P3 101: Comparing Infrastructure Procurement Models
Outside of specialist circles, however, most people know little about public-private partnerships (P3s). This month, Doggerel features a series of conversations with members of our advisory team exploring the basic concepts behind P3s. In this third installment, Arup transaction advice specialists Alfonso Mendez, Roberto Sierra, and Jorge Valenzuela discuss how P3s compare to other project delivery models.
Can you give an overview of the differences between P3s and other common models?
Mendez: In the US, most infrastructure projects use design-build (DB) or design-bid-build (DBB) delivery methods, where you basically hire somebody to build a project for you and then they hand it back to you when it’s completed. In both cases the owner makes periodic progress payments, typically monthly.
With a P3, on the other hand, the company designs and builds the project, but they’re also in charge of financing it, keeping it up, and operating it for the next 30 to 40 years, until they give it back to the owner on the date specified in the contract and under certain conditions. That means all the additional capital investments that are required during that time will be in their court. The owner will only make payments, if any were agreed to in the contract, upon project completion. If it’s a revenue-generating P3 deal, such as a toll road, the private investment is instead paid back by the project’s revenues.