With this model, a public infrastructure owner awards a franchise to a private sector partner to design, build, finance, and operate (DBFO) a transportation project for a pre-determined concession period. In exchange, the private sector partner has the right to collect all revenues generated by the project during the franchise period. The public sector may provide limited financial assistance, taking such forms as development period cost-sharing, right-of-way provisions or limited revenue guarantees, but the private sector partner bears the revenue risk, and hopes that the funds generated will be adequate to pay the underlying project loans and interest and make a fair profit on its investments of time, expertise and money.
DBFO concessions can be awarded for the construction of a new asset or for the modernization, upgrade or expansion of an existing facility. DBFO concessions often extend for a period of 25 to 30 years or even longer, and are awarded under competitive bidding conditions. Under a DBFO approach, the ownership of all assets, both existing and new, remains with the government. However, the government usually stipulates maintenance protocols and specific improvements to be made over the franchise period to insure that the assets are properly used and maintained during the concession period and in good condition when it is over.
DBFO P3 franchises were pioneered in Europe and by the 1990s two models had evolved. Under the more common "real toll" scenario, private concessionaires arrange financing, construct roadways, maintain them, service their debt and derive revenue from tolls collected directly from motorists. One of the main benefits of the "real toll" concession approach is that it enables governments to tap into sources of private capital and avoid using public monies to build highways. Real toll P3 precedents established in France and Spain have been replicated in such diverse locations as Iceland, Malaysia, South Africa, Croatia, Australia, China and Brazil. An equally wide range of countries is now poised to launch ambitious surface transport partnership projects, including Poland, Romania, Lebanon, Egypt, and Austria.
In the United States, the private sector historically had an important role in highway construction operation and financing through the mid-part of the 19th century. Although privately financed motorways are common in countries around the world, they have not generally been favored in the United States. However, beginning in the 1990s, a small number of privately financed DBFO toll roads have been built in the United States. These include the Dulles Greenway in Loudoun County Virginia, the Camino Colombia in Webb County, Texas, the Foley Beach Expressway in Baldwin County Alabama and the SR 91 Express Lanes (a HOT lane facility) in Orange County California.
Due in part to the unpopularity of a controversial non-compete clause in the SR-91 Express Lane agreement, that concession was cancelled, with the Orange County Transportation Authority buying out the private investors. The original Camino Colombia went into receivership and was purchased by the State of Texas in early 2004. Construction is also underway on the SR-125, a 12-mile $642 million toll road in San Diego. Development costs are financed through a combination of senior debt, US Government concessional debt, and equity. The SR125 project also received credit assistance from the Transportation Infrastructure Finance and Innovation Act (TIFIA) program. The $140 million TIFIA loan is the first ever provided to a private toll road development and the 38 year loan has a fixed rate borrowing cost equal to 30 year US Treasuries.