver’s Northwest Parkway, Portuguese conces- Pocahontas Parkway, and Texas SH-130, and the PPP legis-
sionaire Brisa may undertake activities such as commercial lation survey describes how these are addressed by state.
development. Rental revenues for two cell phone towers is
split with the public parkway authority (“Northwest Parkway Private investors are concerned about tort liability, because
Set to Close in October” 2007). the private sector is not protected by sovereign immunity as
is the public sector. The risk of tort liability can be mitigated
The TTC 35 High Priority Trans-Texas Corridor Master by using state maintenance and police service, public spon-
Development Plan has provisions for several innovative sorship, and insurance. The latter however can add a sig-
financing arrangements that involve commercial development nificant cost to the project, affecting its financial feasibility
rights. These include having the option to lease a parcel or (U.S.DOT 2004). From the public sector perspective, govern-
property from an owner to keep the land vacant before actual mental liability may not be fully transferable in a PPP, and
acquisition, purchase, and lease-back arrangements; license the public sector may still be subject to lawsuits if deteriorat-
for exclusive or non-exclusive use of a facility; and facility ing conditions of the roadway cause any harm to individuals
franchises (such as gas stations and convenience stores). (Fitch Ratings 2006).

39
CHAPTER FOUR
CONCLUSIONS
As governments struggle with the growing costs to develop, to estimate the value of these and other toll facilities proposed
construct, maintain, and operate transportation infrastructure for PPPs (e.g., SH-121 in Texas and the Pennsylvania Turn-
in the face of flat or declining revenues, public–private part- pike), it has become clear that the value of the facility depends
nerships (PPPs) are likely to be looked on as a potential way of on the assumptions used in the valuation process.
reducing costs and bringing in new financial resources. This
NCHRP synthesis identified a wide variety of concerns about To accomplish valuation, there is a need for personnel with
how decision makers can protect the public interest. In sum- skills including value engineering, business modeling, capital
mary, there are three major themes drawn from this synthesis: budgeting, traditional financial problem-solving methodol-
ogy, and performance auditing. Furthermore, different valua-
• How might government decide whether or not to pursue tion techniques have their merits and limitations, and the deci-
a PPP? sion makers might be informed of these. A sensitivity analysis
• How could the public interest be protected? could help to put in perspective some of the potential pitfalls
• Misperceptions about PPPs can be a distraction from and could assist the public sector to determine whether the
the real issues. disadvantages of pursuing PPPs are minor when compared
with the public benefits of implementing the project.
Each of these themes is discussed here, along with sugges-
tions for further research. The transfer and sharing of project risks is considered by
many as one of the main benefits of a PPP. In a well-designed
• How might government decide whether or not to PPP, risk may be allocated to the party that can best manage
pursue a PPP? such risk, and in some instances, there are risks to be shared by
both partners. For example, construction risk is typically trans-
PPPs encompass a variety of project delivery options, with ferred to the private sector in any PPP that involves design-
varying levels of private sector participation, based on risk build, whereas the public sector is considered better able to
transferred. A PPP is not a one-size-fits-all solution, and the manage environmental risks and right-of-way acquisition. The
decision to use one of the many PPP types or traditional type of PPP to be pursued also dictates what risks are trans-
approaches could consider and incorporate: ferred and/or shared with the private sector.
• Valuation of alternative approaches, PPP agreements are complicated, and there have been crit-
• Appropriate risk transfer, icisms over deals being rushed through without the public or
• Transparency and public participation, and their elected officials understanding the implications. The
• Unavoidable complexity of the transactions. lack of transparency in the PPP process has been voiced as
one of the main concerns and it is mentioned as an important
Although some states use some kind of valuation process, issue by both supporters and opponents of PPPs. The interna-
there is a need for a framework or process to carry out this tional experience provides lessons on how to incorporate the
analysis that is well understood by decision makers and define public interest into the PPP valuation, and a major element of
appropriate assumptions that characterize the differences this is community consultation and involvement through the
between public versus private delivery. The value for money PPP valuation and decision-making process. The Virginia
(VfM) is one of the most well-known techniques to evaluate PPP process provides a good example of how to ensure
PPP projects, and has been widely used internationally; three transparency and public participation during the review of
states in the United States (Florida, Oregon, and Virginia) PPP proposals.
have reported using it. Other states have applied alternative
tools, other than VfM, to evaluate PPP projects. Local con- Transparency is not limited to the procurement process, and
ditions and project characteristics will be the final determi- public access to financial statements and performance over the
nant of the assumptions used in the valuation process, but it project lifetime has been included as part of PPP contracts.
is essential that there be a clear understanding of those, and they
could be subject to a sensitivity analysis. After the Chicago States are motivated to find creative solutions, and they
Skyway and Indiana Toll Road deals and attempts by observers are interested in quick results. However, the PPP process is

40
complex, from the valuation and procurement process through transportation investments that will bring long-term benefits
the duration of the partnership. There is no uniform set of rules to the public.
or standards to follow for all projects; therefore, there is a high
level of expertise required when pursuing a PPP. A PPP can potentially raise environmental standards
for highway operation. Furthermore, PPP contracts can be
Enabling legislation might provide an attractive environ- designed to encourage environmentally sound behavior; for
ment for the private sector to invest, whereas the public sector example, through incentives that encourage the conces-
is able to protect the public interest. Also, after the project is sionaire to provide free-flow service. As for environmental
successfully procured and implemented, it is important that the impacts, any PPP that will receive federal money is required
public sector can monitor performance and ensure that the to comply with the National Environmental Policy Act; and
terms of the agreement are met if the PPP includes a long-term most states have environmental laws and requirements that
concession to operate and/or maintain the facility. need to be met for any major infrastructure project.
• How could the public interest be protected? The public interest is also protected by addressing potential
labor issues arising from a PPP. In a brownfield concession,
Transportation infrastructure, specifically highways, has been labor issues are related to displacement of existing employees
the responsibility of the public sector for many years. The tra- at the toll facility and the loss of pension plans; whereas in
ditional procurement for highways has been design-bid-build. greenfield projects these issues are related more to the private
The public sector develops designs, often with consultant sector meeting prevailing wage requirements. Past brown-
support. The design is then let to the lowest bidder who then field concessions have dealt with labor issues by providing
delivers the highway under government oversight. Long-term opportunities to maintain jobs with the public sector (e.g., the
maintenance and operation of the highway is in public hands. Chicago Skyway) or by including contract terms that guar-
antee the pay and benefits for employees that remained work-
A PPP allows a much larger role for the private sector, from ing for the concessionaire. For greenfield projects using fed-
bundling design and construction in one contract (design- eral funding, it is necessary that the requirements of the
build) to long-term operations and maintenance of existing or Davis–Bacon Act relating to prevailing wages be met. In
new facilities (concessions). Some PPPs include equity contri- other cases, the contract may include terms to address labor
butions from the private partner, and may also transfer toll col- issues and concerns.
lection and rate setting responsibilities to the private sector.
When transferring these responsibilities, it is important to • Misperceptions about PPPs can be a distraction
ensure that the private sector has the proper motivations to pro- from the real issues
tect the public interest, while allowing investors to meet a
return on the investment that is in line with the risk they take. Many public concerns are rooted in concerns raised over
past transactions, even though more recent approaches have
Most of the concerns about PPPs can be managed through learned from the past and resolved the issues in contracts.
contract terms. Although recent contracts have addressed many Some negative perceptions about PPPs have remained over
of the issues that have caused concerns in the past, unforeseen time. Also, a lack of public information and openness in the
situations may arise. That is when the strength and flexibility process (coupled with sensational press coverage and the
of the contract is tested, and clauses that allow for contract ter- political grandstanding that can arise) may lead to mistrust.
mination or buyout are important. Project sponsors might communicate with citizens and deci-
sion makers in an effort to build trust and to educate the pub-
A PPP may be monitored over its sometimes long lifetime lic about some of the misperceptions related to PPPs, such as:
to ensure that the private sector meets safety, maintenance, and
other standards specified by contract. When valuing the deci- Misperception #1: Non-compete clauses are always
sion to pursue a PPP to protect the public interest it is essential part of a PPP with a long-term lease component. Actually,
that the public sector account for the additional cost of per- after the experience with strict non-compete clauses in the
formance monitoring by qualified, independent, public sector/ 91 Express Lanes PPP in California, most PPP deals have
department of transportation staff. included “limited-compete” clauses, requiring the public part-
ner to provide compensation for projected loss revenues result-
Long-term asset leases of brownfield toll roads have ing for certain types of improvements, although these have
arguably caused the most concern because a few transactions not been eliminated altogether (e.g., Denver’s Northwest Park-
have resulted in large up-front payments to government. This way lease). The public sector can make the decision whether
revenue may be used for an appropriate public purpose con- to include “non-compete” or “limited compete” provisions in
sistent with public policy objectives. PPP-enabling legisla- a PPP, and explain why such provisions have been included
tion in some states prohibits revenues from being diverted to in the contract. The exclusion of such provisions would lower
the states’ general fund or for non-transportation uses. Some the value of the contract, but will give the public sector more
other uses of up-front proceeds include paying off debt and flexibility.

41
Misperception #2: A PPP is a synonym for tolls, and An open process helps build trust and support, as long as
with that, sky-high toll increases are inevitable, resulting in project sponsors can demonstrate that decisions are being
windfall profits. The PPP debate, specifically related to long- made with the public interest in mind.
term concessions paid through tolls, is caught in the middle of
a debate about tolling policy. The recent long-term concession • Future Research Needs
deals (again, one of the several PPP types) have transferred toll
responsibility to the private concessionaire. However, the pub- The most pressing research need surrounding PPPs is related
lic sector still controls the toll setting policies by including toll to PPP valuation tools. There is very little public understand-
growth caps in the agreement, even when the toll setting and ing about how PPP deals are evaluated. In 2008, Morallos and
collection responsibilities are transferred to the private sector. Amekudzi and the U.S. Government Accountability Office
In an attempt to distance toll setting policy from PPPs, Florida (GAO) documented some of the valuation tools (including
adopted periodic increases for its public-sector toll roads. VfW), citing some of the benefits and limitations of these
However, the public worries about super profits from increas- methodologies. The GAO report found that there has not been
ing tolls, even within set growth caps. To counter this, some of a consistent application of methodologies, and other literature
the international experience, and other more recent PPP deals shows how the valuation of a PPP is highly dependent on the
have included revenue sharing that ensure the public sector selection of certain value drivers (e.g., length of agreement,
benefits of additional profits after the concessionaire reaches a toll policy, and discount rates). The industry would benefit
certain return on investment. from a compilation of existing valuation methodologies, a
description of the advantages and disadvantages of each of
There are several types of PPPs that do not require the these tools, sample applications, and the development of a
implementation of tolls (e.g., design-build, maintenance con- framework that would help project sponsors to evaluate poten-
tracts, agreements with availability payments/shadow tolls). tial PPP deals objectively. This framework could include rec-
Furthermore, direct user fees (i.e., tolls) are not the only way ommended value drivers and require a sensitivity analysis to
that the private sector can be compensated. The United King- help drive decisions.
dom has used shadow tolls extensively to support its Private
Finance Initiative, and availability payments are another alter- In the area of tolling policy, additional research is needed
native to compensate the concessionaire based on facility per- on appropriate escalation factors for toll rate caps. The litera-
formance measures. The latter could be combined with tolls ture review shows that recent PPP deals that transfer toll col-
that are retained by the public sector, thereby providing the lection to the private sector has included Consumer Price
needed revenue stream, but insulating the project from con- Index and gross domestic product to determine the maximum
cerns about the private partner getting rich at the expense of annual toll rate increase, but little is known about what are the
toll payers. appropriate economic indicators that could be used.
Misperception #3: The public sector loses total control There is also a continuing need for professional practitio-
of the facility. Under a PPP agreement, the public sector never ners, elected officials, and their staff to stay abreast of devel-
loses ownership of the facility; however, some responsibilities opments in PPPs and, in particular, efforts to separate fact from
are transferred to the private sector. The extent to which these fiction. Digestible, easy-to-understand primers on PPPs high-
responsibilities are transferred is defined by the contract. Well- lighting the key issues raised in this synthesis could go a long
crafted agreements may ensure that the public interests are way toward encouraging states to use PPPs in appropriate
protected. ways that advance the public interest.

42
REFERENCES
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“Vinci named preferred bidder for German motorway con- Myzak, S.C., “Merkt Calls on Corzine to Stop Playing Politics
cession,” Construction & Maintenance, Sep. 4, 2007. with Toll Road Scheme,” PoliticsNJ.com, Aug. 29, 2007.
Retnanathan, S., “New scheme for toll concessions in the Antonello, K., “O’scanlon and Casagrade backs lawsuit on
offing,” The New Straits Times Online, Sep. 19, 2007. taxpayer funded toll road report,” The New York Observer,
Medalla, E., “Copsa seeks to expand concessions framework— Sep. 28, 2007.
Chile,” Business News Americas, Oct. 8, 2007. Jennemann, T., “GOP keeps riding the toll road war path,”
“China could freeze out mining competitors in Africa,” Campaign and Elections Magazine, Oct. 1, 2007.
HedgeFunds Review, Oct. 8, 2007. Meggitt, J., “Millstone against selling of New Jersey toll
Haddad, C.L.S., “Brazil—The different ways of privatizing,” roads,” Examiner, Oct. 4, 2008.
RGEMonitor.com, Oct. 26, 2007. Guhl, B., “GOP Candidates call on Roberts to Codey to
Jönsson, A., “Indonesia privatizes part of toll road company,” declare their toll road intentions,” Campaign and Elections
FinanceAsia.com, Oct. 29, 2007. Magazine (njpols.com), Oct. 30, 2007.
Reier, S., “Infrastructure—big projects create a small fortune,” Lu, A., “Road sale, lease not big voter issue,” NorthJersey.com,
International Herald Review, Nov. 16, 2007. Trenton Bureau, Nov. 3, 2007.
Bush, J., “Paving ‘a road to Russia’s future’,” BusinessWeek, “Monetization must wait until next year,” CourierPost
Nov. 21, 2007. Online, Nov. 5, 2007.
Millar, R., “CityLink may demand millions over east-west Howlett, D., “Corzine says he’ll risk job to lease roads,” Star
road,” TheAge.com.au, Dec. 17, 2007. Ledger, NJ.com, Nov. 15, 2007.
Associated Press, “Judge to consider public access to Corzine’s
Mukul, J., “L&T, IRB among 5 to bag Rs 11k cr road pro-
toll road lease plan,” NJ.com, Nov. 16, 2007.
jects,” Daily News and Analysis, Feb. 23, 2008.
“Finding road to fiscal stability requires open minds,” Home
West, M., “The oil price is no big deal for toll roads,” Fairfax
News Tribune, Nov. 19, 2007.
Digital, Mar. 25, 2008.
Higgs, L., “Corzine’s program could cost Jerseyans,” Home
News Tribune, Nov. 25, 2007.
Kentucky “How Corzine’s toll road plan could affect you,” Courier
News, Nov. 26, 2007.
Green, M., and S. Steitzer, “Senator proposes toll power,” “Governor Corzine’s remarks to the League of Municipalities,”
Courier-Journal.com, Aug. 25, 2007. State of New Jersey Office of the Governor, Nov. 28, 2007.
Hester, T., “Corzine to seek 50 percent toll hike every 4 years,”
Associated Press, Newsday.com, Jan. 7, 2008.
Louisiana Chen, D., and K. Belson, “Corzine proposes steep rise in
tolls,” New York Times, Jan. 9, 2008.
Guillet, J., “Roadwork takes private turn,” New Orleans City Dunn J., “Tolls will save NJ, governor says,” Trucker.com,
Business, Nov. 26, 2007. Jan. 11, 2008.

