By Mara Johnston

1. THE FUTURE OF
P3s
PUBLIC-PRIVATE
PARTNERSHIPS:
STATE OF THE MARKET &
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
BY MARA JOHNSTON

2. 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 pub-
lic 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 coun-
tries. 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 on page 26 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 transporta-
tion, 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 on page 28 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.
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.”

3. 26 CFMA Building Profits September/October 2017
For example, a February 2017 study from the American Road
and Transportation Builders Association (ARTBA) found
approximately 9% of all U.S. bridges (55,710 in total) were
structurally deficient – meaning one or more of its major
elements is in poor condition. Experts predict it would cost
approximately $700 billion to make all the necessary repairs
and upgrades to these bridges.
Who Benefits from P3s?
Since P3s vary widely in project size, contractors of all sizes
may benefit from this arrangement, so long as the proper fund-
ing, planning, team, and payment structure are all in place.
For example, Michigan’s first P3 project, a $50 million freeway
lighting project, was also the first P3 for Aldridge Electric (a
$500 million electrical contractor), which has since provided
an entry into other new lighting projects throughout the U.S.
These small- to medium-sized projects are growing in popular-
ity because of the reduction to emissions as well as the cost
savings that result from higher efficiency lighting.
In addition, global contractors will often seek local partners for
P3s, giving both large and small contractors the opportunity
to participate. Local contractors will often better understand
the landscape of the surrounding project, trade contractors
that can be procured, material suppliers, and other expertise
necessary to perform the job at hand. Local expertise is often
favorable to state agencies and owners that ultimately choose
the winning team. P3s can also be a place for minority- or
women-owned business enterprises (MBEs and WBEs) to
excel because of the additional planning each project entails.
How Are P3s Funded?
An integral part of any P3 project is how it is funded and
financed. In some instances, funds have been created solely
for the purpose of investing in P3 infrastructure projects.
Private equity, debt, and other federal, state, local, public, or
private sources of funding and financing resources may also
be included in each P3 project.
The Transportation Infrastructure Finance and Innovation
Act (TIFIA) is critical to P3s. Qualified projects can apply
TIFIA funds to up to 33% of the project. Other funding will
come from bonds and private equity funds.
According to the U.S. Department of Transportation (DOT),
TIFIA “provides credit assistance for qualified projects of
THE FUTURE OF
P3s
$1.2 Billion
3 Projects
$2.7 Billion
6 Projects
$2.0 Billion
4 Projects
$3.0 Billion
7 Projects
$3.8 Billion
3 Projects
$6.2 Billion
4 Projects
$2.5 Billion
4 Projects
● Near-Term Project
● Mid-Term Project
● Long-Term Project
EXHIBIT 1: P3 PROJECT PIPELINE
A total of 31 P3 projects have been identified for 2017-18, totaling approximately $21.4 billion.
Source: Star America Project Development Analysis

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5. 28 CFMA Building Profits September/October 2017
EXHIBIT 2: 10-YEAR INFRASTRUCTURE NEEDS BY SECTOR
THE FUTURE OF
P3s
TOTAL NEED
(in billions)
ESTIMATED FUNDING
(in billions)
FUNDING GAP
(in billions)
SURFACE Transportation1 2,042 941 1,101
WATER/WASTEWATER Infrastructure1 150 45 105
ELECTRICITY1 934 757 177
AIRPORTS1 157 115 42
Inland WATERWAYS & MARINE PORTS1 37 22 15
DAMS2 45 6 39
Hazardous WASTE3 7 4 3
LEVEES4 80 10 70
Public PARKS & RECREATION5 114 12 102
RAIL6 154 125 29
SCHOOLS7
870 490 380
Total (in billions) $4,591 $2,526 $2,064
Source: ASCE Infrastructure Report Card
1. ASCE Failure to Act: Closing the Infrastructure Investment Gap for
America’s Economic Future (2016).
2. Total needs are federal and non-federal high-hazard dams.
3. Funding only includes publicly funded remediation, not funds from private sector.
4. Total needs based on discussion with National Committee on Levee Safety.
5. Does not include backlog and estimated spending for U.S. Army Corps of
Engineers and city parks.
6. Funding estimates based on market projections and current investment trends.
7. State of Our Schools: America’s K-12 Facilities (2016). 21st Century Schools Fund, Inc.,
U.S. Green Building Council, Inc., and the National Council on Schools Facilities.

