Public-Private Partnerships Could Revolutionize American Roads

June 17, 2013

As governments across the United States wrestle with the challenge of providing high-quality transportation infrastructure, they should increasingly consider public-private partnerships. The record shows that such partnerships are more likely to be built on time and on budget, and that they offer greater value than conventional infrastructure projects, say Charles Lammam and Hugh MacIntyre of the American Enterprise Institute.

In the conventional way of providing infrastructure, the government manages and procures each phase of the project separately. Typically, the government hires a firm to build the infrastructure based on a prescriptive design and then assumes responsibility for operating and maintaining the infrastructure, perhaps outsourcing some aspects of care to private companies.

  • Public-private partnerships are a way for governments to cooperate with the private sector to share the risks and rewards of providing public infrastructure.
  • The government agency involved in the project establishes the project goals and desired outcomes (without being prescriptive about the means) while a consortium of private companies takes on the task of achieving them.
  • Risk-sharing occurs when the private partner takes on some project risks that would otherwise be borne by taxpayers.
  • Delays and cost overruns are common risks in constructing public infrastructure. In a conventional project, taxpayers pay these extra costs; in a public-private partnership, the private partner does.

Evidence from the United States is limited, but a study examining a small group of 12 North American public-private partnerships found that:

  • Ninety-two percent finished early or on time, while 83 percent were built on budget.
  • The same study found that the sample of partnerships outperformed a group of four conventional projects.
  • On average, partnerships finished 0.30 percent ahead of schedule while conventional projects finished 4.34 percent behind schedule.
  • In terms of costs, public-private partnerships had overruns averaging 0.81 percent, compared to 12.71 percent for conventional projects.

As long as governments are in the business of infrastructure, public-private partnerships are an important option that can help improve the quality and provision of our roads, bridges and railways.

Source: Charles Lammam and Hugh MacIntyre, "A Route to Better Roads: The Case for Public-Private Partnerships," American Enterprise Institute, June 12, 2013.

 

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