49
Mulshine, P., “Okay, Corzine, here’s a better plan,” NJ.com, Grata, J., “I-80 tolls conversion speed on,” Post-Gazette
Jan. 13, 2008. Now, Oct. 12, 2007.
“Fixing a budget at the toll booth,” The New York Times, “I-80 tolling lease is unethical, illegal,” Owner-Operator
Jan. 19, 2008. Independent Driver Association (OOIDA), Oct. 12, 2007.
Hester, T., Associated Press, “NJ weighs new way to pay for “Step taken to toll I-80,” Pittsburgh Business Times, Oct. 16,
roads,” US Today, Jan. 27, 2008. 2007.
Myzak, S.C., “Karrow proposes constitutional amendment Carroll, J., “Toll opponents criticize turnpike’s lease of I-80,”
allowing voters to decide sale, lease of state assets,” Goerie.com, Oct. 17, 2007.
PolitickerNJ.com, Feb. 7, 2008. “Congress or FHA likely to halt mistake of tolling Interstate
Feeney, T., “Passaic presents governor with a toll-talk surprise: 80,” The Patriot News, Oct. 22, 2007.
civility,” The Star Ledger, Feb. 7, 2008. “PSU travelers split on I-80 partnership,” The Daily Collegian
Reitmeyer, J., “Curtains for toll plan?” The Record (north- Online, Oct. 24, 2007.
jersey.com), Feb. 22, 2008. “OOIDA officials protest I-80 tolls, signing of lease,”
Feeney, T., “Bush official praises Corzine toll ‘courage’,” TheTrucker.com, Oct. 26, 2007.
The Star-Ledger (nj.com), Mar. 1, 2008. Brelje, B., “Rendell pursues leasing turnpike, still lukewarm
to tolls on Interstate 80,” Pocono Record, Oct. 31, 2007.
Tanner, D., “Special Report—Pennsylvania goes public with
Nevada I-80 lease,” Land Line Magazine, Nov. 2, 2007.
“McIlhattan criticizes PennDOT payment,” TheDerrick.com,
Vogel, E., “Highway Finance—Private toll roads proposed,” Nov. 5, 2007.
ReviewJournal.com, Oct. 26, 2007. “PA voters—don’t lease Pike or toll interstate,” Reuters,
Nov. 7, 2007.
Oklahoma
Armas, G.C., “Pa’s toll plan met with skepticism,” Forbes.com,
Nov. 8, 2007.
“Municipal toll roads become likely path,” The Journal “I-80 toll opposition not based on facts,” Republican
Record, Jan. 28, 2008. Herald.com, Nov. 9, 2007.
Brouillette, M., “New life for turnpike-lease plan,” The
Philadelphia Inquirer, Nov. 12, 2007.
Pennsylvania Parker, C., “Questions and concerns at I-80 toll meeting,”
TheMorningCall.com, Nov. 12, 2007.
Tanner, D., “Pennsylvania transportation officials apply to “Advocates of I-80 toll plan find plenty of opposition,”
toll I-80,” Land Line Magazine, Aug. 21, 2007. TradingMarkets.com, Nov. 15, 2007.
Rehill, J., “Turnpike lease idea continues to lose favor in Cioffi, L., “English decries I-80 toll meeting,” Vindy.com,
PA,” Public Radio Capitol News, Aug. 22, 2007. Nov. 18, 2007.
Tanner, D., “PA Turnpike official says I-80 tolls better than “A toll on business—companies say I-80 plan to cost them
privatization,” Land Line Magazine, Aug. 29, 2007. millions,” TradingMarkets.com, Nov. 18, 2007.
“Lawmakers need open minds on roads, bridges,” The Daily “Tolling I-80—Backward thinking,” Pittsburg Tribune
and Sunday Review, Aug 30, 2007. Review, Nov. 19, 2007.
Brouillette, M., “Paying interest, not earning it,” Pittsburg Nussbaum, P., “PA puts a heavy stake on I-80 tolls,”
Tribune-Review, Sep. 9, 2007. Philadelphia Inquirer, Nov. 19, 2007.
Etzel, J.O., “Clarion lawmaker slams I-80 toll plan,” The “Better road require more funding,” The Daily Collegian,
Derrick.com, Sep. 19, 2007. Nov. 26, 2007.
Barnes, T., “Interstate 80 toll foes drive on capital,” Pittsburgh Tanner, D., “OOIDA drives home anti-toll opposition at I-80
Post-Gazette, Sep. 20, 2007. symposium,” Land Line Magazine, Nov. 30, 2007.
Silver, J.D., “I-80 tolls may be inevitable, turnpike chief Grad, J., “Impact of I-80 tolls wide,” TimesLeader.com,
says,” Post-Gazette Now, Sept 21, 2007. Dec. 3, 2007.
Thomas, J., “Tolls to raise price of goods,” CentreDaily.com, Grad, J., “Kanjorski—Toll all PA interstates,” Times
Sep. 23, 2007. Leader.com, Dec. 3, 2007.
“Fitch rates Pennsylvania Turnpike Commission’s $530 mm Mauriello, T., “Bill would allow tax credit for road tolls,”
BAN’s ‘F1+,’ Affirms long-term revs at ‘AA-’,” Business Pittsburg Post Gazette, Dec. 10, 2007.
Wire, Sep. 24, 2007. Bumsted, B., “Republicans warm a bit to leasing turnpike,”
Biddle, S., “PennDOT receives submissions from companies Pittsburg Tribune Review, Dec. 10, 2007.
who want to lease PA turnpike,” Penn State Public Broad- Nussbaum, P., “Plan to toll I-80 is dealt a setback,” Philadel-
casting, Oct. 2, 2007. phia Inquirer, Dec. 13, 2007.
Nussbaum, P., “Interest to lease turnpike is broad,” The “PA Gov—turnpike lease figures coming,” Associated Press,
Philadelphia Inquirer, Oct. 2, 2007. Dec. 14, 2007.
Nussbaum, P., “Pa. Turnpike chief limit I-80 toll use,” The Levy, M., Associated Press, “Rendell says Turnpike lease
Philadelphia Inquirer, Oct. 4, 2007. can still work,” TheMorningCall.com, Dec. 15, 2007.

50
Vasoli, B., “Turnpike commission hired lobbyist to oppose Tennessee

leasing,” The Bulletin, Dec. 20, 2007.
Associated Press, “Bill proposes leasing Pa. Turnpike in Emery, T., “Bill would make state toll routes American-
3 parts,” Pittsburgh Tribune Review, Jan. 15, 2008. owned,” Tennessean.com, Feb. 29, 2008.
Nussbaum, P., “Study—Gas tax hike the way to go,” Malan, T., “Bill limiting foreign contracts would cost tax-
Philadelphia Inquirer, Jan. 16, 2008. payers,” Tennessean.com, Mar. 27, 2008.
Scolforo, M., Associated Press, “Pa—growing front pressures
toll plan,” Houston Chronicle, Jan. 18, 2008.
Texas
Belson, K., “Work is afoot to take the free out of freeway,”
The New York Times, Jan. 19, 2008.
Hughes, P.R., “TxDOT plans to convert some interstates to
Nussbaum, P., “Bigger cast in play for PA turnpike,” The
toll roads,” Houston Chronicle, Aug. 31, 2007.
Philadelphia Inquirer, Jan. 20, 2008.
Driscoll, P., “Toll road control splits state and locals,”
Hirschhorn, D., “Toll hikes could be capped for turnpike
MySA.com, Sep. 22, 2007.
bidders,” The Evening Bulletin, Jan. 25, 2008.
Lindenberger, M.A., “State running out of cash for new
Grate, J., “Turnpike bankrolls PennDOT again,” Pittsburgh
roads,” Dallas Morning News, Sep. 28, 2007.
Post-Gazette, Jan. 26, 2008.
“Local control best for SA toll projects,” MySA.com, Sep.
McNickle, C., “Orwellians, Rendellians and ‘uniforms’,”
28, 2007.
Pittsburgh Tribune Review, Jan. 27, 2008.
Driscoll, P., “Three to bid on US 281 toll road project,”
Ryan, J.T., “Turnpike revisited,” Central Penn Business
MySA.com, Oct. 24, 2007.
Journal, Feb. 1, 2008.
“Development of D/FW connector moves ahead,” TxDOT’s
Goble, K., “Pennsylvania bill would authorize lease of turn-
pike,” Land Line Magazine, Feb. 8, 2008. Keep Texas Moving E-Newsletter, Oct. 29, 2007.
Bair, J., “Budget watch—transportation budget calls for Lindenberger, M.A., “NTTA to borrow $3.75 billion for
partnerships, infrastructure improvements,” Central Penn Highway 121 toll road,” The Dallas Morning News, Nov.
Business Journal, Feb. 8, 2008. 12, 2007.
“$3B debt for roads, transit may cut turnpike lease price,” Lindenberger, M.A., “North Texas Tollway Authority bor-
Pittsburgh Tribune Review, Feb. 11, 2008. rows $3.49 billion for Highway 121 toll project,” The Dal-
“This time, use due diligence before acting on road programs,” las Morning News, Nov. 21, 2007.
The Patriots News, Feb. 15, 2008. Dickson, G., “Toll roads are the right move, lawmaker says,”
Scolforo, M., Associated Press, “House Dems: Tolling I-80 Star-Telegram.com, Nov. 27, 2007.
preferable to leasing Turnpike,” The Morning Call.com, “Toll road critics were turned down in their request for
Mar. 4, 2008. wide-ranging transportation department documents, but a
“House Democratic study criticizes idea of leasing PA judge gave them more time to narrow their request as part
turnpike,” Associated Press, Mar. 4, 2008. of a lawsuit against the state,” Houston Chronicle, Dec. 21,
“Private bidders sought to finish toll roads,” Pittsburgh Post 2007.
Gazette, Mar. 5, 2008. “Productive conversation sought by TxDOT on I-69 Trans-
“PA legislative Democrats’ I-80 report worthless,” The Daily Texas Corridor,” Fort Bend Now, Dec. 24, 2007.
& Sunday Review, Mar. 6, 2008. Lindenberger, M.A., and B. Formby, “Dallas transit may try
Scolforo, M., Associated Press, “Flat PA gas tax revenues to engineer public-private rail solution,” The Dallas Morn-
may take a toll on state finances,” Philly.com, Mar. 8, 2008. ing News, Jan. 8, 2007.
“Don’t be driven by hyped fears,” Altoonamirror.com, Mar. 9, Dickson, G., “Official want to keep North Texas toll collections
2008. out of state’s hands,” Star Telegram, Jan. 25, 2008.
Swift, R., “Study—turnpike lease would mean higher tolls,” Sallee, R., and E. Hanson, “Perry’s Trans-Texas Corridor
Standard Speaker, Mar. 10, 2008. plan is a tough sell,” Houston Chronicle, Jan. 27, 2008.
Scalforo, M., “PA mulls transportation funding options,” Tanner, D., “Spanish firm using loan from U.S. to build seg-
Associated Press, Mar. 10, 2008. ments of Texas toll road,” Land Line Magazine, Mar. 13,
Walter, K., “Toll road lease inspections run up bill,” The 2008.
Herald-Standard, Mar. 15, 2008.
Ritchie, J., “Turnpike study called one-sided,” Pittsburgh
Virginia
Tribune Review, Mar. 18, 2008.
“Weak economy could reduce turnpike bids, hike borrowing
“Virginia announces HOT lanes on Capital Beltway,”
costs,” The Evening Bulletin, CapitolWire.com, Mar. 27,
AASHTO Journal, Sep. 14, 2007.
2007.
Kafka, L., “Major changes in store for the Beltway,” Potomac
News Online, Dec. 21, 2007.
Rhode Island Gardner, A., “Private interest in rail to Dulles,” Washington
Post (washingtonpost.com), Jan. 28, 2008.
Landis, B., “Buyers interested in state’s bridges,” The Prov- Weiss, E., “Toll-lane revenue proposal gets a rewrite in
idence Journal, Dec. 13, 2007. Richmond,” Washington Post, Mar. 28, 2008.

51
GLOSSARY OF TERMS, ABBREVIATIONS, AND ACRONYMS
Glossary of Terms vehicles (HOVs) are allowed to use the lanes for free or at
a discounted toll rate.
63-20 Non-Profit Corporations—Corporations established Life-cycle costs—Costs of a project over its entire useful
under IRS Revenue Rule 63-20, which permits nonprofit life, from project inception to the end of its design life.
corporations other than solely governmental bodies to issues Long-term concessions—Publicly financed facilities are
tax-exempt debt. leased to private sector concessionaires for specified time
Availability payments—Periodic typically annual payments periods. The concessionaire may pay an upfront fee to
made by sponsoring agency to private investors on the the public agency in return for revenue generated by the
basis of the availability of facility capacity or other perfor- facility. The concessionaire must operate and maintain the
mance measures considered important to users, as defined facility and sometimes make capital improvements.
by contract. Private Activity Bonds—Tax-exempt bonds issued by states
Brownfield—Concession agreements involving an existing and local governments for project sponsored by a private
roadway, and may include operations, maintenance and entity.
expansion/extension of the facility. Public–private partnership—Contractual agreement between
Build-Operate-Transfer (BOT)—See Design-Build-Operate- a public agency and the private sector that allows for
Maintain.
greater private sector participation in the delivery of trans-
Build-Own-Operate (BOO)—A private contractor constructs
portation projects.
and operated a facility while retaining ownership.
Shadow tolls—Per-vehicle amount paid to a facility opera-
Build-Transfer-Operate (BTO)—See Design-Build-
tor by the facility owner or sponsoring agency. Shadow
Operate-Maintain.
tolls are not paid by facility users.
Commercial debt—Any type of loan or credit instrument
Special Experimental Project Number 14 (SEP-14)—
that is issued by a private investor.
Program established in 1990 to identify, evaluate, and
Construction Manager @ Risk—A hired construction
document innovative contracting practices that have the
manager (CM) begins work on the project during the design
potential to reduce the life cycle cost of projects while
phase to provide constructability, pricing, and sequencing
maintaining product quality.
analysis of the design. The CM becomes the design-build
contractor when a guaranteed maximum price is agreed Special Experimental Project Number 15 (SEP-15)—
upon by the project sponsor and CM. SAFETEA-LU enacted program that allows FHWA to
Design-Bid-Build (DBB)—Traditional project delivery experiment in four areas of project delivery: contracting,
method where design and construction are sequential steps right-of-way acquisition, project finance and compliance
in the project development process, with both activities with the National Environmental Policy Act (NEPA) and
bid separately. other environmental requirements.
Design-Build (DB)—A procurement or project delivery State Infrastructure Bank (SIB)—A state or multi-state
method whereby a single entity (which can be a consor- revolving fund that provides loans, credit enhancement,
tium of various parties, including engineers/architects and and other forms of financial assistance to surface trans-
contractors, for instance) is responsible for both the design portation projects.
and construction of a project. Tax-exempt debt—Bonds, issued by a state or local govern-
Design-Build with Warranty—A design-build in which the ment, whose interest payments are not subject to federal
design-builder guarantees to meet material, workmanship, income tax, and sometimes are also exempt of state or
and/or performance measures for a specified period after local income tax.
the project has been delivered. Transportation Infrastructure Finance and Innovation Act
Design-Build-Operate-Maintain (DBOM)—Also Build- of 1998 (TIFIA)—Federal transportation credit program
Operate-Transfer (BOT) or Build-Transfer-Operate (BTO). enacted under TEA-21, and modified by SAFETEA-LU,
A procurement method in which the selected contractor is that provides direct federal loans, lines of credit, or loan
responsible for the design, construction, operations, and guarantees provided through the U.S.DOT to large pro-
maintenance of the facility for a specified time. jects of national significance, under criteria developed by
Equivalent single-axle load (ESALs)—Damage per pass to Congress.
a pavement caused by a specific axle load relative to the Unsolicited proposals—A bid by a private company to the
damage per pass of a standard 18,000 lb axle load moving government for a project for which bids have not been
on the same pavement. solicited.
Greenfield—Concession agreements involving the construc- Warranty—When used in public–private partnerships for
tion of a new facility. the construction of roads, a clause that guarantees that the
High-occupancy toll (HOT) lanes—On HOT lanes, low- roadway will meet certain level of quality or repairs will
occupancy vehicles are charged a toll, while high-occupancy be made at the private contractor’s expense.

52
Weighted Average Cost of Capital (WACC)—The rate that DOT Department of transportation
a company is expected to pay to finance its assets. WACC ESAL Equivalent single-axle load
is the minimum return that a company must earn on exist- GAO Government Accountability Office
ing asset base to satisfy its creditors, owners, and other HOT lanes High-occupancy toll lanes
providers of capital. It is calculate by combining the invested OECD Organisation for Economic Cooperation and
equity and debt with their respective rates of return. Development
O&M Operations and Maintenance
Abbreviations and Acronyms PAB Private Activity Bonds
PPP or P3 Public–Private Partnerships
BOO Build-Own-Operate SEP-14 Special Experimental Project Number 14
BOT Build-Operate-Transfer SEP-15 Special Experimental Project Number 15
CM@R Construction Manager @ Risk SIB State Infrastructure Bank
DB Design-Build TIFIA Transportation Infrastructure Finance and
DBB Design-Bid-Build Innovation Act of 1998
DBFO Design-Build-Finance-Operate WACC Weighted Average Cost of Capital

53
APPENDIX A
State DOT Survey Questionnaire
TO: State DOT Executive Directors/CEOs
FROM: Jack Basso, Director of Management and Business Development
Joung Lee, Senior Analyst for Transportation Finance and Business Development
SUBJECT: Request for Participation in 50-State Survey on Public Private Partnerships Experience
and Decision Making
I am writing to request your participation in a groundbreaking study of state DOT experiences with
public-private partnerships (PPPs). By completing a short Web-based survey, the study partners—
AASHTO, NCHRP, and FHWA—will be able to compile and analyze data on the use of PPPs, how
agencies make decisions about PPP models, and critical professional skills and capabilities in this
area.
You may recall that AASHTO and FHWA partnered together in 2005 to assess each state’s level of
experience with and readiness to undertake various types of partnerships. That survey also
identified high-priority topics of interest, skills needed to consider PPPs for transportation projects,
and types of technical assistance or professional capacity building resources.
This 2008 survey includes many of the same questions that appeared in the 2005 Web-based
survey, but adds another important dimension. A new series of questions relate to NCHRP
Synthesis Topic 39-06, an examination of Public Decision Making in Public Private Partnerships.
Cambridge Systematics, Inc., is preparing the NCHRP synthesis report; the U.S. DOT’s Volpe
National Transportation Systems Center conducted the 2005 analysis on behalf of AASHTO and
FHWA, and will prepare the 2008 assessment of PPP experience and professional capacity.
We request that you complete the survey yourself, or forward this message to the most
appropriate person in your agency and ask him or her to complete the survey. If you delegate

54
to someone else, please send me an e-mail with the name and contact information of that
person, so that we can follow up with him or her directly.
The survey is available as an on-line web-based survey that can be accessed at the following link:
http://www.trb.org/ss/wsb.dll/s/1bg3a
A copy of the survey in PDF format is being provided to assist you in determining who in
your organization should fill it out. The actual survey MUST be filled out on-line.
If you have any questions about the survey, you may contact Iris Ortiz at iortiz@camsys.com/617-
354-0167, or Theresa Perrone at Theresa.Perrone@Volpe.DOT.gov/617-494-1344.
Please complete the survey by February 15, 2008.
Thank you for your time and attention.

55
State DOT Experience with Public-Private Partnerships: Making

Decisions and Building Knowledge
This survey on Public Private Partnerships (PPPs) is a collaborative effort among AASHTO, NCHRP, and
the FHWA, with support from Cambridge Systematics and the U.S. DOT’s Volpe National Transportation
Systems Center.
The survey has two primary objectives: (a) to assess your state’s level of experience with PPPs and level
of interest in technical assistance resources, and (b) to examine how public sector decision-makers in your
state have handled the public’s concerns regarding PPPs.
The NCHRP Synthesis, Public Decision Making in Public Private Partnerships (Project 20-05, Task 39-06),
will examine the information available in the U.S. and internationally that is needed to properly evaluate
the benefits and risks associated with allowing the private sector to have financial stakes in transportation
infrastructure, and how that information can be used in the decision-making process. It will also
investigate the reliability of that information, and how the broader public interest can be protected, and
will identify gaps in public sector expertise, experience, and information.
In 2005, the FHWA and AASHTO partnered to survey state DOTs’ experience with PPPs for highway
projects. That survey allowed state DOTs to characterize their level of readiness to undertake highway-
related partnerships, and identified specific topics of interest regarding PPPs. This 2008 survey will provide
similar but up-to-date information.
The survey should take approximately 15 minutes to complete.
If you have any questions about the survey, you may contact Iris Ortiz at iortiz@camsys.com (617-354-
0197), or Theresa Perrone at theresa.perrone@volpe.dot.gov (617-494-1344).

56
1) What types of Public-Private Partnerships (PPPs) have been considered in your

agency? Select all that apply:
Design-build
Build-Operate-Transfer (BOT)
Development and long-term concession of a new toll road with transfer of revenue risk
Development and long-term concession of a new toll road with availability payments or shadow
tolls
Long-term asset lease of an existing toll road with transfer of revenue risk
Long-term asset lease of an existing toll road with availability payments or shadow tolls
Added toll lanes on existing facilities with transfer of revenue risk
Added toll lanes on existing facilities with availability payments or shadow tolls
Congestion pricing (e.g., cordon tolls) with a PPP element
Operations and Maintenance (O&M) Fee Service Contracts
Program and Financial Management Fee Service Contracts
None
Other (please specify)
If you selected other please specify:
2) Which one statement below best characterizes your agency’s overall experience with
PPPs?
We have not yet seriously assessed possibilities for any highway-related PPPs.
We have one or more projects that may be candidates for a PPP.
We have received one or more proposals (solicited or unsolicited) from potential private
partners.
We have negotiated (or are negotiating) one or more contracts to enter into a PPP.
We have completed at least one project that involved a PPP.
3) Which one statement below best describes your agency’s overall readiness to identify
and implement innovative finance methods, such as PPPs?
The agency needs to build a basic understanding of PPPs.

