The most recent report from the American Society of Civil Engineers (ASCE) rated U.S. infrastructure a D+1 and estimates that the cost of necessary repair and rehab work will reach $4.6 trillion by 2025.2
Although President Trump appears to be making infrastructure funding a priority with his proposed $1 trillion infrastructure plan, according to a White House fact sheet, “The [Trump] administration’s goal is to seek long-term reforms on how infrastructure projects are regulated, funded, delivered, and maintained. Providing more federal funding, on its own, is not the solution to our infrastructure challenges.”
The need for increased focus on the construction and infrastructure industries is clear; however, the means and methods as well as where and what to invest in becomes the next big question.
In today’s market, owners and developers as well as large federal, state, and city agencies are looking to new and innovative project delivery methods that result in efficient, cost-effective jobs. One such model is a Public-Private Partnership (P3).
P3s are defined by the Federal Highway Administration (FHWA) as “contractual agreements formed between a public agency and a private sector entity that allow for greater private sector participation in the delivery and financing of transportation projects.”3
Common P3 contracting approaches include Design-Build-Finance (DBF), Design-Build-Finance-Maintain (DBFM), Design-Build-Finance-Operate-Maintain (DBFOM), and Design-Build-Operate-Maintain (DBOM). For an in-depth discussion of the financial modeling that goes into a P3 as well as other technical factors, refer to Chapter 11 of Financial Management and Accounting for the Construction Industry.
The U.S. has been slow to adopt P3s compared to other countries. In fact, the first legislation to allow private tolling in the U.S. was not approved until 1991. However, in 2016, the U.S. surpassed the rest of the world for the first time in terms of total value of P3 projects that equaled $10.14 billion “in part due to two trailblazing transactions: the [$4 billion] LaGuardia Airport terminal redevelopment; and Maryland’s [$2 billion] Purple Line project.”4 Exhibit 1 shows a snapshot of many projects in the pipeline for 2017 and 2018.
Infrastructure Funding Gaps
The majority of U.S. P3 projects focus on surface transportation, although other sectors (e.g., airports, water) are quite common. Other significant needs include higher education (e.g., student housing, student or campus facilities), schools, justice complexes (e.g., courthouses, jails), water/wastewater, electricity, broadband, and community-use facilities (e.g., parks and recreation).
Exhibit 2 presents the ASCE’s review of all types of infrastructure, including the total need, current estimated funding allocated to that sector, and respective funding gap. As shown, some sectors are in greater need than others, but the largest need by far is surface transportation, which includes roads, bridges, tunnels, and other means of traveling via roadway.