This Public-Private Partnership Procurement Guide (Guidebook) has been developed in coordination with the U.S. Department of Transportation (U.S. DOT) Build America Bureau, the Federal Transit Administration (FTA), and the Federal Highway Administration (FHWA) to provide advanced guidance on procedures, issues, and considerations involved in public-private partnership (P3) procurement of surface transportation projects, with a focus on highway and transit investments. This Guidebook is part of the P3 Toolkit that consists of P3 guidance documents and tools to assist in educating Federal, State, and local policy makers, legislative and executive staff, and transportation professionals. The P3 Toolkit comprises the base of a broader P3 capacity-building program, which includes a curriculum of courses and webinars. The P3 Toolkit addresses four key phases in P3 implementation, as listed below:
Table 1 shows the core components of the FHWA P3 Toolkit:
| Core Components of the P3 Toolkit | Description |
|---|---|
| Fact Sheets |
|
| Primers |
|
| Guidebooks |
|
| Analytical Tools |
|
This Guidebook is the first to address all aspects related to P3 procurements for highway and other transportation-related assets and investments. It may be used as a stand-alone reference or in conjunction with other publications and analytical tools in the FHWA P3 Toolkit.
The target audience for this Guidebook is FHWA and FTA staff as well as transportation staff at the State departments of transportation (DOTs), metropolitan planning organizations (MPOs), and other Federal, State, and local agencies that are involved with or considering P3 procurement for a transportation project. The objective of this Guidebook is to provide advanced guidance for the sequential development of a P3 project from the pre-procurement phase through financial close. While this Guidebook describes the overall process for development of a P3 project from beginning to end, it is also intended to be a resource for particular topics relevant to P3 feasibility analysis and project development that can be reviewed on a section by section basis. Consequently, some concepts may be addressed in multiple sections. For introductory guidance refer to the Fact Sheet and other publications on FHWA's P3 Toolkit website. 1 Refer to Appendix A for definitions of certain terms used in this Guidebook. This Guidebook is not legally binding in its own right and will not be relied upon by FHWA or FTA as a separate basis for affirmative enforcement action or other administrative penalty. Conformity with the Guidebook is voluntary only, and nonconformity will not affect rights and obligations under existing statutes and regulations.
This Guidebook highlights successful practices and lessons learned through the lens of real-world P3 procurements.
Governmental agencies responsible for developing, operating, and/or maintaining transportation facilities frequently call on the private sector to assist in achieving the agencies' goals. The term "P3" may be used to describe various types of agreements between a public and private entity. For purposes of this Guidebook, a P3 procurement is defined as procurement of a long-term contract for multiple elements that may include development (design and construction), operation and/or maintenance of a facility that involves a component of private financing. In the context of infrastructure projects, P3s can be used to procure new-build facilities, including developing new transportation assets; or the upgrading or expanding an existing facility. These may be structured as a design-build-finance (DBF), design-build-finance-maintain (DBFM), design-build-finance-operate-maintain (DBFOM), or any other delivery method that combines design, construction, operations, or maintenance functions with a private finance component. A P3 concession can also be used to lease existing publicly financed, revenue-generating facilities to private sector investor operators for a specified period of time. During this time, the lessee has the right to collect revenues such as tolls on the facility in return for bearing operations and maintenance responsibilities and in select instances receive a lump-sum or periodic payment from the public owner.
One of the primary motivations for a P3 procurement is the ability to use private capital to implement much-needed projects in the absence of-or delayed availability of-adequate public funding and/or to advance future project revenues. While public funding may still be part of the plan of finance for the project-for example, in the United States, most highway P3 projects involve some level of public funding support-private equity and financing serve as critical sources to bridge gaps in available funding, enabling a project to be implemented and the resulting benefits to be realized sooner rather than later.