The agency needs some additional technical expertise to establish a partnership.
The agency has experience with design-build, but is not yet involved in any projects financed
with private capital.
The agency needs minimal training or technical assistance.
4) Please rate the extent to which your agency uses the following methods of financing
transportation projects, other than PPPs.
Please use the “Additional Comments” box to describe “other” methods.
Use Use Use N/A

Frequently Sometimes Rarely (do not use)
Traditional procurement
Public financing
Federal financing tools (e.g., TIFIA, GARVEES)
Creation of non-profit, quasi-public entities
Design-build
Others (please describe below):

57
The next few questions pertain to how you (or your agency) make decisions regarding PPPs.
If your agency has not yet seriously assessed possibilities for any highway-related PPPs,
please click “Next Page” at the bottom of the screen and skip ahead to question #7.
5) What criteria are used to decide whether a PPP approach should be used for project
delivery in your agency?
Extremely Somewhat Not N/A

Important Important Important
Project is an urgent transportation need
Strong political, public, and institutional support
Project acceleration potential
Project could generate sufficient revenues to attract
private investment
Lack of traditional funding
High-risk project that could be better managed by
private sector
Unsolicited proposal
Other (specify below):
6) How important have the following measures been in protecting the public’s interest in
your state? If your agency has not used a particular measure, please indicate “not
applicable” (N/A).
Extremely Somewhat Not N/A

Comprehensive evaluation of benefits and costs
of PPP proposals
Public participation and opportunities for input in
decision-making process
Providing public access to information related to
PPP proposals
Avoidance of conflict of interests
Terms of agreement are developed taking into
consideration public concerns
Development of construction, maintenance and
operations standards that meet or exceed
standards for non-PPP projects
Continuous project monitoring and evaluation
based on performance measures
Roles, responsibilities, and risks are both clearly
defined and allocated between public and private
partners
Other (specify):
7) The following tables list some of the public concerns that could be raised throughout
the decision-making and negotiation process of PPPs. In your opinion, how important
are the following concerns? Please note that questions 7a through 7d are required.
7a. Concerns related to project selection and delivery

58
Very Somewhat
Important Important Not Important
Unclear/unavailability of criteria for selection of PPPs
Considerations of alternative PPP models
Consistency with 3C (i.e., continuing, comprehensive,
and cooperative) transportation planning process
Effect on overall transportation network/system
7b. Concerns related to evaluation of PPP proposals
Very Somewhat
Important Important Not Important
Availability and consistent application of evaluation
tools, such as Value for Money and benefit-cost
analysis
Risk allocation between public and private sectors
Potential excessive rates of return to private investors
Relative roles of public and private sector
Effect of PPPs on state or local bonding capacity
7c. Concerns related to transparency and public process
Very Somewhat Not

Lack of public input opportunities through decision-making
process
Transparency and efficacy of the PPP process, including
confidentiality, conflict of interests, intellectual property.
Lack of time for appropriate legislative branch review or no
legislative branch review
Use of upfront proceeds
7d. Concerns related to terms of PPP agreement
Very Somewhat Not

Extent to which terms of agreement protect the public
interest
Liability, indemnification, insurance provisions
Revenue sharing formula
Clauses that limit public ability to make competing
improvements
Unanticipated event provisions
Impacts on existing revenues
Toll-setting policies (e.g., schedule of rate increases and
indexing factors)
Safety, enforcement, and national security issues
Initial construction warranties and maintenance standards
Termination, buyouts, and hand-back provisions
Environmental safeguards

59
Labor relations issues

Asset control and ownership, including commercial
development rights
Terms related to condition of asset at end of concession
Implications of foreign control of domestic assets and work
Opportunity for local contractors/consultants to participate
Data privacy and ownership
Impact of project on alternative routes
Trade agreement implications
Length of agreement
7e. In the box below, please list any other concerns, and how important they are to
you or your agency.
8) The table below contains a list of technical skills that may be used to support more
effective consideration of PPPs. For each one, please indicate whether your agency
currently has high, moderate, or low capability in each of these areas.
High Moderate Low

capability capability capability
Non-standard procurement or bidding capabilities
Legislative research and analysis
Asset planning and evaluation
Performance specification
Risk assessment
Benefit-cost analyses
Financial management and analysis
Management oversight
Contract negotiation and performance-based contracting
Other technical skills not listed above (free text box)
9) The table below lists various tools that may be used to select a private partner. Please
indicate the degree to which your agency uses any of these tools when considering a
PPP proposal.
Use Use Use N/A (do not

Frequently Sometimes Rarely use)
Benefit-cost analyses
Internal Rate of Return/Net Present Value analyses
Value-for-Money/Public Sector comparators
Traffic and Revenue Studies
Risk assessment
Availability Payment Amount/Net Present Value
Independent evaluation from legal and/or financial
consultants
Other (specify below):

60
The next two questions pertain to information used in making decisions about PPPs. If your
agency has not yet seriously assessed possibilities for any highway-related PPPs, please click
“Next Page” at the bottom of the screen and skip ahead to question #12.
10) What information on PPP proposals is available to decision makers, and who provides
the information? Select all that apply:
Project Consultants and Private
Sponsor legal/financial Investors This
(e.g. state advisors bidding on Media (e.g., information
DOT, toll contracted by the Interest newspaper, is not
authority) project sponsor project groups TV, blogs) available
Terms of agreement
Experience/qualification of
proposers
Risks transferred from and
retained by public sector
Evaluation of
benefits/disbenefits to public
sector
PPP valuation studies (e.g.,
benefit-cost analysis, value-
for-money analysis/public
sector comparators, traffic
and revenue studies)
provided by in-house staff or
consultants
Project cost estimates and
schedule
Amount of upfront
payment/revenue sharing (if
long-term concession)
Assumptions used by private
investors to determine
project value
Technical approach
Other (specify in “Additional
Comments” box below):
11) In your opinion and based on the outcomes of your PPP project(s), was there some
information that you did not have, but that could have been beneficial in the decision-
making process?
Yes
No
If you answered “yes,” please explain:

61
The next two questions pertain to training or educational resources related to PPPs.
The questions below list various topics related to PPPs. For each of the following topics,
please indicate whether you believe staff in your agency would benefit from training or other
educational resources. Questions 12a through 12g are required.
12a. Getting Started with PPPs
Definitely would Probably would Not likely to

benefit benefit benefit
The PPP concept, basic types, features, and
tradeoffs among them
How federal and state law can influence the use
of PPPs
What skills your agency needs in house, and what
it can outsource
12b. Risk Management:

Diagnosing risks to both partners at each phase
of a project
Where and when risk is best managed
Valuation of different types of risk
12c. Finance Issues:

How to assess the economic costs and benefits
of a given project
How to use debt (including private activity bonds)
How to utilize private capital
Opportunities for in-kind contributions
Possible revenue sources and negotiating terms
of use
Differences in public and private sector financial
considerations
12d. Procurement Considerations and Techniques:

How to write RFPs that incorporate PPP concepts
Anticipating and managing private sector
concerns with process

62
12e. Contracting:

How to write a contract that encourages innovation
and sharing of risk and rewards
Best practices in leveraging private resources
Common failures of PPP contracts, and how they are
addressed
12f. Managing PPP Projects:

Unique oversight challenges of PPP projects
Techniques for monitoring technical and financial
performance
12g. Public Awareness and Stakeholder Consultation:

Identifying and engaging with key stakeholders
Anticipating and managing common public
concerns about PPPs
12h. Please list any other topics, and how your agency might benefit from resources
on this topic, in the box below.
FHWA provides some resources via the PPP Toolkit, partner websites such as the FHWA PPP
website, and other relevant sites that can be accessed through the FHWA PPP website,
including www.innovativefinance.org. This question contains two parts, and pertains to PPP
websites, as well as other types of resources.
First, please indicate how likely you or staff in your agency would be to use or participate in
each of the following types of educational activities. Then, please indicate if you or staff in
your agency has used these kinds of resources within the past two years.
Likelihood that Staff Would Participated Within Past

Benefit 2 (two) Years?
Very Somewhat Not Yes No
likely likely likely
Scan of 2–3 agencies with significant experience
in PPPs (3–4 days, including overnight stay)
Classroom training (1–2 days at or near your
office)
Classroom training (1–2 days, including overnight
stay)

63
Interactive workshop (half to full day, at or near

your office)
Interactive workshop (half to full day, off site,
including overnight stay)
Peer-to-peer exchange (one day, at or near your
office)
Peer-to-peer exchange (one day, off site,
including overnight stay)
On-line training modules (self-paced)
Webinar (web- and telephone-assisted seminar)
Web-based repository of case studies and
effective practices
14) Are there any other public transportation agencies or authorities in your state that
have used a PPP model for a project?
Yes
No
If you answered yes, please list the agency and the name of the project below:
15) Please tell us more about the organizational structure of your agency.
What is the name of your office?

To whom does the lead of that office
report? Please provide a title, such as
“Director of Finance.” There is no need
to provide a specific individual’s name.
What is the full-time equivalent (FTE)
staffing for the office?
How many FTEs are dedicated to
innovative financing?
What is the annual cost for operating your
office?
If your organization changed its structure
within the past two years in order to
expand or accommodate work on
innovative finance or public-private
partnerships, please use the space below
to describe these changes.
Thank you for completing this survey. Please take a moment to tell us more about yourself.
(Please note that all fields are required.)
Your name:
Your title:
Briefly describe your responsibilities:
Your agency:

64
Mailing address:
City:
State:
Zip code:
Telephone number:
May we contact you by phone or email with some follow up questions?
Yes
No
Do you have any other comments or thoughts you would like to share?
Thank you for completing this survey. To learn more about PPPs, visit the FHWA’s PPP website or its PPP
Toolkit for Highways.

65
APPENDIX B
State DOT Survey Summaries
I. Summary of Survey Responses (all respondents)

Yes No
Design-build 39 10
79.6% 20.4%
Build-Operate-Transfer (BOT) 8 41
16.3% 83.7%
Development and long-term concession of a new toll road with transfer of 18 31
revenue risk 36.7% 63.3%
Development and long-term concession of a new toll road with availability 10 39
payments or shadow tolls 20.4% 79.6%
Long-term asset lease of an existing toll road with transfer of revenue risk 2 47
4.1% 95.9%
Long-term asset lease of an existing toll road with availability payments or 2 47
shadow tolls 4.1% 95.9%
Added toll lanes on existing facilities with transfer of revenue risk 10 39
20.4% 79.6%
Added toll lanes on existing facilities with availability payments or shadow tolls 7 42
14.3% 85.7%
Congestion pricing (e.g., cordon tolls) with a PPP element 11 38
22.4% 77.6%
Operations and Maintenance (O&M) Fee Service Contracts 16 33
32.7% 67.3%
Program and Financial Management Fee Service Contracts 3 46
6.1% 93.9%
None 4 45
8.2% 91.8%
Other (please specify): 11 38
22.4% 77.6%
Comments related to the respondents who specified “Other”:
Design-build-finance warranty
Design-build-own-operate
New toll bridge
Developer paying for interchanges
We have “considered” design-build for special circumstances, but do not have legislative
authority currently.
The [DOT] currently does not have statutory authority to undertake any type of PPP;
however, legislation has been introduced to allow such contracts.
Hired Management Consultants to oversee our Local Program delivery. Used a Public Private
venture to redevelop the [city] Intermodal Station (formerly the Amtrak Depot). Investigated
P3’s for Park & Ride lots.
Hospital
Bond Acceleration Program
Long-term concession of existing non-tolled facility with availability payments and long-term
lease of existing non-state owned toll facility with availability payments

66
Rail Station and Parking
PPPs?
We have not yet seriously assessed possibilities for any highway-related PPPs. 20
40.8%
We have one or more projects that may be candidates for a PPP. 10
20.4%
We have received one or more proposals (solicited or unsolicited) from potential 5
private partners. 10.2%
We have negotiated (or are negotiating) one or more contracts to enter into a PPP. 3
6.1%
We have completed at least one project that involved a PPP. 11
22.4%
3) Which one statement below best describes your agency’s overall readiness to
identify and implement innovative finance methods, such as public-private
partnerships?
The agency needs to build a basic understanding of PPPs. 7

14.3%
The agency needs some additional technical expertise to establish a partnership. 13
26.5%
The agency has experience with design-build, but is not yet involved in any projects 14
financed with private capital. 28.6%
The agency needs minimal training or technical assistance. 15
30.6%
Use Use Use N/A

48 1
Traditional procurement — —
98.0% 2.0%
25 9 3 12
Public financing
51.0% 18.4% 6.1% 24.5%
Federal financing tools (e.g., TIFIA, 4 19 10 16
GARVEES) 8.2% 38.8% 20.4% 32.7%
1 4 12 32
Creation of non-profit, quasi-public entities
2.0% 8.2% 24.5% 65.3%
6 15 11 17
Design-build
12.2% 30.6% 22.4% 34.7%
3 2 1 16
Others (please describe below):
6.1% 4.1% 2.0% 32.7%

Use frequently
None
Commission issued bonds

67
We have considered TIFIA and creation of non-profit and quasi-public entities, but have yet
to use find the appropriate application.
We have worked a number of PPP with communities around [state]. When businesses
develop they install turn lanes and signals at their cost. Communities have also added dollars
to projects that facilitate the movement of traffic.
[DOT] uses pass-thru financing tolls that are privately financed and publicly repaid.
[DOT] has had design-build projects—but they are developed for accelerated construction—
not as a financing mechanism.
Revenue bond financing
Infrastructure Bank
We are in the process of trying to get PPP legislation passed.
[State] has the statutory authority to utilize a Design-Build-Finance (DBF) approach to
advance projects programmed in the adopted work program of the department.
Enterprise funded airport
The next few questions pertain to how you (or your agency) make decisions regarding
PPPs. If your agency has not yet seriously assessed possibilities for any highway-
related PPPs, please click “Next Page” at the bottom of the screen and skip ahead to
question #7.
delivery in your agency ?
Total Extremely Somewhat Not

Responses Important Important Important N/A
29 16 7 2 4
Project is an urgent transportation need
32.7%* 14.3% 4.1% 8.2%
Strong political, public, and institutional 30 17 8 5
—
Support 34.7% 16.3% 10.2%
30 17 8 5
Project acceleration potential —
34.7% 16.3% 10.2%
Project could generate sufficient revenues to 30 15 6 9
—
attract private investment 30.6% 12.2% 18.4%
29 18 5 1 5
Lack of traditional funding
36.7% 10.2% 2.0% 10.2%
High-risk project that could be better 29 8 10 6 5
managed by private sector 16.3% 20.4% 12.2% 10.2%
30 1 5 11 13
Unsolicited proposal
2.0% 10.2% 22.4% 26.5%
14 1 13
Other (specify below): — —
2.0% 26.5%
*Percentage indicates proportion of total surveys, including those that returned no response to Q5.
All items will be important if/when PPP proposals become active

[State] does not routinely use PPPs.
These are the considerations that we have used in trying to get legislation passed.
6) How important have the following measures been in protecting the public’s interest
in your state? If your agency has not used a particular measure, please indicate
“(N/A). ”

68

Comprehensive evaluation of benefits and 28 17 4 7
—
costs of PPP proposals 34.7%* 8.2% 14.3*
Public participation and opportunities for 28 15 8 5
—
input in decision-making process 30.6% 16.3% 10.2%
Providing public access to information related 28 11 10 1 6
to PPP proposals 22.4% 20.4% 2.0% 12.2%
27 19 5 3
Avoidance of conflict of interests —
38.8% 10.2% 6.1%
Terms of agreement are developed taking 28 19 4 5
—
into consideration public concerns 38.8% 8.2% 10.2%
Development of construction, maintenance 28
19 2 7
and operations standards that meet or —
38.8% 4.1% 14.3%
exceed standards for non-PPP projects
Continuous project monitoring and evaluation 28 16 6 6
—
based on performance measures 32.7% 12.2% 12.2%
Roles, responsibilities, and risks are both 28
22 1 5
clearly defined and allocated between public —
44.9% 2.0% 10.2%
and private partners
13 2 11
Other (specify): — —
4.1% 22.4%

the decision-making and negotiation process of PPPs. In your opinion, how
important are the following concerns? Please note that Questions 7a through 7d are
required.
Very Somewhat Not

Unclear/unavailability of criteria for selection of PPPs 22 22 5
44.9% 44.9% 10.2%
Considerations of alternative PPP models 15 30 4
30.6% 61.2% 8.2%
Consistency with 3C (i.e., continuing, comprehensive, and 26 19 4
cooperative) transportation planning process 53.1% 38.8% 8.2%
Effect on overall transportation network/system 35 14
—
71.4% 28.6%
Very Somewhat Not

Availability and consistent application of evaluation tools, such 40 8 1
as Value for Money and benefit-cost analysis 81.6% 16.3% 2.0%

69
Risk allocation between public and private sectors 43 6

—
87.8% 12.2%
Potential excessive rates of return to private investors 35 13 1
71.4% 26.5% 2.0%
Relative roles of public and private sector 35 12 2
71.4% 24.5% 4.1%
Effect of PPPs on state or local bonding capacity 21 17 11
42.9% 34.7% 22.4%
Very Somewhat Not

Lack of public input opportunities through decision-making 27 19 3
process 55.1% 38.8% 6.1%
Transparency and efficacy of the PPP process, including 33 15 1
confidentiality, conflict of interests, intellectual property. 67.3% 30.6% 2.0%
Lack of time for appropriate legislative branch review or no 23 17 9
legislative branch review 46.9% 34.7% 18.4%
22 20 7
Use of upfront proceeds
44.9% 40.8% 14.3%
Very Somewhat Not

