Tables
Figures
Question 1: Could the PSC rely on more advanced project delivery methods such as design-build or design-build-finance as opposed to design-bid-build?
Yes. The PSC reflects the most realistic fall back option for project delivery. Typically, a P3 consists of integrated contracts, whereas the conventional delivery method will be a combination of several contracts and insourcing by the public entity - depending on the level of expertise within the procuring organization. For construction or reconstruction, the conventional delivery method can be Design-Bid-Build (DBB), Design-Build (DB) or another contracting model - essentially whatever the public agency is familiar with. Design-Build-Finance (DBF) can also be considered as an alternative delivery method, particularly in cases where agencies are constrained by short-term borrowing limitations; in this situation DBF is an alternative way to leverage future available work program funds. Selecting the conventional delivery model is about defining the most realistic alternative if P3 is not selected.
Question 2: Could the project be financed using non-recourse public toll revenue bonds to avoid project funding delays under the PSC?
That depends on state DOT specific policies and regulations. P3 is often seen as an option to accelerate projects that cannot be implemented through conventional delivery methods due to budget constraints. However, P3 is not always the only solution to overcome funding constraints, since alternative solutions may be available, including DBF, public bonding or 63-20 corporations. The extent to which these alternative solutions are available may vary by state and are often the product of (self-imposed) policies and regulations. In case these alternative financing solutions are available, it would be incorrect to attribute the benefits of project acceleration to P3. This is the motivation for distinguishing acceleration effects from other impacts of P3 delivery in the BCA framework.
Question 3: How does public financing of P3s impact the PDBCA framework?
Financing costs are not reflected in the PDBCA. In the BCA methodology, financing costs are considered a transfer, and therefore irrelevant from an economic perspective. The lifecycle performance risk premium reflected in the financing costs, however, will need to be reflected one way or another. One approach is to calculate the present value of a virtual insurance premium that is based upon the market-based WACC (weighted average cost of capital). That WACC however is affected by the use of public financing components such as TIFIA loans. The risk premium in such a WACC contains public subsidies (e.g., through TIFIA loans) and is therefore no longer a market-based risk premium.
If the main objective is to have the most complete reflection of the costs, benefits and risks, the WACC that is used to determine the virtual risk premium will have to be corrected for the public subsidy that is included in the public financing conditions. If the main objective is to make a fair comparison between delivery models, it may be acceptable to use the WACC that contains public financing conditions, as long as a similar calculation of lifecycle performance risk is included in the PSC as well.
Question 4: Could new public sector management solutions achieve similar efficiencies as those currently attributed to P3?
New public sector management solutions can certainly generate efficiencies. One should realize however that, whereas most of the P3 value drivers could theoretically be applied under conventional procurement methods, procuring agencies are often not in a position to implement these concepts in practice. For example, although states increasingly use accrual accounting, annual budgeting constraints limit the implementation of lifecycle costing.
Question 5: What is the relation between PDBCA and VfM?
While the VfM assessment captures the financial (or cash flow) differences between delivery models from the perspective of the procuring agency, the PDBCA includes all the economic costs and benefits of the delivery models being compared. On the cost side, the VfM assessment can be used as a starting point for the PDBCA. However a correction is required for 'transfers' that are not relevant from a PDBCA perspective, most importantly toll revenue cash flows and financing cash flows. Additionally, PDBCA generally uses real dollars along with a real discount rate to calculate the present values of future benefits and costs.
Consistent with the VfM assessment, the PDBCA considers all costs throughout the life of the project, requiring estimates and assumptions for planning and design costs, construction costs, maintenance costs and operational costs, as well as transaction costs and the value of risks and uncertainties under all delivery models considered.
Question 6: Why does the PDBCA not consider the benefits of accelerating other projects using the "freed up" funding or debt capacity when a P3 option is selected?
A commonly claimed benefit of P3s is that, by using private financing, they allow public agencies to retain funding and untapped debt capacity for other projects for which sufficient funding would otherwise not be available, and thus advance the benefits of those projects. This claim is based on the premise that public funding and/or debt capacity for transportation projects is limited and that by accessing private equity and private debt capacity to deliver one project, a public agency 'frees up' funding for other projects. From the perspective of benefit cost analysis, funding availability and debt capacity are political choices that are independent of the analysis of the benefits of a particular project. In other words, it is a political decision if a state, for example, chooses not to raise the gas tax or sets an arbitrary limit on the amount of debt the government can issue. The extent that these policies limit the state's ability to publicly fund and deliver projects that benefit-cost analysis shows would be of net social benefit, or that a P3 helps to overcome these limitations, are not considered a benefit of P3 delivery in PDBCA. (Should there be a desire to estimate benefits of accelerating other projects using "freed up" debt capacity, an analysis similar to that done in Step 2 of the PDBCA process would need to be undertaken for all the affected projects.)