A P3 contract also provides a mechanism to allocate risks to the entity best suited to manage and mitigate them over an extended term that may include a post-construction operations and maintenance (O&M) period. Risk transfer is effected through contractual arrangements for the P3. A P3 engagement compels the agency to consider, evaluate, and seek industry feedback on major risks associated with the project, in greater detail than in the case of a traditional procurement. Once risks are recognized, public agencies may conclude that the private sector, based on its specialized expertise, is better able to manage and mitigate certain project risks, or the agencies may wish to transfer risk as a matter of policy. 2 The concessionaire, in turn, may be willing to take on additional risk in exchange for greater reward combined with greater control over construction means and methods and responsibility for operating and/or maintaining the project for an extended term. Projects that are inherently difficult and complex, atypical for the agency, or that require a skill set outside of the agency's core mission, are often candidates for P3 project delivery. Projects with these characteristics tend to be the riskiest and most challenging to deliver on-time and on-budget if design-bid-build (DBB) delivery is used. Some P3 projects involve the risk that actual project revenues, such as tolls, may fall short of the forecasted amount. If the contract is not structured correctly for a project with a high level of risk, the public entity will be exposed to unnecessary risk and costs.
Special purpose entities (SPEs) entering into P3 agreements are typically formed by multiple firms that bring varied and extensive experience in managing particular types of projects and specific stages of project development from the United States and, often, around the world. It is also critical for the SPE's team to include members with the local knowledge and understanding necessary for successful project delivery. In contrast, public agencies may have limited experience with delivery of certain types of projects (i.e. large, complex, and/or fast-paced projects that need financing) or be subject to personnel constraints affecting their ability to effectively oversee and manage high-cost projects outside of the norm for the agency's program. Therefore, it is prudent for the public sector to retain advisors with P3 transaction experience in the legal, financial, technical (life cycle), insurance, and other areas that are critical to a successful P3 arrangement. This is especially true for large or complex projects. Use of a P3 approach enables public agencies to fill both the technical knowledge gap and the funding gap through private involvement. Private sector participation can also help spur technical and management innovation, which is critical for complex projects.
This Guidebook includes references to various projects to illustrate procurement concepts, successful practices, and lessons learned. Four of these procurements are described in significant detail in Appendix B. Details on other procurements can be found on the FHWA and Build America Bureau websites. 3 The projects described in Appendix B were selected to represent a broad spectrum of experience concerning different concepts discussed in the Guidebook. Table 2 provides a summary of key aspects of the example procurements detailed in Appendix B.
| Example Project | Aspects | |||||
|---|---|---|---|---|---|---|
| Mode | Type of Development | Project Concept | Development Stage at Procurement | Selection Process | Payment Mechanism | |
| I-495 Capital Beltway High-Occupancy Toll Lanes, Virginia | Highway | Enhancements to existing facility | Defined based on unsolicited private sector proposal | Pre-development agreement | Formulaic approach | Revenue risk (toll concession) |
| Purple Line Light Rail Transit System, Maryland | Transit | New-build | Initiated by public sector | Well-defined project | Tradeoff approach | Availability payment |
| North Tarrant Express (NTE) Project, Texas | Highway | Reconstruction and enhancement of existing facility | Initiated by public sector | Well-defined project (initial segments); Pre-development agreement (later segments) | Formulaic approach | Revenue risk (toll concession) |
| U.S. 36, Colorado | Highway | Enhancements to existing facility | Initiated by public sector | Well-defined project | Formulaic approach | Revenue risk (toll concession) |
The procurement of the $2 billion I-495 Capital Beltway High-Occupancy Toll (HOT) Lanes project started with an unsolicited proposal. In June 2002, Fluor Daniel (now Fluor Enterprises), a private engineering, procurement, construction, maintenance, and project management company based in Irving, Texas, submitted an unsolicited proposal to Virginia Department of Transportation (VDOT) to design, build, finance, operate and maintain HOT lanes on the Capital Beltway on a P3 basis. After issuing a request for competing proposals (and receiving none), VDOT negotiated the P3 agreement with Fluor. The project ultimately expanded and improved a 14-mile section of the Capital Beltway (I-495) in Fairfax County, Virginia. As well as adding four new HOT lanes (two in each direction) and reconstructing the existing general-purpose lanes, the project replaced over 50 bridges and instituted vehicle occupancy requirements on the managed lanes. Motorists that declare high occupancy vehicle (HOV) status with their transponder are required to have three or more people in the vehicle.