Extent to which terms of agreement protect the public interest 46 3
—
93.9% 6.1%
Liability, indemnification, insurance provisions 39 9 1
79.6% 18.4% 2.0%
Revenue sharing formula 34 13 2
69.4% 26.5% 4.1%
Clauses that limit public ability to make competing 24 22 3
improvements 49.0% 44.9% 6.1%
Unanticipated event provisions 24 23 2
49.0% 46.9% 4.1%
Impacts on existing revenues 31 11 7
63.3% 22.4% 14.3%
Toll-setting policies (e.g., schedule of rate increases and 33 7 9
indexing factors) 67.3% 14.3% 18.4%
Safety, enforcement, and national security issues 27 21 1
55.1% 42.9% 2.0%
Initial construction warranties and maintenance standards 37 12
—
75.5% 24.5%
Termination, buyouts, and hand-back provisions 40 8 1
81.6% 16.3% 2.0%
Environmental safeguards 35 13 1
71.4% 26.5% 2.0%
Labor relations issues 15 26 8
30.6% 53.1% 16.3%
Asset control and ownership, including commercial 33 13 3

70
development rights 67.3% 26.5% 6.1%

Terms related to condition of asset at end of concession 41 7 1
83.7% 14.3% 2.0%
Implications of foreign control of domestic assets and work 12 24 13
24.5% 49.0% 26.5%
Opportunity for local contractors/consultants to participate 33 13 3
67.3% 26.5% 6.1%
Data privacy and ownership 18 25 6
36.7% 51.0% 12.2%
Impact of project on alternative routes 27 19 3
55.1% 38.8% 6.1%
Trade agreement implications 9 26 14
18.4% 53.1% 28.6%
Length of agreement 30 17 2
61.2% 34.7% 4.1%
you or your agency.
Competition between new border crossing and existing private toll bridge—very important.
As [DOT] has not used PPPs, these are the anticipated levels of concern we would consider upon
considering entering a PPP. [State]’s rural nature and low traffic volumes (relative) preclude tolling
as a viable revenue option.
There is not currently legislation in [state] to allow PPP other than design build. Some interest has
been generated by the [Legislature] on PPPs. [DOT] needs to gain expertise in this area quickly.
Our responses to this survey mostly apply to our design-build contracts—not to other kinds of
PPPs.
All public concerns are critical to the [DOT]. The public represents our primary customer base.
[State] is a right to work state with respect to labor issues and has a [mandate] with respect to
access to any and all project documentation that is very strict with respect to making any
information confidential.
High Moderate Low

Non-standard procurement or bidding capabilities 14 19 16
28.6% 38.8% 32.7%
Legislative research and analysis 24 20 5
49.0% 40.8% 10.2%
Asset planning and evaluation 17 25 7
34.7% 51.0% 14.3%
Performance specification 24 17 8
49.0% 34.7% 16.3%
Risk assessment 12 28 9
24.5% 57.1% 18.4%
Benefit-cost analyses 13 30 6
26.5% 61.2% 12.2%
Financial management and analysis 24 22 3
49.0% 44.9% 6.1%

71
Management oversight 27 21 1
55.1% 42.9% 2.0%
Contract negotiation and performance-based 18 28 3
Contracting 36.7% 57.1% 6.1%
Other technical skills not listed above 1 19 29
2.0% 38.8% 59.2%
Economic/risk analysis skills for evaluation purposes are lacking. Engineering skills much better
developed.
With respect to those items marked as moderate, we are currently in the process of negotiating
several P3 contracts. As we progress through these negotiations our skill sets with respect to each
of these areas continues to grow.
[DOT] has highly capable staff, the rural nature of the state place limitations on the viability of
implementing PPPs. Transportation system use fees are not a viable source of revenue—the
federal program is critical.
Limited experience from which to respond.
9) The table below lists various tools that may be used to select a private partner.
Please indicate the degree to which your agency uses any of these tools when
considering a PPP proposal.
Use Use Use N/A (Do Not

Frequently Sometimes Rarely Use)
Benefit-cost analyses 14 15 2 18
28.6% 30.6% 4.1% 36.7%
Internal Rate of Return/Net Present Value 13 9 5 22
analyses 26.5% 18.4% 10.2% 44.9%
Value-for-Money/Public Sector comparators 9 9 6 25
18.4% 18.4% 12.2% 51.0%
Traffic and Revenue Studies 17 5 6 21
34.7% 10.2% 12.2% 42.9%
Risk assessment 16 7 4 22
32.7% 14.3% 8.2% 44.9%
Availability Payment Amount/Net Present 11 8 8 22
value 22.4% 16.3% 16.3% 44.9%
Independent evaluation from legal and/or 14 10 4 21
financial consultants 28.6% 20.4% 8.2% 44.9%
Other (specify below): 3 1 38
—
7.1% 2.4% 90.5%
Technical competency
We do not use PPPs
As [DOT] has not used PPPs, these are anticipated levels of use if PPPs are considered.
Agency would use all tools if/when P3 proposals actively considered
None are currently applicable in [State], as we don’t currently consider PPP proposals.
Not currently considering a PPP
Cannot respond due to minimal use of PPPs.
Have not engaged in PPPs to date
To date we have used all or some form of combination of these tolls for our internal vetting
purposes as well as for external reporting requirements of [mandate].
Rated all N/A because we have not evaluated a proposal.

72
Haven’t considered highway related PPPs to any extent; therefore, have not had occasion to
assess this question.
The next two questions pertain to information used in making decisions about PPPs. If
your agency has not yet seriously assessed possibilities for any highway-related PPPs,
please click “Next Page” at the bottom of the screen and skip ahead to Question #12.
10) What information on PPP proposals is available to decision makers, and who
provides the information? Select all that apply:
Project Consultants and

sponsor legal/financial Private This
(e.g., state advisors investors Media (e.g., information
DOT, toll contracted by bidding on Interest newspaper, is not
authority) project sponsor the project groups TV, blogs) available
Terms of agreement 14 13 11 5 4 1
28.6%* 26.5% 22.4% 10.2% 8.2% 2.0%
Experience/qualification of 12 12 10 3 4 1
Proposers 24.5% 24.5% 20.4% 6.1% 8.2% 2.0%
Risks transferred from and 15 11 8 3 2 2
retained by public sector 30.6% 22.4% 16.3% 6.1% 4.1% 4.1%
Evaluation of
14 13 4 3 3 2
benefits/disbenefits to
28.6% 26.5% 8.2% 6.1% 6.1% 4.1%
public sector
PPP valuation studies (e.g.,
benefit-cost analysis, value-
14 14 5 2 2 1
28.6% 28.6% 10.2% 4.1% 4.1% 2.0%
provided by in-house staff
or consultants
Project cost estimates and 14 12 9 3 3 1
Schedule 28.6% 24.5% 18.4% 6.1% 6.1% 2.0%
Amount of upfront
10 9 9 2 2 5
payment/revenue sharing
20.4% 18.4% 18.4% 4.1% 4.1% 10.2%
(if long-term concession)
Assumptions used by private
7 9 6 1 1 5
investors to determine
14.3% 18.4% 12.2% 2.0% 2.0% 10.2%
project value
Technical approach 14 12 11 3 2 1
28.6% 24.5% 22.4% 6.1% 4.1% 2.0%
Other (specify in “Additional 1 11
— — — —
Comments” box below): 2.0% 22.4%
*Percentage indicates proportion of total surveys, including those that returned no response to
Q10.
[DOT] develops an internal project costs and finance plan that is used as a comparator to the
proposer’s submission. Our responses with respect to this question are directly related to who
develops each subject area.
By state law, all the above information is required to be provided to the public.

73
information that you did not have, but that could have been beneficial in the
decision-making process?
Of 15 responses:
Yes 6
40%
No 9
60%

Costs/value of transferred risk
Private investor’s internal rate of return calculations
No PPP projects completed. Knowledge of future would be helpful.
Best practices or case studies would be beneficial
Current toll PPPs are in development stages.
More detailed Traffic and Revenue at onset of proposal review
Public sector financing alternatives
The questions below list various topics related to PPPs. For each of the following
topics, please indicate whether you believe staff in your agency would benefit from
training or other educational resources. Questions 12a through 12g are required.

The PPP concept, basic types, features, and tradeoffs 24 14 11
among them 49.0% 28.6% 22.4%
How federal and state law can influence the use of 19 15 15
PPPs 38.8% 30.6% 30.6%
What skills your agency needs in house, and what it 24 13 12
can outsource 49.0% 26.5% 24.5%

Diagnosing risks to both partners at each phase of a 31 13 5
project 63.3% 26.5% 10.2%
30 13 6
Where and when risk is best managed
61.2% 26.5% 12.2%
32 12 5
Valuation of different types of risk
65.3% 24.5% 10.2%


74
How to assess the economic costs and benefits of a 32 12 5

given project 65.3% 24.5% 10.2%
23 12 14
How to use debt (including private activity bonds)
46.9% 24.5% 28.6%
27 13 9
How to utilize private capital
55.1% 26.5% 18.4%
23 16 10
Opportunities for in-kind contributions
46.9% 32.7% 20.4%
30 13 6
Possible revenue sources and negotiating terms of use
61.2% 26.5% 12.2%
Differences in public and private sector financial 31 13 5
considerations 63.3% 26.5% 10.2%

24 16 9
How to write RFPs that incorporate PPP concepts
49.0% 32.7% 18.4%
Anticipating and managing private sector concerns 23 19 7
with process 46.9% 38.8% 14.3%
12e. Contracting:

How to write a contract that encourages innovation 30 15 4
and sharing of risk and rewards 61.2% 30.6% 8.2%
28 15 6
Best practices in leveraging private resources
57.1% 30.6% 12.2%
Common failures of PPP contracts, and how they are 35 11 3
addressed 71.4% 22.4% 6.1%

31 14 4
Unique oversight challenges of PPP projects
63.3% 28.6% 8.2%
Techniques for monitoring technical and financial 33 11 5
performance 67.3% 22.4% 10.2%

20 24 5
40.8% 49.0% 10.2%
Anticipating and managing common public concerns 22 22
—
about PPPs 50% 50%

75
FHWA provides some resources via the PPP Toolkit , partner websites such as the FHWA
PPP website , and other relevant sites which can be accessed through the FHWA PPP
website, including www.innovativefinance.org. This question contains two parts, and
pertains to PPP websites, as well as other types of resources.
First, please indicate how likely you or staff in your agency would be to use or
participate in each of the following types of educational activities. Then, please
indicate if you or staff in your agency has used these kinds of resources within the past
two years.
Participated Within
Likelihood that Staff Would Benefit Past 2 (Two) Years?
Somewhat
Very likely likely Not likely Yes No
Scan of 2–3 agencies with significant 15 22 12 21 28
experience in PPPs (3–4 days, including 30.6% 44.9% 24.5% 42.9% 57.1%
overnight stay)
Classroom training (1–2 days at or near your 23 16 10 11 38
office) 46.9% 32.7% 20.4% 22.4% 77.6%
Classroom training (1–2 days, including 11 21 17 10 39
overnight stay) 22.4% 42.9% 34.7% 20.4% 79.6%
Interactive workshop (half to full day, at or 20 18 11 14 35
near your office) 40.8% 36.7% 22.4% 28.6% 71.4%
Interactive workshop (half to full day, off site, 8 24 17 8 41
including overnight stay) 16.3% 49.0% 34.7% 16.3% 83.7%
Peer-to-peer exchange (one day, at or near 21 15 13 14 35
your office) 42.9% 30.6% 26.5% 28.6% 71.4%
Peer-to-peer exchange (one day, off site, 9 23 17 17 32
On-line training modules (self-paced) 7 19 23 2 47
14.3% 38.8% 46.9% 4.1% 95.9%
Webinar (Web- and telephone-assisted 11 19 19 10 39
seminar) 22.4% 38.8% 38.8% 20.4% 79.6%
Web-based repository of case studies and 14 21 14 15 34
effective practices 28.6% 42.9% 28.6% 30.6% 69.4%
Yes 14
28.6%
No 35
71.4%
Our current PPP experience is limited in [state], but we anticipate that the Turnpike Authority will
utilize this approach a great deal.
No
Encountered difficulties with survey program—Q15, I entered budget as $14 M and was not
recognized. Took me a while to figure out where. Same for last Q—I entered our postal code (as
we don’t have zip codes). Same error statement was given as field is only designed for numbers
(no letters). All is good tho!

76
The small size of [DOT]’s capital program and limited applicability of road tolling in [state] have
prevented us from making use of PPPs so far. Nonetheless, we are developing this agency’s
capacity to invite and evaluate PPP proposals.
[DOT] is interested in pursuing innovative financing mechanisms that are viable considering the
rural characteristics of our state. If vehicle use or road user fees are pursued as a source of
revenue for the Federal program, the distribution of those funds must reflect the need to invest in
rural state transportation systems that provide critical connectivity between the country’s
population and industry centers.
No attention to definition of PPP
THE RESPONSES ARE NOT INTENDED TO APPLY TO INQUIRIES ABOUT TOLL ROADS
There is no enabling legislation for PPPs in [state] other than tolling authority and design-build
authority. No opportunities for PPPs in [state] have proven to be viable options.
Currently, [DOT] is not actively pursuing the use of PPPs for delivery of our highway program.
We have expressed several times our concern with the growing federal emphasis on PPP at the
expense of continued federal support. In smaller states, we do not find this helpful and are
scrambling to find opportunities for using PPP when our focus is on maintenance/preservation, we
aren’t building new capacity, and our AADT and populations don’t appear sufficient to support
most PPP constructs.
We are in the process of trying to obtain PPP legislation. Most of our answers are predicated on
our work to gather data for this and the feasibility studies along with our pilot experience on the
[Project] with [firm] as our private partner.
II. Summary of Responses from U.S. States

Yes No
Design-build 36 8
81.8% 18.2%
11.4% 88.6%
revenue risk 36.4% 63.6%
payments or shadow tolls 18.2% 81.8%
Long-term asset lease of an existing toll road with transfer of revenue risk 2 42
4.5% 95.5%
Long-term asset lease of an existing toll road with availability payments or 10 34
shadow tolls 22.7% 77.3%
Added toll lanes on existing facilities with transfer of revenue risk 7 37
15.9% 84.1%
Added toll lanes on existing facilities with availability payments or shadow tolls 10 34
22.7% 77.3%
31.8% 68.2%
6.8% 93.2%
Program and Financial Management Fee Service Contracts 4 40
9.1% 90.9%

77
None 10 34
22.7% 77.3%
22.7% 77.3%

Design-build-finance warranty
Design-build own operate
New toll bridge
Developer paying for interchanges
We have “considered” design-build for special circumstances, but do not have legislative
authority currently.
The [DOT] currently does not have statutory authority to undertake any type of PPP;
however, legislation has been introduced to allow such contracts.
Hired Management Consultants to oversee our Local Program delivery. Used a Public Private
venture to redevelop the [city] Intermodal Station (formerly the Amtrak Depot). Investigated
P3’s for Park & Ride lots.
Bond Acceleration Program
Long-term concession of existing non-tolled facility with availability payments and long-term
lease of existing non-state owned toll facility with availability payments
Rail Station and Parking
PPPs?
40.9%
20.5%
We have received one or more proposals (solicited or unsolicited) from potential 5
private partners. 11.4%
We have negotiated (or are negotiating) one or more contracts to enter into a PPP. 3
6.8%
20.5%
3) Which one statement below best describes your agenc y’s overall readiness to
partnerships?

13.6%
25.0%
The agency has experience with design-build but is not yet involved in any projects 14
financed with private capital. 31.8%
29.5%

78
Use Use Use N/A

Frequently Sometimes Rarely (Do Not Use)
Traditional procurement 43 1
— —
97.7% 2.3%
Public financing 25 8 2 9
56.8% 18.2% 4.5% 20.5%
Federal financing tools (e.g., TIFIA, 4 18 9 13
GARVEES) 9.1% 40.9% 20.5% 29.5%
Creation of non-profit, quasi-public 1 4 11 28
entities 2.3% 9.1% 25.0% 63.6%
Design-build 6 15 9 14
13.6% 34.1% 20.5% 31.8%
Others (please describe below): 3 2 1 13
6.8% 4.5% 2.3% 29.5%

Use frequently
None
Commission issued bonds
We have considered TIFIA and creation of non-profit and quasi-public entities, but have yet
to use find the appropriate application.
We have worked a number of PPPs with communities around [state]. When businesses
develop they install turn lanes and signals at their cost. Communities have also added dollars
to projects that facilitate the movement of traffic.
[DOT] uses pass-thru financing tolls that are privately financed and publicly repaid.
[DOT] has had design build projects—but they are developed for accelerated construction—
not as a financing mechanism.
Revenue bond financing
Infrastructure Bank
We are in the process of trying to get PPP legislation passed.
[State] has the statutory authority to utilize a Design-Build-Finance (DBF) approach to
advance projects programmed in the adopted work program of the department.
Enterprise funded airport
The next few questions pertain to how you (or your agency) make decisions regarding
PPPs. If your agency has not yet seriously assessed possibilities for any highway-
related PPPs, please click “Next Page” at the bottom of the screen and skip ahead to
Question #7.

Project is an urgent transportation need 26 15 6 1 4
34.1%* 13.6% 2.3% 9.1%
Strong political, public, and institutional 27 16 6 5
—
support 36.4% 13.6% 11.4%
Project acceleration potential 27 15 7 5
—
34.1% 15.9% 11.4%
Project could generate sufficient revenues 27 14 6 7
—
to attract private investment 31.8% 13.6% 15.9%

79
Lack of traditional funding 26 17 4 5

—
38.6% 9.1% 11.4%
High-risk project that could be better 26 7 9 5 5
managed by private sector 15.9% 20.5% 11.4% 11.4%
Unsolicited proposal 27 1 5 10 11
2.3% 11.4% 22.7% 25.0%
Other (specify below): 12 1 11
— —
2.3% 25.0%

“(N/A).”

Comprehensive evaluation of benefits and 25 14 4 7
—
costs of PPP proposals 31.8%* 9.1% 15.9%
Public participation and opportunities for 25 14 6 5
—
input in decision-making process 31.8% 13.6% 11.4%
Providing public access to information 25 10 8 1 6
related to PPP proposals 22.7% 18.2% 2.3% 13.6%
Avoidance of conflict of interests 24 16 5 3
—
36.4% 11.4% 6.8%
Terms of agreement are developed taking 25 17 3 5
—
into consideration public concerns 38.6% 6.8% 11.4%
Development of construction, maintenance 25
16 2 7
and operations standards that meet or —
36.4% 4.5% 15.9%
Continuous project monitoring and 25
13 6 6
evaluation based on performance —
29.5% 13.6% 13.6%
measures
Roles, responsibilities, and risks are both 25
19 1 5
clearly defined and allocated between —
43.2% 2.3% 11.4%
public and private partners
Other (specify): 11 2 9
— —
4.5% 20.5%

important are the following concerns? Please note that Questions 7a through 7d are
required.

