The core of a transit sector P3 is a “concession agreement.” This contract specifies the rights and obligations of the public sponsor — the transit agency — and the concessionaire — the private partner. In an AFC system such as Cubic provides, the concessionaire will typically have the responsibility to design, build and finance the project during the construction phase, and then operate and maintain the system once implemented. The concessionaire will collect, deposit and report fare revenues, and in exchange for these services will receive compensation to cover the costs and return on capital. Other common elements include performance requirements with rewards or penalties for the private partner, and termination provisions.
P3 Advantages and Tradeoffs
Transit-related P3s provide many benefits to the transit operators. These include risk transfer, accelerated project delivery, external funding, lower operating costs, and higher non-transit revenues. Risk transfer may be in the form of making the private partner responsible for delivering at a fixed price by a predefined date, for example. Also, project delivery can be accelerated through a design-build contract approach instead of a traditional design-bid-build procurement that adds additional review requirements. Through a P3, a transit agency can transfer the funding responsibility to the concessionaire and help overcome budgetary or capital constraints.
Another benefit is a concessionaire can potentially improve rider experiences and reduce costs by leveraging its know-how and already established service facilities, business processes and partners. In the transit AFC space, for example, some of the key operating costs, such as payment media, bank card fees and cash collection costs, can be transferred to the concessionaire. An experienced private partner will also help a transit agency develop, generate, maximize and share new non-transit incomes streams.
When evaluating whether P3 is right for your agency, ask yourself, and your partner, what tradeoffs should be considered. Evaluating P3 tradeoffs objectively without advocating for one method over another is an important part of Cubic’s value to our clients, just as we normally would as a system integrator and program manager.
Consider the level of day-to-day control you are willing to cede to get the funding, risk transfer and other benefits. If your agency is more interested in building internal capacity and retaining control, a P3 may not be the right approach. Another tradeoff is that changes to the project scope or performance standards will likely require additional costs and possibly schedule changes. Finally, certain risks that concessionaires generally will not assume such as protection against changes in laws and interference or approval delays by third-party governmental entities are retained by the transit agency.
Conclusion: Best Practices
Performance management is an essential success component of the P3 model, giving the transit operators the insight and ability to hold the private partners accountable. The result of a well-structured concession agreement with effective KPIs is an efficiently operated project with the right of the public agency to replace the concessionaire for non-performance. KPIs serve as the basis for payments and ensure a keen focus on achieving the metrics. The concessionaire is also entering into separate contractual arrangements with lenders and vendors to provide financing and operational support, and any deficiency or non-performance could subject the concessionaire to financial penalties.
Beverly A. Scott, Ph.D.
General Manager/Chief Executive Officer
Metropolitan Atlanta Rapid Transit Authority
First and foremost, it is absolutely critical to underscore the words “PARTNERSHIP” and “RELATIONSHIP.” These are not deals -- think long-term. At the end of the day, the most effective working relationships are built on trust and mutual respect.
From a big picture perspective, we are actually building a new tradition of working together. For most, our public-private partnership initiatives represent new ways of thinking about how we “work together” and “do business.”
These ventures are bringing together multiple parties, institutional arrangements, financial considerations, business and organizational cultures – with varying degrees of prior experience working together. While they are not the answer for every situation, they are certainly a very important tool in the toolkit. And, we want to learn and get better as we get more experience under our belts.
That said, I hope the following tips are useful.