Initially, the plan was for Fluor to provide 100 percent of the financing. However, Fluor eventually partnered with Transurban to improve its position relative to toll road operation and its ability to finance the project. The I-495 procurement presents an example of how market conditions affect P3 procurements. The project faced significant challenges to its financing as a result of the global financial crisis.
The Purple Line in Maryland is a new light rail transit system that will run 16.2 miles in suburban Washington, D.C., between Bethesda in Montgomery County and New Carrollton in Prince George's County. The project is funded in part with a Capital Investment Grant (CIG) grant from the Federal Transit Administration (FTA). The project will connect major activity centers located inside the heavily congested Capital Beltway and will provide direct connections to four branches of the Washington Metropolitan Area Transit Authority (WMATA) Metrorail system, as well as all three Maryland Area Regional Commuter (MARC) rail lines (linking Washington, Baltimore, and Frederick, Maryland) and Amtrak's Northeast Corridor.
The Maryland Department of Transportation (MDOT) and Maryland Transit Administration (MTA) undertook a joint solicitation for an availability payment concession for the project, with a 30-year operating period. MDOT/MTA used a tradeoff process in making the selection determination and awarded the concession agreement in early 2016. The project financing closed in mid-2016, benefiting significantly from low interest rates due to favorable market conditions. The FTA Full Funding Grant Agreement (FFGA) was executed in 2017.
The Texas Department of Transportation (TxDOT) North Tarrant Express (NTE) project includes the reconstruction, widening, and addition of tolled managed lanes along approximately 31 miles of roadway north and east of Fort Worth, Texas. TxDOT issued a procurement for a 52-year toll concession using a formulaic approach for source selection. TxDOT then awarded a toll concession agreement for the first two segments (Segment 1 and Segment 2W) and a pre-development agreement (PDA) for the remaining segments. The agency and the concessionaire have since entered into a separate facility agreement for an additional two segments and are currently negotiating an agreement for a third segment. Under State law, the concession for all of the additional segments will terminate 52 years after execution of the Segment 1 and 2W agreement.
Phase 2 of the U.S. 36 project completes the reconstruction of four general purpose lanes and, when combined with Phase 1 of the U.S. 36 project, adds one HOT lane in each direction between Denver and Boulder. Although the project was controversial, the Governor implemented public transparency policies that ensured a more detailed public involvement process for future P3 projects. This project shows how the P3 structure can be used to facilitate transit approaches including bus rapid transit (BRT) service sharing managed lanes with specific BRT performance requirements. It also illustrates that consolidated responsibilities can help deliver projects within a fixed-cost budget and pre-set time frame, in spite of the major flooding that affected Colorado in September 2013.
Other projects referenced in this Guidebook are summarized in Table 3.