80
Very Somewhat Not

47.7% 43.2% 9.1%
Considerations of alternative PPP models 15 26 3
34.1% 59.1% 6.8%
Consistency with 3C (i.e., continuing, comprehensive, and 24 18 2
cooperative) transportation planning process 54.5% 40.9% 4.5%
—
74.7% 27.3%
Very Important Somewhat Important Not Important

Availability and consistent application of evaluation
36 7 1
tools, such as Value for Money and benefit-cost
81.8% 15.9% 2.3%
analysis
Risk allocation between public and private sectors 38 6
—
86.4% 13.6%
Potential excessive rates of return to private 31 12 1
investors 70.5% 27.3% 2.3%
75.0% 22.75 2.3%
Effect of PPPs on state or local bonding capacity 21 15 8
47.7% 34.1% 18.2%
Very Somewhat Not

Lack of public input opportunities through decision-making 23 15 3
process 52.3% 34.1% 6.8%
Transparency and efficacy of the PPP process, including 30 13 1
confidentiality, conflict of interests, intellectual property. 68.2% 29.5% 2.3%
legislative branch review 50.0% 31.8% 18.2%
Use of upfront proceeds 21 18 5
47.75 40.9% 11.4%
Very Somewhat Not

Extent to which terms of agreement protect the public interest 41 3
—
93.2% 6.8%
Liability, indemnification, insurance provisions 34 9 1
77.3% 20.5% 2.3%
70.55% 27.3% 2.3%

81

improvements 50.0% 45.5% 4.5%
Unanticipated event provisions 22 20 2
50.0% 45.5% 4.5%
65.9% 22.7% 11.4%
Toll-setting policies (e.g., schedule of rate increases and 31 7 6
indexing factors) 70.5% 15.9% 13.6%
Safety, enforcement, and national security issues 24 20
—
54.5% 45.5%
Initial construction warranties and maintenance standards 32 12
—
72.7% 27.3%
Termination, buyouts, and hand-back provisions 36 7 1
81.8% 15.9% 2.3%
Environmental safeguards 31 12 1
70.5% 27.3% 2.3%
29.5% 56.8% 13.6%
development rights 68.2% 27.3% 4.5%
Terms related to condition of asset at end of concession 36 7 1
81.8% 15.9% 2.3%
Implications of foreign control of domestic assets and work 12 22 10
27.3% 50.0% 22.7%
70.5% 25.0% 4.5%
36.4% 52.3% 11.4%
56.8% 40.9% 2.3%
Trade agreement implications 9 21 14
20.5% 47.7% 31.8%
Length of agreement 26 16 2
59.1% 36.4% 4.5%
you or your agency.
Competition between new border crossing and existing private toll bridge—very important.
As [DOT] has not used PPPs, these are the anticipated levels of concern we would consider upon
considering entering a PPP. [State]’s rural nature and low traffic volumes (relative) preclude tolling
as a viable revenue option.
There is not currently legislation in [state] to allow PPP other than design build. Some interest has
been generated by the [Legislature] on PPP. [DOT] needs to gain expertise in this area quickly.
Our responses to this survey mostly apply to our design-build contracts—not to other kinds of PPP.
All public concerns are critical to the [DOT]. The public represents our primary customer base.
[State] is a right to work state with respect to labor issues and has a [mandate] with respect to
access to any and all project documentation that is very strict with respect to making any
information confidential.

82
High Moderate Low

Non-standard procurement or bidding capabilities 12 19 13
27.3% 43.2% 29.5%
52.3% 38.6% 9.1%
34.1% 52.3% 13.6%
50.0% 36.4% 13.6%
20.5% 61.4% 18.2%
25.0% 65.9% 11.4%
47.7% 47.7% 4.5%
Management oversight 23 20 1
52.3% 45.5% 2.3%
Contract negotiation and performance-based contracting 14 27 3
31.8% 61.4% 6.8%
Other technical skills not listed above 16 28
—
36.4% 63.6%
Economic/risk analysis skills for evaluation purposes are lacking. Engineering skills much better
developed.
With respect to those items marked as moderate, we are currently in the process of negotiating
several P3 contracts. As we progress through these negotiations our skill sets with respect to each
of these areas continues to grow.
[DOT] has highly capable staff, the rural nature of the state place limitations on the viability of
implementing PPPs. Transportation system use fees are not a viable source of revenue—the
federal program is critical.
Limited experience from which to respond.

83

Benefit-cost analyses 12 13 2 17
27.3% 29.5% 4.5% 38.6%
Internal Rate of Return/Net Present Value 11 8 5 20
analyses 25.0% 18.2% 11.4% 45.5%
15.9% 18.2% 11.4% 54.5%
Traffic and Revenue Studies 17 4 5 18
38.6% 9.1% 11.4% 40.9%
34.1% 11.4% 6.8% 47.7%
Availability Payment Amount/Net Present Value 8 8 7 21
18.2% 18.2% 15.9% 47.7%
Independent evaluation from legal and/or financial 13 8 3 20
consultants 29.5% 18.2% 6.8% 45.5%
Other (specify below): 3 8 1 34
6.8% 18.2% 2.3% 77.3%
Technical competency
We do not use PPPs
As [DOT] has not used PPPs, these are anticipated levels of use if PPPs are considered.
Agency would use all tools if/when P3 proposals actively considered
None are currently applicable in [State], as we don’t currently consider PPP proposals.
Not currently considering a PPP
Can not respond due to minimal use of PPPs.
Have not engaged in PPPs to date
To date we have used all or some form of combination of these tolls for our internal vetting
purposes as well as for external reporting requirements of [mandate].
Rated all N/A because we have not evaluated a proposal.
Haven’t considered highway related PPP’s to any extent therefore have not had occasion to assess
this question.
please click “Next Page” at the bottom of the screen and skip ahead to Question #12.

84

Sponsor legal/financia l Private This
(e.g., state advisors Investors Media (e.g., information
Terms of agreement 12 12 10 5 4 1
27.3%* 27.3% 22.7% 11.4% 9.1% 2.3%
Experience/qualification of 10 11 10 3 4 1
proposers 22.7% 25.0% 22.7% 6.8% 9/1% 2.3%
Risks transferred from and 13 10 8 3 2 2
retained by public sector 27.3% 22.7% 18.2% 6.8% 4.5% 4.5%
Evaluation of 12 12 4 3 3 2
benefits/disbenefits to 27.3% 27.3% 9.1% 6.8% 6.8% 4.5%
public sector
PPP valuation studies (e.g., 12 13 5 2 2 1
benefit-cost analysis, value- 27.3% 29.5% 11.4% 4.5% 4.5% 2.3%
provided by in-house staff
or consultants
Project cost estimates and 12 11 9 3 3 1
schedule 27.3% 25.0% 20.5% 6.8% 6.8% 2.3%
Amount of upfront 9 9 9 2 2 4
payment/revenue sharing 20.5% 20.5% 20.5% 4.5% 4.5% 9.1%
(if long-term concession)
Assumptions used by private 6 9 6 1 1 4
investors to determine 13.6% 20.5% 13.6% 2.3% 2.3% 9.1%
project value
Technical approach 12 11 11 3 2 1
27.3% 25.0% 25.0% 6.8% 4.5% 2.3%
Other (specify in “Additional 1 — — — — 9
Comments” box below): 2.3% 20.5%
*Percentage indicates proportion of total surveys, including those that returned no response to
Q10.
[DOT] develops an internal project costs and finance plan that is used as a comparator to the
proposer’s submission. Our responses with respect to this question are directly related to who
develops each subject area.
By state law, all the above information is required to be provided to the public.

85
Of 13 responses:
Yes 6
46.1%
No 7
53.9%

Costs/value of transferred risk
Private investor’s internal rate of return calculations
No PPP projects completed. Knowledge of future would be helpful.
Best practices or case studies would be beneficial
Current toll PPPs are in development stages.
More detailed Traffic and Revenue at onset of proposal review
Public sector financing alternatives

The PPP concept, basic types, features and tradeoffs 22 14 8
among them 50.0% 31.8% 18.2%
How federal and state law can influence the use of 18 15 11
PPPs 40.9% 34.1% 25.0%
What skills your agency needs in house, and what it 22 13 9
can outsource 50.0% 29.5% 20.5%

Diagnosing risks to both partners at each phase of a 29 11 4
project 65.9% 25.0% 9.1%
Where and when risk is best managed 27 12 5
61.4% 27.3% 11.4%
Valuation of different types of risk 28 12 4
63.6% 27.3% 9.1%

86

How to assess the economic costs and benefits of a 30 10 4
given project 68.2% 22.7% 9.1%
How to use debt (including private activity bonds) 22 12 10
50.0% 27.3% 22.7%
How to utilize private capital 25 13 6
56.8% 29.5% 13.6%
Opportunities for in-kind contributions 22 15 7
50.0% 34.1% 15.9%
Possible revenue sources and negotiating terms of use 28 13 3
63.6% 29.5% 6.8%
Differences in public and private sector financial 27 13 4
considerations 61.4% 29.5% 9.1%

How to write RFPs that incorporate PPP concepts 22 15 7
50.0% 34.1% 15.9%
Anticipating and managing private sector concerns 21 17 6
with process 47.7% 38.6% 13.6%
12e. Contracting:

How to write a contract that encourages innovation 27 14 3
and sharing of risk and rewards 61.4% 31.8% 6.8%
Best practices in leveraging private resources 26 15 3
59.1% 34.1% 6.8%
Common failures of PPP contracts, and how they are 32 10 2
addressed 72.7% 22.7% 4.5%

Unique oversight challenges of PPP projects 28 13 3
63.6% 29.5% 6.8%
performance 70.5% 20.5% 9.1%

87

19 21 4
43.2% 47.7% 9.1%
Anticipating and managing common public concerns 20 20 4
about PPPs 45.5% 45.5% 9.1%
FHWA provides some resources via the PPP Toolkit , partner websites like the FHWA
PPP website , and other relevant sites that can be accessed through the FHWA PPP
two years.
Likelihood that Staff Would Participated Within Past 2

Benefit (Two) Years?
Very Somewhat Not
likely likely likely Yes No
Scan of 2–3 agencies with significant experience 14 21 9 19 25
in PPPs (3–4 days, including overnight stay) 31.8% 47.7% 20.5% 43.2% 56.8%
office) 47.7% 34.1% 18.2% 20.5% 79.5%
Classroom training (1–2 days, including 9 20 15 8 36
overnight stay) 20.5% 45.5% 34.1% 18.2% 81.8%
Interactive workshop (half to full day, at or near 18 17 9 12 32
your office) 40.9% 38.6% 20.5% 27.3% 72.7%
Peer-to-peer exchange (one day, at or near your 18 15 11 12 32
office) 40.9% 34.1% 25.0% 27.3% 72.7%
13.6% 40.9% 45.5% 2.3% 97.7%
Webinar (web- and telephone-assisted seminar) 11 16 17 8 36
25.0% 36.4% 38.6% 18.2% 81.8%
Web-based repository of case studies and 14 18 12 14 30
effective practices 31.8% 40.9% 27.3% 31.8% 68.2%
Yes 12
27.3%
No 32
72.7%

88
Our current PPP experience is limited in [state], but we anticipate that the Turnpike Authority will
utilize this approach a great deal.
No
The small size of [DOT]’s capital program and limited applicability of road tolling in [state] have
prevented us from making use of PPPs so far. Nonetheless, we are developing this agency’s
capacity to invite and evaluate PPP proposals.
[DOT] is interested in pursuing innovative financing mechanisms that are viable considering the
rural characteristics of our state. If vehicle use or road user fees are pursued as a source of
revenue for the Federal program, the distribution of those funds must reflect the need to invest in
rural state transportation systems that provide critical connectivity between the country’s
population and industry centers.
No attention to definition of PPP
THE RESPONSES ARE NOT INTENDED TO APPLY TO INQUIRIES ABOUT TOLL ROADS
There is no enabling legislation for PPPs in [state] other than tolling authority and design-build
authority. No opportunities for PPPs in [state] have proven to be viable options.
Currently, [DOT] is not actively pursuing the use of PPP’s for delivery of our highway program.
We have expressed several times our concern with the growing federal emphasis on PPP at the
expense of continued federal support. In smaller states, we do not find this helpful and are
scrambling to find opportunities for using PPP when our focus is on maintenance/preservation, we
aren’t building new capacity, and our AADT and populations don’t appear sufficient to support
most PPP constructs.
We are in the process of trying to obtain PPP legislation. Most of our answers are predicated on
our work gather data for this and the feasibility studies along with our pilot experience on the
[Project] with [firm] as our private partner.

89
III. Summary of Responses from Canadian Provinces

Yes No
Design-build 3 2
60% 40%
60% 40%
revenue risk 40% 60%
payments or shadow tolls 40% 60%
Long-term asset lease of an existing toll road with transfer of revenue risk — 5
100%
Long-term asset lease of an existing toll road with availability payments or — 5
shadow tolls 100%
Added toll lanes on existing facilities with transfer of revenue risk — 5
100%
Added toll lanes on existing facilities with availability payments or shadow tolls — 5
100%
20% 80%
40% 60%
Program and Financial Management Fee Service Contracts — 5
100%
None — 5
100%
20% 80%
Comments related to the respondents who specified “ Other” :

Hospital
2) Which one statement below best characterizes your agency ’s overall experience with
PPPs?
40%
20%
We have received one or more proposals (solicited or unsolicited) from potential —
private partners.
We have negotiated (or are negotiating) one or more contracts to enter into a PPP. —
40%
3) Which one statement below best describes your agenc y’s overall readiness to
partnerships?

90

20%
40%
The agency has experience with design-build but is not yet involved in any projects —
financed with private capital.
40%
Please use the “Additional Comments ” box to describe “other ” methods.
Use Use Use N/A

Traditional procurement 5
— — —
100%
Public financing 2 3
— —
40% 60%
Federal financing tools (e.g., TIFIA, 2 3
— —
GARVEES) 40% 60%
Creation of non-profit, quasi-public 1 4
— —
entities 20% 80%
Design-build 2 3
— —
40% 60%
Others (please describe below): 3
— — —
60%
No additional comments.
The next few questions pertain to how you (or your agency) make decisions
regarding PPPs. If your agency has not yet seriously assessed possibilities for any
highway-related PPPs, please click “Next Page” at the bottom of the screen and skip
ahead to Question #7.
Project is an urgent transportation need 3 1 1 1
—
20%* 20% 20%
Strong political, public, and institutional 3 1 2
— —
support 20% 40%
Project acceleration potential 3 2 1
— —
40% 20%
Project could generate sufficient revenues 3 1 2
— —
to attract private investment 20% 40%
Lack of traditional funding 3 1 1 1
—
20% 20% 20%

91
High-risk project that could be better 3 1 1 1

—
managed by private sector 20% 20% 20%
Unsolicited proposal 3 1 2
— —
20% 40%
Other (specify below): 2 2
— — —
40%
“(N/A).”
Comprehensive evaluation of benefits and 3 3 — — —
costs of PPP proposals 60%*
Public participation and opportunities for 3 1 2 — —
input in decision-making process 20% 40%
Providing public access to information 3 1 2 — —
related to PPP proposals 20% 40%
Avoidance of conflict of interests 3 3 — — —
60%
Terms of agreement are developed taking 3 2 1 — —
into consideration public concerns 40% 20%
Development of construction, maintenance 3 3 — — —
and operations standards that meet or 60%
Continuous project monitoring and 3 3 — — —
evaluation based on performance 60%
measures
Roles, responsibilities, and risks are both 3 3 — — —
clearly defined and allocated between 60%
public and private partners
Other (specify): 2 — — — 2
40%
* Percentage indicates proportion of total surveys, including those that returned no response to Q6.
important are the following concerns? Please note that questions 7a through 7d are
required.
Very Somewhat Not

20% 60% 20%
Considerations of alternative PPP models — 4 1

92
80% 20%
Consistency with 3C (i.e., continuing, comprehensive and 2 1 2
cooperative) transportation planning process 40% 20% 40%
—
60% 40%
Very Somewhat Not

Availability and consistent application of evaluation tools, such 4 1
—
as Value for Money and benefit-cost analysis 80% 20%
Risk allocation between public and private sectors 5
— —
100%
Potential excessive rates of return to private investors 4 1
—
80% 20%
40% 40% 20%
Effect of PPPs on state or local bonding capacity 2 3
—
40% 60%
Very Somewhat Not

Lack of public input opportunities through decision-making 1 4
—
process 20% 80%
Transparency and efficacy of the PPP process, including 3 2
—
confidentiality, conflict of interests, intellectual property. 60% 40%
legislative branch review 20% 60% 20%
Use of upfront proceeds 1 2 2
20% 40% 40%
Very Somewhat Not

Extent to which terms of agreement protect the public interest 5
— —
100%
Liability, indemnification, insurance provisions 5
— —
100%
60% 20% 20%
improvements 40% 40% 20%
Unanticipated event provisions 2 3
40% 60%
40% 20% 40%
Toll-setting policies (e.g., schedule of rate increases and 2 — 3

93
indexing factors) 40% 60%

Safety, enforcement and national security issues 3 1 1
60% 20% 20%
Initial construction warranties and maintenance standards 5
— —
100%
Termination, buyouts, and hand-back provisions 4 1
—
80% 20%
Environmental safeguards 4 1
—
80% 20%
40% 20% 40%
development rights 60% 20% 20%
Terms related to condition of asset at end of concession 5
— —
100%
Implications of foreign control of domestic assets and work 2 3
40% 60%
40% 40% 20%
40% 40% 20%
40% 20% 40%
Trade agreement implications 5
— —
100%
Length of agreement 4 1
—
80% 20%
you or your agency.
No responses.
High capability Moderate capability Low capability

Non-standard procurement or bidding capabilities 2 3
—
40% 60%
20% 60% 20%
40% 40% 20%
40% 20% 40%
60% 20% 20%
40% 40% 20%

94
60% 20% 20%

Management oversight 4 1
—
80% 20%
Contract negotiation and performance-based 4 1
—
contracting 80% 20%
Other technical skills not listed above 1 3 1
20% 60% 20%
No responses.
—
40% 40% 20%
Internal Rate of Return/Net Present Value analyses 2 1 2
—
40% 20% 40%
40% 20% 20% 20%
Traffic and Revenue Studies 1 1 3
—
20% 20% 60%
20% 40% 20% 20%
Availability Payment Amount/Net Present Value 3 1 1
—
60% 20% 20%
Independent evaluation from legal and/or financial 1 2 1 1
consultants 20% 40% 20% 20%
Other (specify below): — — — —
No responses.
please click “Next Page ” at the bottom of the screen and skip ahead to Question #12.

sponsor legal/financial Private This
(e.g., state advisors investors Media (eg.,. information
2 1 1
Terms of agreement — — —
40%* 20% 20%
Experience/qualification of 2 1
— — — —
proposers 40% 20%
Risks transferred from and 2 1
— — — —
retained by public sector 40% 20%

95
Evaluation of
2 1
benefits/disbenefits to — — — —
40% 20%
public sector
PPP valuation studies
(e.g., benefit-cost
analysis, value-for-
money analysis/public
2 1
sector comparators, — — — —
40% 20%
traffic and revenue
studies) provided by in-
house staff or
consultants
Project cost estimates and 2 1
— — — —
schedule 40% 20%
Amount of upfront
payment/revenue 1 1
— — — —
sharing (if long-term 20% 20%
concession)
Assumptions used by
1
private investors to — — — — —
20%
determine project value
2 1
Technical approach — — — —
40% 20%
Other (specify in
2
“Additional Comments” — — — — —
40%
box below):
Of two responses:
Yes —
No 2
100%

No responses.