6. THE FUTURE OF
P3s
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regional and national significance. Many large-scale, surface
transportation projects – highway, transit, railroad, intermodal
freight, and port access – are eligible for assistance. Eligible
applicants include state and local governments, transit agen-
cies, railroad companies, special authorities, special districts,
and private entities.”
The goal of the program is “to leverage Federal funds by
attracting substantial private and other non-Federal co-
investment in critical improvements to the nation’s surface
transportation system. TIFIA was created because state and
local governments that sought to finance large-scale trans-
portation projects with tolls and other forms of user-backed
revenue often had difficulty obtaining.”5
Another method of funding comes through tax-exempt
Private Activity Bonds (PABs). The PAB program allows
the U.S. DOT to issue tax-exempt bonds on behalf of private
entities constructing highway and freight transfer facilities.
Current law places a $15 billion cap on PABs and directs the
Secretary of Transportation to allocate this amount among
qualified facilities.
Proposed Changes to Funding
The Trump administration has recommended expanding the
TIFIA program, which helps finance surface transportation
projects through direct loans, loan guarantees, and lines of
credit. It would expand TIFIA funding to $1 billion per year
over the next decade, as well as expand program eligibility
guidelines.6
The Trump administration’s budget proposal also seeks to
lift the PAB cap to allow more financing for P3s7
and expand
PAB eligibility to allow states to use tolls beyond interstate
highways.
Passage of PAB legislation would reflect the federal govern-
ment’s desire to increase private sector investment in U.S.
transportation infrastructure, which could offer numerous
benefits. Providing private developers and operators with
tax-exempt interest rates can lower the cost of capital sig-
nificantly, enhancing investment prospects. And, increased
involvement from private investors can generate new sources
of money, ideas, and efficiency.8
September/October 2017 CFMA Building Profits 29

7. THE FUTURE OF
P3s
Ultimately, the goal is to remove many of the regulatory bur-
dens of building a project and provide a streamlined process
to make sure key projects are built more efficiently and cost
effectively.
How Does a P3 Project Work?
A P3 project should have significant planning in place prior
to breaking ground, including selecting the team, determin-
ing the reimbursement method, establishing the project
term and security requirements, and selecting the right
contractor for post-construction needs.
In a P3, the financing partner and developer/contractor will
typically form an entity called a Special Purpose Vehicle
(SPV) to lead the project. The objective of the SPV is to
bring together a designer, builder, and operations and
maintenance (O&M) firm. This team collaborates with the
developer throughout the bid process to ensure an efficient
design and whole-life approach to the project.
Experienced Team
A successful P3 project must have the right team in place
that can deliver the project on time and within budget.
Proponents must carefully select a design-build joint venture
team that can complete quality construction efficiently. The
team’s experience is also pertinent due to strict regulations
on liquidated damages that P3 contracts often impose if late
delivery occurs.
A P3 should include a full set of advisors for both the public-
sector owner and each bidding team, including legal advi-
sors, financial advisors, construction managers, subcontrac-
tors, designers, engineers, and private finance constituents.
Payment & Reimbursement Methods
In a P3, the project financing will require a lump-sum con-
struction price and a pre-established payment schedule at
the time of the bid. Although the work leading up to financial
close of a P3 can be time-consuming, it can help avoid any
delay once the project begins due to the extensive financial
planning that takes place during the pre-construction phase.
Another important component of a P3 project is how the
team is reimbursed. The most common methods are toll pay-
ments, user fees, or performance-based availability payments.
Toll payments are provided to the team that has financed the
project as traffic passes through and tolls are collected. User
30 CFMA Building Profits September/October 2017
EXHIBIT 3: CURRENT P3 LEGISLATION
■ Broadly-enabled
■ Transportation only
■ No P3 authority
■ Limited (project-specific)
Source: Association for the Improvement of American Infrastructure

8. THE FUTURE OF
P3s
September/October 2017 CFMA Building Profits 31
In 2017, Oklahoma passed two bills into law that support P3s as
a procurement alternative to address the state’s infrastructure
needs, as well as the ability to procure alternative project delivery
for counties and major municipalities. Signed into law on May 12,
2017, SB 430 created the Oklahoma Public and Private Facilities
and Infrastructure Act, which enabled state government entities to
engage in P3s.
Also, HB 1534 was signed into law on May 25, 2017, which creat-
ed the Local Public and Private Facilities and Infrastructure Act,
which enabled counties, regional authorities, and municipalities
to engage in P3s.
In Arkansas, SB 651 was signed into law on April 4, 2017, which
created the Partnership for Public Facilities and Infrastructure
Act. This bill enables access to P3s as an alternative project
delivery option or procurement method for a broad range of
infrastructure assets.
Arkansas is now considered a fully-enabled P3 market. The
range of jobs available through private capital investment in
public infrastructure is attractive for this market, as any such
investment is likely to have a significant local impact.
On April 8, 2016, Kentucky authorized the use of P3s with HB
309, which “allows both the state and local governments to use
P3s to develop transportation and other public infrastructure.
The legislation allows unsolicited P3 offers, but requires that the
state make them public and accept competing offers during a
90-day period. The legislation requires the state to establish the
Kentucky Local Government Public-Private Partnership Board to
oversee P3 transactions.”9
New Hampshire enabled legislation on June 21, 2016, through
SB 549, which “authorizes the commissioner of the department
of transportation to enter into design-build-finance-operate-
maintain and design-build-operate maintain P3 contracts with
private sector infrastructure developers. SB 549 also establishes
a seven-member P3 Infrastructure Oversight Commission to
comment on and approve or deny all request for proposals for
P3 projects.”10
RECENT P3 LEGISLATIVE DEVELOPMENTS
fees are often the method of choice for social projects (e.g.,
collecting rent for student housing, airline lease payments
for an airport P3 project).
Performance-based availability payments are paid if the
agreed service levels are achieved as promised in the con-
tract. Specific obligations must be provided for in the P3
agreement prior to final completion of construction, includ-
ing details on maintenance (e.g., sweeping, landscaping,
construction fixes).
Project Term
Proposers of projects must decide early in the planning
phase if the authority determining the future of a project
has the financial capability to meet the project’s capital
obligations over a protracted period of time, as a P3 proj-
ect’s O&M period often lasts anywhere from 20 to 50 years.
Due to the long-term nature of P3 projects and responsibil-
ity of those involved following construction, P3 projects
often outperform typical design-bid-build projects, the O&M
contractor is responsible for the long-term maintenance and
financing is allocated and dedicated over many years.
Performance Security Requirements
Another major consideration of each P3 project is the
security performance package required, which typically
includes payment and performance bonds and letters of
credit specific for each project. Payment and performance
bonds typically range between 50-100% of the total con-
tract value; letters of credit requirements are often 4-10%
of the contract value.
Post-Construction Follow-Up
Due to the contractual obligations often required to both
operate and maintain the project following construction,
selecting the right O&M contractor is critical. This can be
difficult due to the limited number of O&M contractors
experienced to work on complex P3 projects.
Private partners might make an upfront investment for
the right to operate, maintain, and improve public assets,
such as parks, community-use venues, or infrastructure
such as water works. This is known as the O&M portion of
a DBFOM P3 project. The asset will ultimately be owned
by the public entity, with risk and responsibility assumed
by the private partner.

