With an aging infrastructure and government budgetary shortfalls, the public private partnership (“P3”) has evolved from novel, to an ever more viable option in order to finance civic projects. The larger and more complex the project, the more attractive P3 becomes as an option projects that may normally be too large or economically unattractive without both private and government involvement to share risks and costs.
P3’s have now arguably reached the critical mass necessary to encourage private companies to design products to address the unique needs of P3’s. For example, to accommodate the continued paradigm shift toward P3 projects, AIG recently created a product to address insurance liability issues unique to P3’s. Insurance issues are arguably one of the more difficult and nuanced components of P3 projects. This is just one small but critical example where increased P3 activity is justifying creation of products to support and contribute to the P3 market, thus making each project more efficient than the last.
While P3 results have in the past been slow and choppy, the P3 market in the US in particular shows positive signs of also strengthening in the long-term. According to a new report by Moody’s Investors Service, the US P3 market demonstrates the potential to be the world’s largest. The potential of the US P3 market is bolstered by three main factors: government support, a strong legal framework and growing financing sources. In particular, political will and financing are both encouraged by the increased successes of P3 projects.
Moreover, new legal frameworks, including the Fixing America’s Surface Transportation (FAST) Act, are contributing to further stability and predictability for P3 projects. Professional organizations are also doing their part to further the industry. Innovations such as the creation of the Build America Transportation Investment Center (BATIC), are lowering the hurdle to find reliable P3 data, and serve to demonstrate another sign of the maturing P3 market. The BATIC was developed out of the necessity to create a central point of contact for coordination of federal transportation expertise and project sponsors.
While many P3 projects draw on limited project experience, John Medina, Moody’s VP — Senior Analyst says,
“State-level P3 activity has risen over the last three years, and nearly all P3 projects have been completed early or on time.”
His sentiment is echoed throughout US P3 projects. According to a Moody’s Investors Service report, the U.S. market for P3’s is ripe. With continued strengthening of political will combined with continued cooperation between the private and public sectors, the P3 market will only continue grow into the preferred method of financing public projects.