The PPP concept, basic types, features and 2 — 3

96
tradeoffs among them 40% 60%

How federal and state law can influence the use 1 4
—
of PPPs 20% 80%
What skills your agency needs in house, and 2 3
—
what it can outsource 40% 60%

Diagnosing risks to both partners at each phase 2 2 1
of a project 40% 40% 20%
Where and when risk is best managed 3 1 1
60% 20% 20%
Valuation of different types of risk 4 1
—
80% 20%

How to assess the economic costs and benefits of 2 2 1
a given project 40% 40% 20%
How to use debt (including private activity bonds ) 1 4
—
20% 80%
How to utilize private capital 2 3
—
40% 60%
Opportunities for in-kind contributions 1 1 3
20% 20% 60%
Possible revenue sources and negotiating terms 2 3
—
of use 40% 60%
Differences in public and private sector financial 4 1
—
considerations 80% 20%

How to write RFPs that incorporate PPP concepts 2 1 2
40% 20% 40%
Anticipating and managing private sector 2 2 1
concerns with process 40% 40% 20%
12e. Contracting:

How to write a contract that encourages 3 1 1
innovation and sharing of risk and rewards 60% 20% 20%
Best practices in leveraging private resources 2 3
—
40% 60%

97
Common failures of PPP contracts, and how they 3 1 1

are addressed 60% 20% 20%

Unique oversight challenges of PPP projects 3 1 1
60% 20% 20%
performance 40% 40% 20%

Identifying and engaging with key 1 3 1
stakeholders 20% 60% 20%
Anticipating and managing common public 2 2 1
Concerns about PPPs 40% 40% 20%
FHWA provides some resources via the PPP Toolkit , partner websites like the FHWA
PPP website , and other relevant sites which can be accessed through the FHWA PPP
two years.
Likelihood that Staff Would Participated Within Past 2

Benefit (Two) Years?
Very Somewhat Not Yes No
likely likely likely
Scan of 2–3 agencies with significant experience 1 1 3 2 3
in PPPs (3–4 days, including overnight stay) 20% 20% 60% 40% 60%
office) 40% 20% 40% 40% 60%
Classroom training (1–2 days, including overnight 2 1 2 2 3
stay) 40% 20% 40% 40% 60%
Interactive workshop (half to full day, at or near 2 1 2 2 3
your office) 40% 20% 40% 40% 60%
including overnight stay) 20% 40% 40% 40% 60%
Peer-to-peer exchange (one day, at or near your 3 — 2 2 3
office) 60% 40% 40% 60%
including overnight stay) 40% 20% 40% 40% 60%
20% 20% 60% 20% 80%
Webinar (web- and telephone-assisted seminar) — 3 2 2 3

98
60% 40% 40% 60%

Web-based repository of case studies and — 3 2 1 4
Effective practices 60% 40% 20% 80%
Yes 2
40%
No 3
60%
Encountered difficulties with survey program—Q15, I entered budget as 14 M and was not
recognized. Took me a while to figure out where. Same for last Q—I entered our Postal Code (as
we don’t have zip codes). Same error statement was given as field is only designed for numbers
(no letters). All is good tho!

99
APPENDIX C
Other Individuals/Interest Groups Survey Questionnaire
NCHRP Questionnaire for Public Private Partnerships Issues

The NCHRP Synthesis, Public Decision Making in Public Private Partnerships (Project 20-05,
Task 39-06), will examine the information available in the U.S. and internationally that is
needed to properly evaluate the benefits and risks associated with allowing the private
sector to have financial stakes in transportation infrastructure, and how that information
can be used in the decision making process. It will also investigate the reliability of that
information, and how the broader public interest can be protected, and will identify gaps
in public sector expertise, experience, and information.
The purpose of this survey is to find your views on benefits of and concerns on Public–
Private Partnership (PPPs) related to protecting the public interest, and how decision
makers should address these concerns.
If you have any questions about the survey, you may contact Iris Ortiz at
iortiz@camsys.com or at 617-354-0167.
Please complete the survey by February 15, 2008.
1. Name: __________________
2. Name of organization: _________________________
3. What type of organization do you work for?
a. State department of transportation
b. Toll authority
c. Legislature

100
d. Other state agency (specify): _______________________
e. Executive branch of state government
f. Metropolitan planning organization
g. Local government
h. Other government (specify): __________________________
i. Interest groups (specify): __________________________
j. Contractor
k. Design firm
l. Transportation consulting
m. Financial advisor
n. Investment bank
o. Equity firm
p. Legal advisor
q. Other: _______________________________________________________
4. From your perspective, what do you see as the top benefits of public-private partnerships
(PPPs) for the public? List up to five:
1.
2.
3.
4.
5.
5. What are your main concerns related to PPPs? How can each of these concerns be
mitigated? List up to five:
Concerns on PPPs Mitigation Measures

a.
b.
c.

101
d.
e.
6. What are the five most important factors that decision makers should consider with
respect to PPPs?
1.
2.
3.
4.
5.
7. What contract structures or techniques would lead to PPPs that best advance the public
interest?
8. Are there any other comments or perspectives you would like to offer?
9. As we develop our report, we may find it helpful to follow up with selected individuals.
Would you be willing to be interviewed by telephone? If so, please provide your contact
information:
1. E-mail address
2. Phone

102
APPENDIX D
Other Individuals/Interest Groups Survey Summaries
List of Respondents*
Name Organization
Anonymous Legislature
Achterman, Gail Oregon Transportation Commission
Baxandall, Phineas U.S. Public Interest Research Group
Clary, Lowell Lowell Consulting, LLC
DiPietro, Susanne Citizen
Diedrich, Roger Sierra Club, Virginia Chapter
Enright, Dennis NW Financial Group
Epstein, Lois Alaska Transportation Priorities Project
Ford, Richard Washington Transportation Commission
Holman, Bill Nicholas Institute, Duke University
Jacobs, Carl Aeia NB #20
Levenson, Dana RBS Greenwich Securities
Mandel, Nick New Mexico Department of Transportation
Muchnick, Allen Arlington Coalition for Sensible Transportation
Neumann, Dennis BNY Capital Funding
Pagano, Anthony University of Illinois at Chicago
Parker, Jeffrey Jeffrey A. Parker and Associates
Pollard, Trip Southern Environmental Law Center
Poole, Robert Reason Foundation
Redfield, Beth Office of Program Research, Washington State
Legislature
Richards, Mary Massachusetts Organization of State Engineers and
Scientists
Staley, Samuel Reason Foundation
Toppin, Ted Professional Engineers in California Government
Woodland, John New Mexico Department of Transportation
*Note: The list of respondents is organized by alphabetical order, and in no way does it reflect the order of responses
provided in the following pages.

103
Respondent #1
Type of Organization c. Legislature

Top benefits of PPP 1. Rapid construction
2. Less costly
PPP Concern 1 Another alternative
PPP Concern Mitigation 1 [State] passed an Act that made it possible to have a regional
highway provider
PPP Concern 2
PPP Concern Mitigation 2
PPP Concern 3
PPP Concern 4
PPP Concern 5
Factors to consider by decision- State loses control
makers
Contract structures/techniques
to protect public interests
Other perspectives
Respondent #2
Type of Organization c. Legislature

Top benefits of PPP 1. Cash flow
2. More flexibility in use of resources
PPP Concern 1 Less control over toll rates
PPP Concern Mitigation 1 Law and contract terms to include public role in setting toll rates.
PPP Concern 2 Contractual provisions that tie the hands of public entities
PPP Concern Mitigation 2 More knowledgeable public contract negotiators
PPP Concern 3 More expensive toll rates for longer periods of time with less public
benefit
PPP Concern Mitigation 3 Public financing
PPP Concern 4 Not clear whether the private lessor will exercise good stewardship
for the facility. When the lease is up, in what condition will the
facility be returned to the public?
PPP Concern Mitigation 4 Performance measures
PPP Concern 5
Factors to consider by decision- Is it really cheaper? Are the benefits from using a PPP worth any
makers additional costs borne by the public? Are the benefits worth loss of
control of the facility?
Other perspectives

104
Respondent #3
Type of Organization l. Transportation Consulting

Top benefits of PPP 1. Private Sector Expertise
2. Use Others Money
3. Promote Innovation in Project Development and Delivery/Profit
Motive
4. Accelerate High Profile Projects
PPP Concern 1 Lack of understanding and clear communication on what a PPP is
and is not such as PPPs do not solve funding shortfalls and are a
delivery tool. A funding option, such as tolls, is needed for a PPP to
be successful.
PPP Concern Mitigation 1 Education of key policy makers at a high level of PPPs and also
training programs for key staff such as CFOs, chief engineers, etc.
PPP Concern 2 A few “risky-on the edge” PPP deals cause concerns among the key
policy makers and a good delivery tool is thrown out. For example,
some risky toll roads built by public entities have struggled, yet toll
roads continue to get promoted. It should be the same with PPPs.
PPP Concern Mitigation 2 Put in place solid PPP processes that help promote the best projects
and finance plans moving forward and limit the highly risky
projects/schemes from moving forward.
PPP Concern 3 Brownfield toll roads being leased over long period without the
public owner sharing in the upside of the revenue stream.
PPP Concern Mitigation 3 There should be strong consideration for policy provisions that
require the governmental entity to share in the upside revenue on the
lease of toll roads. This should not be overly prescriptive, but give the
flexibility needed for each state to work within an overall policy and
then apply this based on the specific situation.
PPP Concern 4 Some PPP projects seem to be starting way too early in the project
development process. This may lead to “negotiated” deals that might
or might not generate the best bang for the public owner.
PPP Concern Mitigation 4 This is a tough one. How do you prescribe a one size fits all policy
without killing innovation? Possibly requiring a solid Value for
Money analysis at a minimum before moving forward and then
based on the final proposal would help ensure a good analysis is
provided before signing the deal.
PPP Concern 5 Congress might become overly prescriptive on the PPP process and
toll roads.
PPP Concern Mitigation 5 States must educate their Congressional members that all tools must
be provided in today’s environment to provide states the flexibility
needed to deliver timely transportation improvements.
Factors to consider by decision- 1. Pick the right projects that fit the PPP profile
makers 2. Be patient and start at the right time in the project development
process (generally with environmental clear or almost clear)
3. Hire good PPP advisors (legal and financial are most important)
4. Develop a clear and consistent PPP process
5. Be patient and persistent—large PPPs are not for the faint of heart!

105
Contract structures/techniques This depends on the goals to be accomplished. The best answer is to
to protect public interests build a solid transparent PPP process that is competitive and the
results will speak for themselves.
Other perspectives It seems the survey focuses mostly on the “needs improvement” side
of the PPP discussion. This may tend to convey there are “problems”
when the facts are showing the states that have been working with
PPPs for several years have good solid PPP processes. The key seems
to be to find a way to shorten the learning curve for those new to
PPPs.
Respondent #4
Type of Organization Other; Public Policy Think Tank

Top benefits of PPP 1. new capital brought into infrastructure,
2. economic life-cycle management,
3. customer driven focus,
4. access to private equity markets, and
5. long-term incentives to maintain facilities
PPP Concern 1 Consistent, sustained investment in facilities
PPP Concern Mitigation 1 Solved by including performance outcomes in contracts, including
pavement standards, LOS goals/targets
PPP Concern 2 Financial viability of projects as stand alone facilities
PPP Concern Mitigation 2 Solved by supplementing user fees (e.g., tolls) with public funds,
altering the length of the lease agreement, or allowing alternative
revenues to be raised by private company to supplement user fees
PPP Concern 3 Interoperability of technology among facilities
PPP Concern Mitigation 3 Solved by ensuring technology is open-ended and RFP specifies the
ability to operate with competing technologies
PPP Concern 4
PPP Concern 5
Factors to consider by decision- 1. Ability to improve facility or service performance;
makers 2. Performance measures are included in the PPP agreement,
allowing either party to “walk away” of one does not fulfill its
part of the contract;
3. Ensure the length of the PPP agreement is appropriate for the
service or facility;
4. Ensure the private entity shoulders most of the risk for failure to
perform
Other perspectives

106
Respondent #5
Type of Organization n. Investment Bank

Top benefits of PPP 1. Transfer of financial and operating risk from a public to a private
entity;
2. Up-front benefit paid to leaser;
3. Deployment of up-front benefit to other capital projects
PPP Concern 1 1. Misuse of up-front benefit;
2. Hijacking of up-front benefit by subsequent political regimes
PPP Concern Mitigation 1 Public statements and commitments to authorizing bodies about the
intended use of the up-front proceeds.
PPP Concern 2 Placing the up-front proceeds in an irrevocable trust, to be governed
in accordance with the trust agreement for the purposes enumerated
by the trust.
PPP Concern 3
PPP Concern 4
PPP Concern 5
Factors to consider by decision- 1. That the user of the facility receives the same if not better service
makers from the facility being leased or sold;
2. That the new operator is capable from both a financial and
operating standpoint to provide the service to the user;
3. That the leaser or seller uses the proceeds in an appropriate
Manner; i.e., a capital-for-capital exchange.
Contract structures/techniques Duplicating the concession agreements from the [project] and
to protect public interests [project] deals.
Other perspectives

107
Respondent #6
Type of Organization m. Financial Advisor

Top benefits of PPP - More favorable risk allocation;
- New business model for infrastructure development;
- New entrants to the marketplace increasing competition;
- New technologies and improved attention to life cycle cost
PPP Concern 1 Excessive focus on revenue maximization
PPP Concern Mitigation 1 Greater public policy focus on underlying goals for each P3 project
PPP Concern 2 Deal terms that are perceived to be contrary to the public interest
PPP Concern Mitigation 2 Provide meaningful caps on toll rate escalation, limit concession
tenors, focus competition on lowest toll rates, etc.
PPP Concern 3 Inadequate criteria for selecting candidate projects for P3
implementation
PPP Concern Mitigation 3 Better public sector understanding of the trade-offs inherent in P3—
private sector money is not “free” and P3 is not necessarily the
answer when everything else has failed
PPP Concern 4 Attempting to apply existing finance, contracting and O&M tools to
P3
PPP Concern Mitigation 4 Study commercially-acceptable practice so that the public owner
understands the P3 framework and doesn’t either give away the store
or offer a deal that can’t be financed. Seek industry input on project
concepts.
PPP Concern 5 Separate P3 activity from the agency’s core production and
contracting functions
PPP Concern Mitigation 5 Make the investment in time and energy to involve District-level staff
in the procurement process. They know the project best and will
maintain a balance between technical and financial considerations.
Lessons learned will migrate to the overall work program,
magnifying benefits from new approaches to risk allocation.
Factors to consider by decision- - Project readiness—don’t put projects out for tender before they are
makers ready;
- Clear goals—risk transfer and revenue risk;
- Use a competitive process—avoid losing control through unsolicited
proposals;
- There is no free lunch—private equity
Contract structures/techniques Our experience with availability payments has been extremely
to protect public interests positive in [project] and [project] in [state]. Emphasis must be given
to institutionalizing the P3 process and providing the necessary
training to make P3 part of the everyday toolkit for project
implementation.
Other perspectives

108
Respondent #7
Type of Organization Other; commercial bank

Top benefits of PPP The key feature is bringing private money to Infrastructure that
governments at all levels from Federal down to local do not have the
money to improve, let alone provide for growth.
PPP Concern 1 Documents in the P3 arena are very specific about the service level
the private firm will provide. The concern is how high and how fast
tolls will rise. Clearly if raising tolls were politically expedient we
would not need a P3. To much concern about congestion pricing and
simply increasing tolls to the point where governmental bodies can
provide for repair and growth.
PPP Concern Mitigation 1 Raise the tolls
PPP Concern 2
PPP Concern 3
PPP Concern 4
PPP Concern 5
Factors to consider by decision- Long-term costs;
makers Control of the asset;
Clearly spelled out documents;
Ability to reclaim the asset if there is a failure.
Other perspectives In light of the fact that we can’t just raise tolls the P3 is the next best
answer. Over time these deals will be negotiated in a better fashion
than the [state] Toll Road.

