Private Sector Involvement
Procurement and Financing
Proponents of P3s extol the relative benefits to the public sector of private sector involvement as compared to traditional infrastructure delivery methods. However, in practice, there are little differences between private sector involvement in a P3 and in a non-P3. Under both traditional and P3 procurement, the design engineers, project contractors, and finance team are typically private sector players. Through interviews, we found that engineering firms believe they can bring equal levels of innovation and efficiency to the public sector client under both procurement processes.
Under a traditional delivery method, the procuring government solicits and retains a private sector design engineering firm to imagine and design a project which would then be bid out to a contractor. Under the P3 method, the procuring government typically retains a private sector design engineering firm to prepare a project design criteria package (often including a 30% project design). Under both scenarios, the procuring government typically retains an engineering firm to act as owner’s representative during construction, ensuring construction meets government expectations.
Both procurement methods also rely upon private sector financing experts. Under the traditional delivery method, the government retains the finance team which raises private capital in the tax exempt municipal bond/bank loan market, while under the public private partnership method, the design-build team retains the finance team which raises private capital in the taxable debt and private equity markets (although some projects qualify for tax-exempt private activity bonds). Typically, major investment banks service both segments of the financing market, bringing commensurate private sector financing innovation and efficiency regardless of procurement method (with the distinguishing characteristic being the investment return/risk objectives of the pool of clients from which funding is solicited). Significant overlap between the two banking segments can occur in either procurement method, with components of taxable debt financing in traditional project procurement and components of tax-exempt debt financing in P3.