Patrick DeCorla-Souza

Comparing Public–Private Partnerships with Conventional Procurement: Incorporating Considerations from Benefit–Cost Analysis

Value for money (VfM) analyses have been used in evaluating various approaches to highway projects to help government officials determine whether a public–private partnership (PPP) is likely to be preferable for financial reasons to conventional approaches. VfM is a tool that focuses primarily on the financial impacts of procurement models from the perspective of the agency sponsoring a project. Nonfinancial impacts, such as benefits to users or nonusers of a facility, are not generally considered or are relegated to a qualitative evaluation. Benefit–cost analysis (BCA) has been used by public agencies in planning and project development phases to determine whether an investment is worth making. BCA is a more comprehensive tool than VfM that is capable of quantifying and monetizing nonfinancial impacts, such as benefits to users or nonusers that may accrue from earlier delivery of a project. This paper discusses how BCA considerations may be incorporated into a more analytically comprehensive approach to comparing PPPs with conventional procurement. The approach uses some results from VfM analysis and adds new items that are consistent with a BCA approach. The paper illustrates the approach with a hypothetical project.

Key Considerations for States Seeking to Implement Public-Private Partnerships for New Highway Capacity

Implementation of a public–private partnership (PPP) for new highway capacity by a public agency involves issues from enabling legislation through identification, evaluation, negotiation, and management of PPP projects. Public agencies will need (a) a legal framework to establish and enforce long-term PPP agreements; (b) policies, processes, and tools to guide policy decisions; (c) technical skills to identify, develop, and evaluate PPP projects and to negotiate agreements; and (d) skilled staff to manage and oversee projects over the long term. This paper explores key considerations involved in implementing a PPP project at a state department of transportation or other public agency. Public agencies seeking to facilitate the delivery and stewardship of PPP projects may consider whether to establish a PPP program or develop PPP projects on a project-by-project basis. PPP programs establish policies and processes that enable the fair and efficient evaluation, procurement, and oversight of PPP projects. Specifically, PPP programs include planning processes that facilitate the selection of appropriate projects as potential PPPs; evaluation processes that assist decision makers in structuring commercially viable PPP agreements that achieve policy goals, optimally allocate risks, and bring value to the investment; fair and competitive procurement processes that allow the public agency to select the best partner and negotiate a final agreement that is transparent and protects the public interest; and processes that help the public sector take on the new role of performance-based contract manager.

Illustration of a Framework for Benefit–Cost Evaluation of Highway Concession Proposals

Value for money (VFM) analysis is used to evaluate public–private partnership (PPP) concession proposals. However, the VFM approach cannot account quantitatively for benefits to travelers and others from the delivery of a project earlier than would have been possible under conventional procurement. Benefit–cost analysis (BCA) can address this issue and other nonfinancial costs and benefits. In the context of PPP project delivery, BCA may be conducted in three steps, namely, through (a) project evaluation, with the assumption of conventional delivery of a project on the basis of a financially feasible schedule; (b) incremental evaluation of an accelerated delivery schedule, with the assumption that the project can be conventionally delivered within the same time frame as would the proposed PPP; and (c) incremental evaluation of PPP delivery. This project delivery BCA process is demonstrated in this paper with the use of an illustrative highway project.

Generating Revenue to Fund Public–Private Partnerships for Reconstruction of Freeway Systems in Metropolitan Areas:

The multimodal expressway concept proposed in this study involves creating a network of high-occupancy toll (HOT) lanes and managing traffic at greater distances from the congested hot spots to relieve the flow-exacerbating impacts on the hot spots. Modal choices for customers are created along with pricing and parking strategies. HOT lanes would not only serve cars but would also become bus rapid transit lanes. Managers would be able to use real-time pricing, speed controls, modal shifts, and information systems to regulate traffic flows throughout the region. The HOT-lane network would be created by reconfiguring the existing freeway footprint to accommodate new HOT lanes by using a portion of the left and right shoulders and restriping of regular lanes into narrower lanes if needed, along with creation of emergency pull-off areas. To encourage transit, the HOT lanes would have a progressively increasing passenger mile performance measure in a public–private partnership agreement. Sketch-planning analysis is used to assess the potential of this strategy to address funding needs for public–private partnerships for freeway reconstruction in a prototypical large U.S. metropolitan area. Potential public concerns about tolls and ways to address them are also discussed. The results from the case study sketch-planning analysis suggest that revenue from the HOT-lane network, when supplemented with revenue generated through gas taxes and other fees paid by users of the highway network, would be sufficient to pay for the reconstruction of the freeway system in the case study area.

Development of a Transparent Framework for Pre-Procurement Evaluation of Public–Private Partnership Project Delivery Options

This paper reviews value for money (VfM) analyses conducted in the United States to gain an understanding of methods used in addressing key issues in VfM analyses. The paper shows that VfM analysis approaches are inconsistent. In many cases it is difficult to decipher the source of differences between delivery options. Discount rates are sometimes used in a way that reduces credibility of the results. The paper presents some ideas for how these key issues can be approached so that VfM analysis results are more credible, consistent, and transparent.

Evaluation of a Nontraditional Approach to Fund, Finance, and Manage Metropolitan Freeways

The purpose of this paper is twofold: (a) to present a nontraditional, performance outcome–based public–private partnership (PPP) approach to finance and fund freeway reconstruction that relies not just on generating new revenue but also on optimizing scope and costs to achieve financial viability and (b) to demonstrate how the approach can be evaluated for a specific project with an innovative value for money (VfM) assessment method that considers financial parameters, risk elements, and social benefits. The paper assesses the potential effects of the approach for a hypothetical project on (a) the public agency’s financial position and (b) public welfare. For this assessment, the effects of the project itself are assessed first by comparing conventional delivery of the project with “no build,” assuming that the project can be conventionally delivered in the same time frame as the PPP. Next, the effects of project acceleration are assessed by analyzing the effects of delaying conventional project delivery because of the public agency’s fiscal constraints. Finally, the PPP approach is compared with conventional delivery using public financing. The evaluation approach demonstrates how current VfM analysis practice may be enhanced by (a) including a quantitative assessment of public welfare benefits and (b) considering “no build” operations and maintenance cost savings to assess the net effect on the financial position of the agency.

Using Congestion-Priced Road User Charges to Restore Metropolitan Mobility and Fund Highways

The purpose of this paper is to introduce and evaluate a congestion-pricing strategy that could be used in metropolitan areas to supplement revenue generation mechanisms such as mileage-based user fees and fuel taxes. Congestion charges would be applied with transponder-based technology only on limited access metropolitan highway facilities to pay for the costs of their reconstruction and maintenance. Since most of the worst congestion in metropolitan and state roadways occurs on limited access facilities, this strategy would address the goal of restoring mobility without raising the kinds of privacy concerns that appear with regard to other types of more comprehensive road user charging systems that use location-based technology, such as mileage-based user fees. Proceeds from congestion charges could be used to pay for new low-cost, part-time (dynamic) shoulder travel lane capacity and transit and carpooling enhancements. This approach can increase public acceptability by providing multimodal travel alternatives. The paper discusses the strategy in the context of the reconstruction of the freeway system in a hypothetical metropolitan area, with an availability payment public–private partnership project delivery model to design, finance, build, operate, and maintain the improved freeway network. The analysis presented in the paper suggests that the approach could be financially viable and more economically efficient than conventional transportation funding approaches.