109
Respondent #8
Type of Organization i. Interest Groups (Please specify in question 3a)
Non-partisan, non-profit membership group that takes no money from

corporations or unions. Our mission is to take on powerful special
interests to protect the public.
Top benefits of PPP 1. Can leverage technological know-how not currently in the public
sector.
PPP Concern 1 1. Allows public officials to avoid responsibility for increasing taxes or
otherwise raising revenue for public purposes.
PPP Concern Mitigation 1 No deals over thirty years; greater transparency.
PPP Concern 2 2. Relinquishes public control over management and planning of vital
government functions.
PPP Concern Mitigation 2 No deal should last for more than 30 years since even the most detailed
concession agreement can not adequately anticipate future public
needs, technological advances, demographic changes, or the
appropriate value of a contract. Road operators should not be able to
require compensation for measures that would be the normal course of
transportation policy or for establishing state-of-the-art safety
standards. Road operators should compensate the public for legal fees
in the future enforcement of contracts.
PPP Concern 3 3. Concession or lease payments will not meet the long-term value of
the tolls paid by the public.
PPP Concern Mitigation 3 It must be clearly established that the same upfront borrowing could
not be done more cheaply by public entities. The public should not pay
a premium for higher private borrowing costs, oversight costs for
monitoring private entities, and shareholder profits.
PPP Concern 4 4. Lack of transparency and accountability, especially from concession
agreements that are not public before signing.
PPP Concern Mitigation 4 All concession bids and subcontracts by private vendors should be
open public record on-line from the moment they are introduced.
Proposed agreements should be divulged at least six months before
being put to vote. Legislatures must approve of final concession
agreements, not simply empower the administration to enter an
agreement. Most importantly, no agreement should last more than 30
years.
PPP Concern 5 5. Non-compete clauses
PPP Concern Mitigation 5 Should be prohibited.
Factors to consider by decision- What value is the private entity actually bringing to the table that the
makers public could not subcontract for in a shorter deal or accomplish with
their own toll hikes.
Contract structures/techniques Availability contracts;
to protect public interests Prohibition of non-compete clauses;
Sunshine laws disclosing details of concession agreements
Other perspectives See [link]

110
Respondent #9
Type of Organization i. Interest Groups
Public interest organization

Top benefits of PPP 1. Motorists internalizing costs of road use;
2. When done right, ensuring money from roads for public
transportation;
3. Potentially faster construction/operational changes
PPP Concern 1 Public entities might strike economically harmful deals
PPP Concern Mitigation 1 Ensure sufficient public input and governmental oversight, along
with expert independent advice, to prevent such situations.
Protections probably need to be in state authorizing statutes.
PPP Concern 2 Private sector’s interest is not always consistent with the public
interest; e.g., toll increases could put more vehicles on non-toll roads
and thus increase public costs.
PPP Concern Mitigation 2 Increase public interest protections in P3 contracts
PPP Concern 3 Greenhouse gas emissions typically are not addressed, since more
vehicles mean more profit for the private sector.
PPP Concern 4 Concession lengths are too long to address technological changes,
accountability of decision makers, etc.
PPP Concern Mitigation 4 Limit concession lengths to approximately 30–35 years, or roughly
one generation.
PPP Concern 5
Factors to consider by decision- 1. Economic advantage over the long term;
makers 2. Effects on related transportation systems;
3. Public involvement and buy-in.
Other perspectives The [state] P3 statute does not include any public involvement
requirements or legislative voting on the contract, does not have a
concession length limitation, and does not require high-level state
DOT involvement. This could lead to a very poorly written P3
contract (for one of the “bridges to nowhere”) that costs the state lots
of money and gives P3 agreements a bad name.

111
Respondent #10
Type of Organization Other;

Chair Neighborhood Board Transportation
Top benefits of PPP HOT
PPP Concern 1 Fixed rail costs
PPP Concern Mitigation 1 BUS and HOT
PPP Concern 2
PPP Concern 3
PPP Concern 4
PPP Concern 5
Factors to consider by decision Tax reduction
makers
Other perspectives See my [newspaper] Letters to the Editor 23 JAN.

112
Respondent #11
Type of Organization Other; University

Top benefits of PPP 1. Ability to attract private capital to invest in transportation,
2. Ability to price transportation services at market rates rather than
political prices
PPP Concern 1 PPP may seek to avoid compliance with local, state, and national land
use and environmental policies
PPP Concern Mitigation 1 State and federal laws that require compliance with all land use and
environmental laws
PPP Concern 2 PPP may seek to avoid innovations such as congestion pricing
PPP Concern Mitigation 2 Require congestion pricing for all new PPP or toll facilities
PPP Concern 3 PPP may oppose investments in transit and other alternatives to
highways
PPP Concern Mitigation 3 Strict ethics and disclosure rules
PPP Concern 4 PPP may undermine comprehensive transportation planning and
work of MPOs
PPP Concern Mitigation 4 Require PPP projects to be consistent with state, local and MPO
transportation plans. PPP projects need to be part of plans not
separate from them.
PPP Concern 5
Factors to consider by decision- 1. Financial viability;
makers 2. Comparison of all transportation alternatives;
3. Cost-benefit analysis;
4. Environmental assessment, including air quality and greenhouse
gas emissions
Other perspectives PPP should be thoroughly reviewed on a periodic basis.

113
Respondent #12
Nonprofit, grassroots advocacy organization based in [city, state]

Top benefits of PPP I can’t think of even a single true public benefit of PPP agreements.
They merely facilitate private gain at public expense by reducing
proper oversight.
PPP Concern 1 Undermines full, fair, and open planning processes for transportation
projects.
PPP Concern Mitigation 1 1. Enact statutes and/or administrative regulations that prohibit all
PPP agreements prior to the completion of the NEPA process,
including the issuance of a Record of Decision.
PPP Concern 2 Failure to adequately accommodate all alternatives to private motor
vehicle travel in PPP transportation projects.
including the issuance of a Record of Decision;
2. Require full transparency in PPP negotiations;
3. Explicitly require all PPP projects to adequately accommodate all
alternative transportation modes, especially bicycling, walking, and
public transportation, by stipulating adherence to specific
performance measures.
PPP Concern 3 Unrealistic forecasts of toll and fare revenue, leading to financial
insolvency.
2. Require PPP awardees to purchase adequate insurance coverage
(performance bonds) for the financial solvency of their projects;
3. Require PPP awardees to cover all financial shortfalls.
PPP Concern 4 Biased analyses of viable project alternatives and environmental
impacts.
2. Prohibit PPP vendors from participating in all project planning
activities, such as alternatives analyses and environmental impact
studies;
3. Require all urban transportation projects to meet a set of
performance measures that includes reduced VMT per capita,
reduced global warming emissions, and enhanced travel by all
alternative modes.
PPP Concern 5 Bias and corruption in the award of PPP agreements.
2. Require full transparency in all PPP negotiations;
3. Require independent audits of proposed PPP agreements.

114
Factors to consider by decision- 1. Biased planning not in the public’s best interest;
makers 2. Lack of transparency (secrecy, bias, and corruption;
3. Lack of financial and/or technical capacity;
4. Excessive adverse environmental impacts;
5. Social and economic injustice.
Contract structures/techniques 1. Enact statutes and/or administrative regulations that prohibit all
to protect public interests PPP agreements prior to the completion of the NEPA process,
2. Prohibit PPP vendors from participating in all project planning
activities, such as alternatives analyses and environmental impact
studies;
3. Require all urban transportation projects to meet a set of
performance measures that includes reduced VMT per capita,
reduced global warming emissions, and enhanced travel by all
alternative modes;
4. Require full transparency in PPP negotiations;
5. Explicitly require all PPP projects to adequately accommodate all
alternative transportation modes, especially bicycling, walking, and
public transportation, by stipulating adherence to specific
performance measures;
6. Require PPP awardees to purchase adequate insurance coverage
(performance bonds) for the financial solvency of their projects;
7. Require PPP awardees to cover all financial shortfalls;
8. Require independent audits of proposed PPP agreements.
Other perspectives PPP transportation projects have no redeeming benefits.

115
Respondent #13
Type of Organization Other

Citizen
Top benefits of PPP Help finance necessary infrastructure
PPP Concern 1 It is not clear to me that the private sector can build and maintain
infrastructure more cheaply than state and local governments. In the
specific example of which I am aware, the private entity will offer a
small amount of its own funds and leverage that with low-cost
government funds like TIFFIA and activity bonds. The private entity
will take its equity out at the front end, leaving government to cover
any deficits.
PPP Concern Mitigation 1 Prohibit private entities from accessing government financing for
these projects, or insist on a minimum percentage of private funds
PPP Concern 2 Government loses control over the asset. Decisions about what to
build, when to build and what to charge are left to private entities.
Private entities make decisions solely based on profit motives, which
may be in direct conflict with the public interest.
PPP Concern Mitigation 2 I don’t know.
PPP Concern 3
PPP Concern 4
PPP Concern 5
Factors to consider by decision- Maintain government control and oversight of all aspects of the
makers project
Contract structures/techniques Don’t know
Other perspectives

116
Respondent #14
Type of Organization l. Transportation Consulting

Top benefits of PPP Better project selection (based on ROI);
Greater accountability;
Reduced life-cycle cost;
More timely additions of needed capacity
PPP Concern 1 Transparency; Concern over how decisions to award concessions get
made, raising suspicions of sweetheart deals.
PPP Concern Mitigation 1 Balance needs for temporary confidentiality with full disclosure of
selection criteria, scoring, and concession agreement details.
PPP Concern 2 Politicization of process, especially to unfairly favor public-sector toll
agencies.
PPP Concern Mitigation 2 Need to adopt level-playing-field competition procedures, to permit
fair competitions that don’t tilt toward either public-sector or private-
sector bidders.
PPP Concern 3 One-size-fits-all rules and regulations for PPPs
PPP Concern Mitigation 3 Educate public officials on the differences among projects (e.g.,
robustness of potential traffic demand, extent of capital investment
needed, role of pricing, etc.) to explain the need to tailor concession
agreements to the specifics of each project, resisting standard lengths
of term, toll rate formulas, etc.
PPP Concern 4
PPP Concern 5
Factors to consider by decision- Competitive procurements;
makers Tailoring the deal structure to the specifics of each project;
Full disclosure/transparency;
Prudent limits on “non-compete” provisions
Contract structures/techniques Long-term concessions offer the greatest set of benefits. But to take
to protect public interests maximum advantage, it’s important to include availability payments
as well as real tolls—and in some cases, combinations of these [e.g.,
(project) in (state)].
Other perspectives

117
Respondent #15

Non-profit environmental group
Top benefits of PPP 1. Potential to harness private sector creativity and efficiency;
2. Potential to leverage public sector transportation funding by
attracting private sector capital.
PPP Concern 1 1. Tend to circumvent normal planning processes
PPP Concern Mitigation 1 Limit or prohibit unsolicited bids; require bids go through normal
planning process
PPP Concern 2 Circumvent and/or undermine environmental reviews
PPP Concern Mitigation 2 As condition of signing agreement, require NEPA process completed
or substantially complete; provide clarity what can be negotiated
with proponent before NEPA process complete
PPP Concern 3 Has not tended to attract private risk sector capital proponents
promised.
PPP Concern Mitigation 3 Require proposer invest a certain amount of equity
PPP Concern 4 Non-compete clauses limit investments that are in public interest
PPP Concern Mitigation 4 Prohibit non-compete clauses
PPP Concern 5 Failure to adequately account for public costs and potential taxpayer
liability, and environmental costs (including sprawl promote).
PPP Concern Mitigation 5 Require full, independent accounting of these items.
Factors to consider by decision 1. full cost and potential taxpayer liability;
makers 2. consistency with planning process;
3. impact on funding and function of other projects;
4. full environmental costs, including secondary impacts promoting
sprawl;
5. full alternatives analysis
Contract structures/techniques See above for various provisions and requirements.
Other perspectives Our experience with PPPs is that they are far more complex than
initially advertised, and often the public interest is not well-protected.

118
Respondent #16
Type of Organization a. State Department of Transportation

Top benefits of PPP 1. Accelerated project delivery;
2. Access to private capital markets;
3. Reduced project costs
PPP Concern 1 Public accountability
PPP Concern Mitigation 1 The private entity needs to be held to the same standard of access to
documents and information as a state DOT would be and implement
full, effective public engagement methods
PPP Concern 2 Stewardship of public assets
PPP Concern Mitigation 2 Public assets, like highway right of way, are held for the benefit of the
citizens of the state. The public interest in those public assets must be
protected—citizens must be confident that private entities aren’t
“profiting” on public resources
PPP Concern 3 Risk allocation—what is the proper allocation of risk for project’s
moving forward? How can risk be allocated in the contracting?
PPP Concern Mitigation 3 It is imperative to work with sophisticated legal counsel to address
these issues and for state DOTs to work hard to understand and
analyze the risks in advance.
PPP Concern 4 Loss of DOT staff or inability to attract and retain top staff
PPP Concern Mitigation 4 If all the big interesting projects are contracted out, it will become
increasingly difficult to attract and retain top engineers at DOTs
PPP Concern 5
Factors to consider by decision 1. Risk Allocation;
makers 2. Ownership of assets—who ultimately owns and controls the
facility?;
3. Capitalization and financial responsibility—does the private party
have the assets to stand behind the work?;
4. Public accountability—does the private company share the values
of the DOT and will they assure public accountability—on the
environmental performance, labor, etc.
Contract structures/techniques A key structure is phasing a contract so that there are “off ramps” at
to protect public interests key points.
Another key contract term is to assure public access to all
information.
Public rights of way must be retained by the public-private
ownership of roads or other facilities leads to distrust.
Other perspectives PPP’s range from concessions to construction contracting methods. It
is very important to differentiate between the various types of PPPs
in use rather than lumping them all together. The public
accountability varies significantly from type to type.

119
Respondent #17

Top benefits of PPP Cost.
Ability to deliver projects sooner.
PPP Concern 1 Lack of ability of state DOTs to competently administer and provide
oversight to P3s.
PPP Concern 2 Cost factor and the use of public funds for services providing
essential public services to the private sector.
PPP Concern 3 What entity will have final oversight and decision-making authority
on these PPP, particularly as it may involve public safety, homeland
security, and other interest of national priorities.
PPP Concern 4
PPP Concern 5
Factors to consider by decision Level of authority/oversight.
makers Cost
Ownership—National/International Interests
Other perspectives

120
Respondent #18
Labor union representing professional employees in state

government including transportation workers.
Top benefits of PPP I see none in its present form. Having lived through [project] which
used this dangerous and wasteful construction scheme and having
witnessed the dismissal of our struggles to ensure greater oversight
by enough workers who represent the taxpayer’s interests, there is
little to like about this practice.
PPP Concern 1 Public Safety: The lack of proper oversight with full authority by state
DOT engineers, resulting in a “fox watching the chicken house”
scenario and public safety concerns.
PPP Concern Mitigation 1 Any such contract must have strict language as to who is in charge,
who has authorization to stop projects and who is responsible for
failures of the process and who represents the public’s interest.
Unfettered private interest with profit motives will cut corners every
time.
PPP Concern 2 Too cozy relationship between the public entity, which should be
there for enforcement and oversight, and the private sector.
PPP Concern Mitigation 2 Need strong demarcation between private and public interest
responsibilities. This concept of one big happy family, and we are all
in this together mindset has had dire consequences as we all now
realize. Public employees in their role should not be reporting to
private contractors. Causes huge oversight problems. This should be
prohibited. [(previously referenced project) scenario].
PPP Concern 3 Lack of cost benefit analysis to ensure there are any cost savings or
benefits using these practices.
PPP Concern Mitigation 3 Federal decision makers should require a cost-benefit analysis
particularly in areas of survey, design, materials and construction
inspections, and maintenance to ascertain if practice is saving any tax
dollars compared to DOT engineers performing these services. Many
states have established criteria for such analysis with huge cost
savings being realized.
PPP Concern 4 Public Access to Private Company documents.
PPP Concern Mitigation 4 Contract must clearly state that any and all documents relating to a
particular project are accessible to the “public” under FOIA or other
state regulations.
PPP Concern 5 Conflicts of interests
PPP Concern Mitigation 5 Open door policies that allowed state engineers and private sector
employees to move from one entity to the other unfettered on the
same project [(previously referenced project)]. Need checks and
balances possibly outright prohibition. (Who is my master conflict?)

121
Factors to consider by decision- How to Ensure Public Safety.

makers Are there actual Cost Savings?
Is there enough oversight by state engineers?
Are there strict rules for line of Command? Who has Responsibilities
and Authority over project aspects including failures? Are the
penalties enough to deter?
Are their sufficient policies in place to prevent conflicts of interest?
What are the consequences of finances if contractor files bankruptcy?
Contract structures/techniques A return to old, well-established construction techniques with the
to protect public interests right checks and balances that existed and worked well before the
profiteers and the smaller government crowd dismantled a proven
process in order to increase their profits. Government entities,
particularly decision makers, were sold a bill of goods. No tunnels or
bridges were collapsing with the proven methods we once used.
Now everyone feels unsafe.
Other perspectives I would strongly suggest for insightful reading on this subject the
numerous documents prepared by the [state’s] and U.S. Inspectors
General and the [state] State Auditor’s Office on the [previously
referenced project] for lessons learned on the biggest PPI boondoggle,
known to man.
Respondent #19
Type of Organization m. Financial Advisor

Top benefits of PPP up front cash
faster design/build
PPP Concern 1 Underpricing
PPP Concern Mitigation 1 Regulate investment returns when met return road to public
PPP Concern 2 excessive toll regime
PPP Concern Mitigation 2 limit to cpi
PPP Concern 3 term beyond 30 years
PPP Concern Mitigation 3 limit term
PPP Concern 4 protection of public interest
PPP Concern Mitigation 4 Full transparency of procurement process, no shields regarding
vendor proposals before award
PPP Concern 5
Factors to consider by decision- Will they actually achieve economic benefit, could the same result be
makers achieved by a public entity, why pay for 12%+ in equity returns?
Other perspectives

122
Respondent #20

Top benefits of PPP 1. Ability to provide resources, and leverage of resources, unavailable
to public entity.
2. Knowledge of things that public personnel don’t have.
3. Transfer of certain risks to private entity.
4. Relinquishment of public service/democratic responsibilities—
private entities are not subject to the same freedom of information,
accountability, and oversight requirements as the public entity is.
So less hassles and you can hide things. Good for plausible
deniability.
PPP Concern 1 Lack of private entity transparency and accountability in regard to
records and information.
PPP Concern Mitigation 1 Build transparency into the contract. Delineate what is proprietary
and what is not in the contract. Require records and information as a
deliverable.
PPP Concern 2 Private entity won’t tell you what risks public is assuming, even if
they know. Public entity often doesn’t know what risks they are
transferring to private entity—sometimes they do but are only
serving upper class interests. As a result, underclass sections of
society are often impacted unfairly or their needs are discounted.
PPP Concern Mitigation 2 How can distribution of transportation benefits/burdens and risks be
decided in a strategically equitable manner? Government deal
making in transportation infrastructure development may only
include stakeholders and interests of upper class membership.
However, it is the role of government to assure that these deals
benefit society as a whole, including the underclasses. If the spectrum
of public interests is not represented, inequitable distributions of
benefits, burdens, and risks may occur. There must be an approach to
uncovering hidden and indeterminate public risk. In PPP, the
paradigm for business interests where the business interest short
term gain means the long-term public loss, must be changed. The
public interest must be of paramount benefit.
PPP Concern 3 There is often limited state oversight during design and construction
management.
PPP Concern Mitigation 3 The state should do oversight and quality measurements at all stages
of the project.
PPP Concern 4 Selling off our transportation system requires everyone to play by the
rules of business rather than the U.S. Constitution and/or the rule of
law. Constitutional rights may not apply to the privately owned road.
This is a serious concern.
PPP Concern Mitigation 4 The public should not relinquish control of public assets and services.
PPPs are helpers, not a way to sell off the democracy or the
“commons.”
PPP Concern 5

123
Factors to consider by decision 1. The rules of the business game when negotiating a PPP contract—
makers transfer of risk, short term gain, costing, etc.
2. The consequences of long-term social dangers when ignoring
underclass needs and impacts to the environment.
3. How will decision makers assure functional accountability of the
private partner.
4. How will the PPP contribute to equitable distribution of economic
benefits.
5. Long-term developmental impacts both in terms of the value of
money and assets and in risks.
Contract structures/techniques In the contract, deliverables should include freedom of information
to protect public interests requirements, breach of contract definitions, liquidated damage
provisions, and special oversight provisions that require audits and
quality control actions by public entity on the documents, products,
and actions of the private entity.
Other perspectives PPPs for transportation seem to be moving toward the privatization
of all transportation services and assets. This has happened with
many public lands, with communications, and with the air ways. We
can see the results—it is not in the public interest and dismantles the
democracy while profiting only a few.

