What is a Public-Private Partnership (P3)?
A P3 refers to the contractual agreement between a public agency and a private sector entity that allows the private sector entity to have greater participation in the delivery of a transportation project. Using traditional project delivery methods, ADOT bears all of the risks and responsibilities for a project. Under a P3, the private partner takes on some or all of the project's risks and responsibilities.
There are many types of P3s. For roadway and bridge projects, P3s typically involve an up-front investment by a private partner who then designs, builds, finances, operates, and maintains the facility in exchange for future revenues generated by the facility. These revenues typically come from tolls paid by the users of the facility. In Arizona, P3s terms can last up to 50 years unless extended by ADOT.
Frequently Asked Questions
Are P3s a new concept? Show | Hide
The concept of P3s is not new. In fact, P3s have successfully been used to fund a variety of project types, including gas and electric services, water projects, schools, transportation projects, power plants, hospitals, and other types of projects.
P3s for transportation projects were pioneered in Europe and have grown to be used worldwide. In the United States, the private sector has historically played a role in highway construction, operation, and financing. As federal and state funding has become more constrained, this role has expanded into modern P3s where project risks and responsibilities are transferred from the public owner to the private partner. Examples of successful P3s in the United States include the 91 Express Lanes and South Bay Expressway in California, the I-595 Managed Lanes and Port of Miami Tunnel in Florida, and a variety of projects in Texas and Virginia. In addition, over half of the states are actively considering the use of transportation P3s to address transportation infrastructure requirements.
What are the key benefits of P3s, and how will P3s benefit Arizonans? Show | Hide
P3s make it possible to deliver much needed transportation projects in a timely manner, often years before the projects could be delivered using traditional project delivery methods. Because P3s are business ventures for the private sector, the private sector has become very efficient at delivering projects under this method. These efficiencies, combined with the private sector's resources, provide a more effective life-cycle cost and timely approach to delivering projects and provide a greater value for money for the public owner. In short, P3s will make it possible for Arizonans to get much needed transportation improvements faster than if conventional delivery methods are used, thus providing more travel options, reducing congestion, and improving roadway safety for Arizonans.
What are the differences between a P3 and the way ADOT typically does a transportation project? Show | Hide
Under a conventional project delivery method, ADOT finances both the design and construction of a transportation project. First, ADOT typically bids out and oversees the engineering design. Once the design is complete, ADOT then bids out and oversees the project's construction. Once the construction is complete, ADOT assumes the operations and maintenance of the facility. This process often results in change orders, which increase the cost of the project.
Under a P3, a private partner either finances or assists in financing a transportation project. ADOT bids one contract for the project, and the resulting P3 agreement covers both the design and construction of the project. It may also include the operation and maintenance of the facility by the private partner for a defined period of time. Typically the private partner, not ADOT, is responsible for change orders.
The private partner is responsible for managing and operating the project for the term length, with ADOT serving in an oversight role. The private partner typically is responsible for adding future capacity to enhance the ongoing operations of the project. Under all circumstances, ownership of the project remains with ADOT.
What types of projects can be done using a P3? Show | Hide
Eligible projects include those that are used or are useful for the safe transport of people or goods via one or more modes of transport, including enhanced, upgraded, and new facilities. Eligible project could involve:
- Bus systems
- Guided rapid transit
- Fixed guideways
- Intermodal or multimodal systems or any other mode of transport
- Rail yards or storage facilities
- Rolling stock
- Other related equipment, items, or property.
What types of project delivery methods are allowed under a P3? Show | Hide
ADOT can use a variety of project delivery methods, including:
- Predevelopment agreements leading to other implementing agreements
- Design-Build agreements
- Design-Build-Maintain agreements
- Design-Build-Finance-Operate agreements
- Design-Build-operate-Maintain agreements
- Design-Build-Finance-Operate-Maintain agreements
- A concession providing for the private partner to design, operate, maintain, manage, or lease an eligible facility.
Who owns a transportation facility constructed under a P3? Show | Hide
ADOT retains control and ownership and sets the standards and rules of the P3 facility.
How long will a P3 agreement last? Show | Hide
In Arizona, the term of a P3 agreement can extend up to 50 years. However, ADOT may extend a P3 for additional terms.
What is a toll road? Show | Hide
A toll road / bridge is a road / bridge which motorists may choose to use for a fee. Those motorists who do not wish to use a toll facility do not have to do so. Motorists who choose to use a toll road/bridge normally do so because the tolled route is more convenient, direct, or less congested than alternatives, and is therefore determined by the motorist to be worth the additional fee.
Will private partners try to increase their profit at citizens' expense by raising tolls and reducing service? Show | Hide
No. A toll facility is a business venture for a private partner. If tolls are too high, fewer people will travel on the facility, which will result in lower profits for the private entity. Similarly, reducing service will also drive customers away, which is the last thing that a business wants to do. Additionally, provisions regulating toll rate increases and performance standards are included in the P3 agreement, and the private partner is legally required to adhere to these provisions.
What will happen if the private entity goes bankrupt after building a toll road under a P3? Show | Hide
If a private partner were to file for bankruptcy after entering into a P3 and constructing a toll road, the facility would continue to be available to the public. Under no circumstances would the facility be closed.
Will existing roads be tolled? Show | Hide
Legislation requires that any P3 agreement must be used for a "new, upgraded or enhanced facility." Therefore, P3s can be used for new facilities or for expansions to existing facilities. Existing lanes cannot be tolled under current law.