9. 32 CFMA Building Profits September/October 2017
Legislative Update
As of July 2017, 37 states, plus Washington, D.C. and Puerto
Rico, have approved P3 legislation, with 14 of those states
(plus Washington, D.C. and Puerto Rico) enacting P3 legis-
lature that includes vertical development (municipal build-
ings) and 13 of those states (plus Washington, D.C. and
Puerto Rico) including water infrastructure.11
(See Exhibit
3 on page 30.)
In 2016, a variety of P3-related bills were introduced in many
states. These bills outline the type of P3s allowed (e.g., roads,
toll roads or other infrastructure projects inclusive of the
water sector, and social projects), whether a task force/com-
mission is needed, and if this task force must be utilized in
order to approve a new P3 project. (See page 31 for recent
developments.)
The Future of P3s
P3s may not just be the future of transportation and infra-
structure – they can also be successful models for utility,
broadband, and lighting projects through payment based on
energy savings.
Although the majority of states currently have some sort of
P3 legislation in place, the process is still cumbersome and
most states do not allow for all types of projects. However,
organizations such as the Association for the Improvement
of American Infrastructure (AIAI) have advocated for these
initiatives to advance at both the state and federal levels.12
While 31 upcoming P3 projects that have been identified in
the U.S. (totaling more than $21 billion) along with President
Trump’s proposed infrastructure program are promising, the
U.S. needs backing at all levels of government as well as the
development of consistent practices across state and local
governments. States with significant budgets, such as New
York, still have no P3 enabling legislation.
Innovative project delivery methods such as P3s are needed
to capitalize on available private capital. Ultimately, if states
are able to free up other sources of capital funds by allowing
private financing to be a part of the project at hand, there will
be additional monies available for projects that may not have
dedicated private or public financing.
In order to continue this trend, current and near-term
P3 projects must be completed successfully with careful
planning, attention, and a competent, well-organized team.
However, only with continued and expanded legislative sup-
port, an increased P3 project pipeline, and well-organized bid
teams will P3s prevail to their full potential. n
Endnotes
1. www.infrastructurereportcard.org.
2. Ibid.
3. www.fhwa.dot.gov/ipd/pdfs/p3/p3_oversight_how_FHWA_reviews.pdf.
4. InfraDeals, U.S. P3 State of the Market, June 2017.
5. www.transportation.gov/buildamerica/programs-services/tifia/
overview.
6. p3ky.com/news/trump-administration-looks-boost-private-activity-
bonds.
7. www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/fy2018/
fact_sheets/2018%20Budget%20Fact%20Sheet_Infrastructure%20
Initiative.pdf.
8. Ibid.
9. www.fhwa.dot.gov/ipd/p3/legislation.
10. Ibid.
11. AIAI Law & Legislative Committee, July 2017.
12. aiai-infra.info.
MARA JOHNSTON is the Vice President of Business
Development at Star America Capital Consulting in
Jericho, NY. Her responsibilities include driving develop-
ment and growth through new and existing relationships
in the construction industry.
She is a dedicated construction and financial profes-
sional with a diverse building, design, and engineering
background and has worked in the construction industry
for more than 13 years. Mara also has experience in
mergers and acquisitions, Design-Build-Finance projects,
and other consulting and advisory needs. Mara is the
current president of CFMA’s New York City Chapter.
Phone: 516-231-4652
E-Mail: mjohnston@staramericap.com
Website: www.staramericap.com
THE FUTURE OF
P3s
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