| Agency | Project | Description |
|---|---|---|
| Arizona Department of Transportation | South Mountain Freeway | Highway DBM project |
| California Department of Transportation | Presidio Parkway | Availability payment roadway |
| SR-91 | Express lanes toll concession | |
| City of Los Angeles (Los Angeles World Airports) | Automated People Mover and Consolidated Rental Car Facility | Availability payment |
| Florida Department of Transportation | Port of Miami Tunnel | Availability payment tunnel |
| I-595 | Availability payment express lanes | |
| I-4 Ultimate | Availability payment express lanes | |
| Indiana Finance Authority | East End Crossing | Availability payment toll bridge |
| New Jersey Transit Corporation | Hudson-Bergen light rail transit system | DBOM transit system (finance component was removed by change order) |
| Ohio Department of Transportation | Portsmouth Bypass | Availability payment roadway |
| Pennsylvania Department of Transportation | Rapid Bridge Replacement | Multiple bridge replacements with availability payments |
| Regional Transportation District (Denver) | Eagle | Commuter rail availability payment P3 |
| Texas Department of Transportation | I-635 (LBJ TEXpress Lanes) | Express lanes toll concession |
| SH 288 | Express lanes toll concession | |
| Grand Parkway | Toll road DB project | |
| Virginia Department of Transportation | Transform 66 Outside the Beltway | Express lanes toll concession |
| Elizabeth River Tunnels | Connector toll concession |
Descriptions of the above projects can be found on U.S. DOT websites. 4
This Guidebook walks through the significant stages of a P3 procurement from initiation through financial close (see Figure 1). While recent and ongoing examples provide valuable lessons learned, it is critical to understand that unique features of individual P3 projects require a customized procurement process for each project. Agencies need to be flexible and creative throughout the procurement process in order to realize the greatest value from it.
Chapter 2 provides an overview of the P3 procurement process, including a comparison to traditional contractor selection methods. This chapter describes, at a high-level, the tasks that a P3 procurement will typically include (as compared with traditional procurements), includes a table summarizing successful practices, identifies certain legal issues to be considered, and provides information regarding Federal requirements affecting P3s. Procurements initiated based on unsolicited proposals can follow a significantly different process from those initiated by the public entity and are discussed separately in Section 8.5.
Chapter 3 discusses the activities, considerations, and successful practices for the pre-procurement period. The activities performed at this stage can help create a strong business case for use of P3s and set the stage for the procurement activities and engagement with multiple stakeholders in the next phase.
Chapter 4 offers guidance on activities and considerations relevant to development of the procurement package through the request for qualifications (RFQ) phase, which is typically the first step of a two-step procurement process, resulting in selection of a "shortlist" of firms that will be asked to submit proposals.
Chapter 5 offers guidance on activities and considerations relevant to the second step in the procurement process-issuance of a Request for Proposals (RFP) and selection of the concessionaire based on proposals from the shortlisted firms. This chapter focuses on development of the RFP, including drafting the contract documents, the industry review process and other activities through issuance of the RFP.
Chapter 6 provides further guidance regarding the RFP step in the procurement process, presenting the activities and successful practices during the period between issuance of the solicitation package and the selection determination, including the accommodation of alternative technical concepts (ATCs) and alternative financial concepts (AFCs) in the process.
Chapter 7 gives an overview of activities from selection to financial close.
Chapter 8 provides information about various additional issues relevant to certain P3 projects, including issues related to managing unsolicited proposals.
1 Federal Highway Administration, Center for Innovative Finance Support, "FHWA P3 Toolkit" web page. Available at: https://www.fhwa.dot.gov/ipd/p3/toolkit/. [ Return to note 1. ]
2 U.S. Department of Transportation, Guidebook on Financing of Highway Public-Private Partnership Projects, FHWA-HIN-17-003 (Washington, DC: 2016). Available for download at: https://www.fhwa.dot.gov/ipd/pdfs/p3/p3-toolkit_p3_project_financing_guidebook_122816.pdf. [ Return to note 2. ]
3 https://www.fhwa.dot.gov/ipd/p3/ and https://www.transportation.gov/buildamerica. [ Return to note 3. ]
4 See https://www.transportation.gov/tifia/projects-financed and https://www.fhwa.dot.gov/ipd/project_profiles/. Note that the Los Angeles World Airports projects are not yet listed on U.S. DOT websites at the time of writing. Information about those projects is available at: https://www.lawa.org/en/connectinglax/automated-people-mover and https://www.lawa.org/en/connectinglax/consolidated-rent-a-car-facility. [ Return to note 4. ]
