Public-Private Partnerships

It takes a certain situation to make a design, build, operate and maintain (DBOM) public-private partnership an option, and in the United States that can often be easier said than done.

Arthur Guzzetti, vice president of policy for the American Public Transportation Association (APTA) says that while DBOM public-private partnerships are good, they are not necessarily always good in all cases. These procurements are complex and in many cases the procurement laws need to catch up to the times.

According to the Federal Transit Administration, a Public-Private Partnership Pilot Program was authorized in the 2005 Highway and Transit bill (SAFETEA-LU) to demonstrate the advantages and disadvantages of P3’s in public transportation. Three pilot projects were selected — Oakland Airport Connector, Houston Metro Light Rail, and the Denver RTD Eagle P3 project.

Guzzetti says one reason these projects are perhaps less common in the United States than they are elsewhere is because sometimes procurement laws don’t allow them for public contracts.

“It’s lumping all these things together into one contract ... that’s a mega deal and some people might say, ‘why don’t we break this up a little bit into this stage and that stage?’” he says.

On the other hand Guzzetti says others look at a public-private partnership deal and say, “let’s just get government out of the way.” That, he says, is wrong for many reasons. There are two main reasons government can’t be completely eliminated from the equation. If the project is dealing with a public-policy objective, like transportation, government needs to be part of it for policy oversight and to ensure the project intent is being achieved.

The second reason is, the government needs to be part of the revenue stream. “This isn’t benevolence that’s bringing the private sector into the equation. They see an opportunity,” Guzzetti says. “But, you need a revenue stream. The private sector isn’t going to just come in and do it and pay for it.

“The government is at risk for the price tag, but we’re going to put our neck on the line too and we’re going to be taking risks and we’re going to be accountable for the results.”

Finding the Right Fit

Then what makes the ideal situation for a DBOM public-private partnership project to work? First, Guzzetti says you have to be willing to and understand that you will have to put up some sort of revenue stream to support the project. The revenue stream is what piques the private sector’s interest. “It absolutely won’t work without that,” he says.

However, Guzzetti warns that farebox revenue alone won’t be able to support a project in most cases.

The project also will have to be segmented from the rest of the transit system. “If you have a line that just blends into your system that is going to be very hard. You want to separate the accounting of this new line that the private sector is going to take on,” Guzzetti explains.

Finally, there has to be a condition of the project that the private sector is doing something that the public sector can’t do as well on its own. That could be managerial expertise or previous project experience.

What makes DBOM public-private partnerships — and all public-private partnerships for that matter — a bit trickier in the United States is having to navigate through not only federal laws but state laws as well.

Guzzetti says: “In addition to these federal laws, there are state laws on contracts ... procurement laws and how you can do that. And rightfully, … there are a lot of procurement scandals across the country so you do need to have procurement laws that protect the public interest and provide procedural process for the private sector to seek government contracts. You need that. But then, different states have different laws, so maybe there are some states that are more open to these creative procurement uses, and some states are more restrictive on it.”