124
Respondent #21
Environmental
Top benefits of PPP If a government has reached a debt limit, it may be a way to finance a
public works project.
PPP Concern 1 The private corporation negotiating a project desires to keep the
information confidential, thereby denying the public (and even
elected officials) of many financial details of what they are paying for.
PPP Concern Mitigation 1 Limit what can be kept secret.
PPP Concern 2 Because a private corporation is most interested in the most
profitable project, and not the one that is most needed, they may
force the public agency to entertain construction of projects that are
not a priority for the public—but of course the public will pay.
PPP Concern Mitigation 2 Only allow projects that are the top priority for consideration.
PPP Concern 3 Even for projects that are a priority, there is a limited opportunity to
seek competitive bidding. The agency has a tendency, or even a
requirement, to accept the first proposal with only a narrow and
insufficient window for other bidders to participate.
PPP Concern Mitigation 3 Require a much longer window for additional parties to bid.
PPP Concern 4 There may be a limit on public involvement in the design and final
acceptance of a proposed project. As noted in Concern #1, the same
goes for financial viability. Corporations are resistant to accepting
public opinion, and I believe that is true generally, but a characteristic
that can vary greatly.
PPP Concern Mitigation 4 The public agency has to take control of the project and insist that the
public be involved. This requires political will that may be lacking if
the public agency has (or perceives) a financial need. It may not be
possible to overcome this issue.
PPP Concern 5 The public is inherently the guarantor of last resort. If for any of a
multitude of reasons, a PPP project (and the private partner) fails, the
public picks up the tab. In a proposed local project, the bonds are to
be paid back from tolls for 75 years. Nobody can predict anything for
75 years, and is there a bond big enough to cover it that won’t
depreciate in 75 years? I doubt it.
PPP Concern Mitigation 5 Require that the bonds be paid in 30 years. If it can’t be done, it’s not
appropriate for a PPP.
Factors to consider by decision- Rank the above? They are all important.
makers Transparency
Risk
Track record of the private firm
Is it in the public interest (have alternatives been considered)
Contract structures/techniques I am not familiar with any.
Other perspectives The public has a hard time paying attention to the dry details for the
PPP trend, and public officials cannot resist the easy money. The
ability to have something built during their term of office without
raising taxes is sooo good. So the corporations are having a field day,
there is little protection for the public.

125
Respondent #22

University
Top benefits of PPP 1. More efficient delivery of transportation services.
2. Service improvements since there would be greater incentives to
increase quality of service.
3. Reduce the impact of politics on transportation service delivery.
4. Potential for greater innovation and service experimentation.
5. Ability to raise capital for transportation enhancements over public
sector only financing.
PPP Concern 1 1. Public interest can be secondary to private interest.
PPP Concern Mitigation 1 Make sure that they have competition, not just trade a private
monopoly for a state run monopoly. If a monopoly is created, then
public regulation may be required.
PPP Concern 2 Public sector workers need to be treated fairly.
PPP Concern Mitigation 2 Early retirement;
Buyouts;
Private sector hiring public sector workers;
Worker retraining.
PPP Concern 3
PPP Concern 4
PPP Concern 5
Factors to consider by decision- 1. Are you creating a private monopoly?
makers 2. Will this result in increased capital for infrastructure needs?
3. Will prices be regulated?
4. How will externalities be dealt with?
5. Will money from a brownfields PPP be used to enhance the
transportation system, or be used for general government?
Other perspectives

126
Respondent #23
Type of Organization d. Other State Agency

Top benefits of PPP Transfer of risk (construction, toll revenue, etc.);
Longer horizon on debt repayment;
Less political “response”;
Deeper talent pool to manage project.
PPP Concern 1 May ignore important public concerns (social equity, etc.)
PPP Concern Mitigation 1 Agreement might provide for public subsidy to meet public policy
objectives
PPP Concern 2 Default by “private entity”
PPP Concern Mitigation 2 Could be complex if it involves critical public facility. Financially
surety or insurance could be costly but might deal with this
possibility. Suggest stiff qualifications for “private partner.”
PPP Concern 3 Long-term higher cost is major political issue
PPP Concern Mitigation 3 Hard to deal with—even if some good technical arguments.
Explaining risk transfer and net present value of $$ is a nonstarter
with most of the public.
PPP Concern 4
PPP Concern 5
Factors to consider by decision- What are the risks:
makers Is the private partner qualified?
Is there value in removing the project from direct political control?
What is the political cost of the partnership?
Does the deal pencil out—reasonably?
Contract structures/techniques Probably some form of franchise or easement. You would want to
to protect public interests avoid too many areas of continuing negotiation with conditions and
cancellation provisions (at a reasonable cost).
Other perspectives No—except without some political acceptance it is DOA

127
Respondent #24

Represent state DOT employees
Top benefits of PPP
PPP Concern 1 Private financing is up to 35% higher than tax exempt financing—
greatly increasing the cost of the project, making them financially
unstable and subject to taxpayer bailout. Also greatly increases toll
levels.
PPP Concern Mitigation 1 Public agencies should utilize tax exempt public financing. Not sure
you can mitigate paying 35% more than you need to... both financing
types—private and public—are secured with the tolls—why would
we choose the far more expensive option
PPP Concern 2 Use of design-build, best value eliminates competitive bidding and
increase project costs. Lack of oversight and public agency
involvement encourages cost overruns and projects built on the cheap
on public right-of-way
PPP Concern Mitigation 2 Prohibit no-bid design-build and require public oversight, design,
and inspection to ensure road safety and cost controls.
PPP Concern 3 Toll roads take money out of our transportation system by moving
revenues/profits
PPP Concern Mitigation 3 Toll revenues should be reinvested into our transportation system
and not siphoned off to multi-national companies that don’t remove
the revenue from the system but often take it out of the country
PPP Concern 4 Non-compete clauses and cash payments prevent improvements to
competing public roads and actually increase congestion
PPP Concern Mitigation 4 Prohibit non-compete clauses and cash payoffs—they just confirm the
notion that toll roads aren’t about reducing congestion—they are
about increasing it to the point toll roads are viable profit centers.
PPP Concern 5
Factors to consider by decision- See above
makers
Contract structures/techniques Require competitive bidding, public oversight, design, and inspection
Other perspectives The only differences in a traditional toll road and a 3P, is that under
the 3P model you pay up to 35% more for financing and another 20%
or so must be paid out (by contract) in profit to private investors
instead of being reinvested into the system to benefit the public.

128
APPENDIX E
Case Studies
CALIFORNIA Method for Construction Projects in Egypt and the

United States of America,” http://cmarc.colostate.edu/
SR-91 Express Lanes
ep06/Project%20documents/BOT.doc
• TollRoadsNews, “Northwest Parkway in Colorado
• Innovative Finance for Surface Transportation
(AASHTO), http://www.innovativefinance.org/projects/ Concessioned to Brisa for $603 m—lease signed today,
highways/91.asp closing by October,” Aug. 29, 2007, http://www.toll
• Reason Foundation, “Orange County’s 91 Express roadsnews.com/node/3110
Lanes: A Transportation and Financial Success, Despite • TollRoadsNews, “Northwest Parkway Colorado Toll
Political Problems,” Policy Brief No. 39, http://www. Concession Finalized with Financial Close,” Nov. 11,
reason.org/pb39.pdf 2007, http://www.tollroadsnews.com/node/3263
South Bay Expressway, SR-125 FLORIDA
Port of Miami Tunnel

• FHWA PPP web page, http://www.fhwa.dot.gov/ ppp/
sr125.htm • Port of Miami Tunnel website, http://www.portofmiami
• FHWA Case Studies of Transportation Public-Private
tunnel.com/
Partnerships in the United States, http://www.fhwa.dot. • FHWA Case Studies of Transportation Public-Private
gov/ppp/us_ppp_case_studies_final_report_7-7-07.pdf
Partnerships in the United States, http://www.fhwa.dot.
• FHWA Innovative Finance Primer, http://www.fhwa.
dot.gov/innovativefinance/ifp/index.htm
• FHWA TIFIA web page, http://tifia.fhwa.dot.gov/
• Innovative Finance for Surface Transportation ILLINOIS
(AASHTO), http://www.innovativefinance.org/projects/ Chicago Skyway
highways/125.asp
• FHWA PPP web page, http://www.fhwa.dot.gov/ppp/
CANADA chicago_skyway.htm
British Columbia, Golden Ears Bridge
Partnerships in the United States, http://www.fhwa.dot.
• Partnerships British Columbia website, http://www. gov/ppp/us_ppp_case_studies_final_report_7-7-07.pdf
partnershipsbc.ca/files/project-goldenears.html • U.S. Government Accountability Office, Highway
• TransLink British Columbia website, http://translink. Public-Private Partnerships: More Rigorous Up-Front
bc.ca/goldenearsbridge/ Analysis Could Better Secure Potential Benefits and
Protect the Public Interest, Report No. GAO-08-44,
Ontario, Highway 407 ETR
http://www.gao.gov/new.items/d0844.pdf
• USC Keston Institute for Public Finance and Infrastruc-
• U.S. Government Accountability Office, Highway Public- ture Policy, “Protecting the Public Interest: The Role of
Private Partnerships: More Rigorous Up-Front Analy- Long-Term Concession Agreements for Providing Trans-
sis Could Better Secure Potential Benefits and Protect portation Infrastructure,” http://www.usc.edu/schools/
the Public Interest, Report No. GAO-08-44, http://www. sppd/keston/research/index.html
gao.gov/new.items/d0844.pdf • NW Financial Group, “The Chicago Skyway Sale:
• Reason Foundation, “Building for the Future: Easing An Analytical Review,” http://www.nwfinancial.com/
California’s Transportation Crisis with Tolls and Public- newsroom/newsroom.html
Private Partnerships,” Policy Study No. 324, http:// www.
reason.org/ps324.pdf INDIANA
COLORADO Indiana Toll Road
Northwest Parkway • FHWA PPP web page, http://www.fhwa.dot.gov/ppp/

indiana_tollway.htm
• Colorado State University and the American University • U.S. Government Accountability Office, Highway
in Cairo, “Build-Operate-Transfer (BOT) as a Delivery Public-Private Partnerships: More Rigorous Up-Front

129
Analysis Could Better Secure Potential Benefits and • Commonwealth Foundation for Public Policy Alterna-
Protect the Public Interest, Report No. GAO-08-44, tives and the Reason Foundation, “Pennsylvania Turn-
http://www.gao.gov/new.items/d0844.pdf pike: Frequently Asked Questions and Answers,” Pol-
• Reason Foundation, “Indiana Policy Review: Bottom icy Brief Vol. 20, No. 02, http://www.reason.org/faq_
Line on Indiana Toll Road Deal,” Commentary by paturnpikelease.pdf
Geoffrey Segal, http://www.reason.org/commentaries/
segal_20060710.shtml
SOUTH CAROLINA
ture Policy, “Protecting the Public Interest: The Role Southern Connector
of Long-Term Concession Agreements for Providing
Transportation Infrastructure,” http://www.usc.edu/ • Innovative Finance for Surface Transportation
schools/sppd/keston/research/index.html (AASHTO), http://www.innovativefinance.org/projects/
• NW Financial Group, “Indiana Toll Road vs. Chicago highways/grnville.asp
Skyway: An Analytical Review of Two Public-Private
Partnerships,” http://www.nwfinancial.com/newsroom/
TEXAS
newsroom.html
TransTexas Corridor 35 (TTC-35)
MASSACHUSETTS
Massachusetts Route 3 North Partnerships in the United States, http://www.fhwa.dot.
• FHWA PPP web page, http://www.fhwa.dot.gov/ppp/
route3.htm
• Innovative Finance for Surface Transportation SH-130, Segments 5 and 6
(AASHTO), http://www.innovativefinance.org/news_
innovations/03022001_innovation_paves.asp
ture Policy, “Protecting the Public Interest: The Role
• The National Council for Public Private Partnerships
of Long-Term Concession Agreements for Providing
(NCPPP), http://www.ncppp.org/cases/route3.shtml
Transportation Infrastructure,” http://www.usc.edu/
schools/sppd/keston/research/index.html
NEW MEXICO
US 550 (former SR-44) VIRGINIA
• FHWA PPP web page, http://www.fhwa.dot.gov/ppp/ Dulles Greenway

sr44.htm
• Innovative Finance for Surface Transportation • FHWA PPP web page, http://www.fhwa.dot.gov/ppp/
(AASHTO), http://www.innovativefinance.org/projects/ dulles.htm
• Innovative Finance for Surface Transportation
highways/44.asp
• National Council for Public-Private Partnerships, http:// (AASHTO), http://www.innovativefinance.org/projects/
www.ncppp.org/cases/santafe.shtml highways/dulles.asp
ture Policy, “Protecting the Public Interest: The Role of
PENNSYLVANIA Long-Term Concession Agreements for Providing Trans-
portation Infrastructure,” http://www.usc.edu/ schools/
Pennsylvania Turnpike
sppd/keston/research/index.html
• Democratic Caucus of the Pennsylvania House of
Representatives, “For Whom the Road Tolls: Corpo- Pocahontas Parkway
rate Asset of Public Good, an Analysis of Financial
and Strategic Alternatives for the Pennsylvania Turn- • National Council for Public-Private Partnerships,
pike,” by John Foote, Gary J. Gray, and Patrick J. http://www.ncppp.org/cases/pocahontas.shtml
Cusatis, http://www.pahouse.com/docs/For%20Whom • Innovative Finance for Surface Transportation
%20the%20Road%20Tolls%20Final%202-23-081_ (AASHTO), http://www.innovativefinance.org/projects/
FINAL.pdf highways/895.asp
• Reason Foundation, “Pennsylvania Turnpike Alterna- • FHWA PPP web page, http://www.fhwa.dot.gov/ppp/
tives: A Review and Critique of the Democratic Caucus pocahontas.htm
Study,” Policy Brief No. 70, http://www.reason.org/ • USC Keston Institute for Public Finance and Infrastruc-
pb70.pdf ture Policy, “Protecting the Public Interest: The Role of

130
Long-Term Concession Agreements for Providing I-495 Capital Beltway HOT Lanes
Transportation Infrastructure,” http://www.usc.edu/
schools/sppd/keston/research/index.html • Virginia HOT Lanes website, http://www.virginiahot
• Roads to the Future, Highway and Transportation His- lanes.com/beltway-project-info.asp
tory website, http://www.roadstothefuture.com/Route_
895_Connector.html

Abbreviations used without definitions in TRB publications:
AAAE American Association of Airport Executives

AASHO American Association of State Highway Officials
AASHTO American Association of State Highway and Transportation Officials
ACI–NA Airports Council International–North America
ACRP Airport Cooperative Research Program
ADA Americans with Disabilities Act
APTA American Public Transportation Association
ASCE American Society of Civil Engineers
ASME American Society of Mechanical Engineers
ASTM American Society for Testing and Materials
ATA Air Transport Association
ATA American Trucking Associations
CTAA Community Transportation Association of America
CTBSSP Commercial Truck and Bus Safety Synthesis Program
DHS Department of Homeland Security
DOE Department of Energy
EPA Environmental Protection Agency
FAA Federal Aviation Administration
FHWA Federal Highway Administration
FMCSA Federal Motor Carrier Safety Administration
FRA Federal Railroad Administration
FTA Federal Transit Administration
IEEE Institute of Electrical and Electronics Engineers
ISTEA Intermodal Surface Transportation Efficiency Act of 1991
ITE Institute of Transportation Engineers
NASA National Aeronautics and Space Administration
NASAO National Association of State Aviation Officials
NCFRP National Cooperative Freight Research Program
NCHRP National Cooperative Highway Research Program
NHTSA National Highway Traffic Safety Administration
NTSB National Transportation Safety Board
SAE Society of Automotive Engineers
SAFETEA-LU Safe, Accountable, Flexible, Efficient Transportation Equity Act:
A Legacy for Users (2005)
TCRP Transit Cooperative Research Program
TEA-21 Transportation Equity Act for the 21st Century (1998)
TRB Transportation Research Board
TSA Transportation Security Administration
U.S.DOT United States Department of Transportation

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NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM

NCHRP SYNTHESIS 391

A Synthesis of Highway Practice

TRANSPORTATION RESEARCH BOARD

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NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM NCHRP SYNTHESIS 391

Published reports of the

NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM

are available from:

Transportation Research Board

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NCHRP COMMITTEE FOR PROJECT 20-5 COOPERATIVE RESEARCH PROGRAMS STAFF

Cover figure: Chicago Skyway, looking southeast across

The authors would like to thank Alex Linthicum, who conducted

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Copyright National Academy of Sciences. All rights reserved.

5 CHAPTER ONE INTRODUCTION

7 CHAPTER TWO PUBLIC–PRIVATE PARTNERSHIP

11 CHAPTER THREE PUBLIC–PRIVATE PARTNERSHIPS

39 CHAPTER FOUR CONCLUSIONS

51 GLOSSARY OF TERMS, ABBREVIATIONS, AND ACRONYMS

53 APPENDIX A STATE DOT SURVEY QUESTIONNAIRE

65 APPENDIX B STATE DOT SURVEY SUMMARIES

99 APPENDIX C OTHER INDIVIDUALS/INTEREST GROUPS

102 APPENDIX D OTHER INDIVIDUALS/INTEREST GROUPS

128 APPENDIX E CASE STUDIES

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PUBLIC SECTOR DECISION MAKING FOR

Three major themes emerged:

How might governments decide whether or not to pursue a PPP?

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• Valuation of alternative approaches. There is a need for a framework or process to

How might the public interest be protected?

Misperceptions about PPPs can be a distraction from the real issues.

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Copyright National Academy of Sciences. All rights reserved.

Copyright National Academy of Sciences. All rights reserved.

Copyright National Academy of Sciences. All rights reserved.

PUBLIC–PRIVATE PARTNERSHIP DEFINITION AND HISTORY

References to PPPs are wide-ranging and ambiguous, with lit-

A public-private partnership is a contractual agreement formed

Copyright National Academy of Sciences. All rights reserved.

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Copyright National Academy of Sciences. All rights reserved.

Copyright National Academy of Sciences. All rights reserved.