P3s Defined

Overview

The U.S. Department of Transportation defines a Public Private Partnership (P3) as a contractual agreement formed between public and private sector partners. The agreement usually involves a government agency contracting with a private company to renovate, construct, operate, maintain, and/or manage a facility or system. While the public sector usually retains ownership in the facility or system, the private party will be given additional decision rights in determining how the project or task will be completed.

The traditional, non-P3 delivery method is known as a Design-Bid-Build (DBB) model. In the DBB model, the government entity contracts with an engineering consultant to design a project. The government then puts out a request for proposals (RFP) and awards the project to the lowest bidder or best value contractor. The vast majority of infrastructure projects today are built using the DBB method.

Delivery methods that involve P3s share one defining characteristic: the P3 contractor retains the project design engineering firm rather than the government entity, also known as Design-Build (DB). In both DB and DBB, the government entity retains an engineering consultant or in-house engineers to create the initial design criteria package for the RFP. To better understand the tradeoffs between using a DBB or a P3 model, click here.

The government entity has the following P3 delivery model options: 

  • Design-Build (DB)

  • Design-Build Maintain (DBM)

  • Design-Build-Operate-Maintain (DBOM)

  • Design-Build-Finance (DBF)

  • Design-Build-Finance-Maintain (DBFM)

  • Design-Build-Finance-Operate (DBFO)

  • Design-Build-Finance-Operate-Maintain (DBFOM)

  • Design-Build-Own-Operate (DBO)

  • Design-Build-Own-Operate-Transfer (DBOT)

For sake of simplicity, recommendations across the tools are limited to DBB, DB, DBF, and DBOM. In addition to these models, some government entities participate in public-private joint ventures to develop jointly owned infrastructure with a private sector entity (e.g., a model frequently used by a government entity to share capacity in electric generating facilities with a private investor owned utility). 

Private Sector Involvement

Many commentators tout the use of P3 as a means of securing the private sector’s assumed management expertise and project delivery efficiencies.  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 due to the limited bandwidth of public sector staff.  Likewise, in both procurement methods, the government typically retains a private construction project manager to monitor the performance of the contractor and the project engineer. Thus, securing private sector management and efficiency benefits is not favored by one delivery method over the other. For more information about private sector involvement in infrastructure projects, click here.

Design-Bid-Build (DBB)

In a traditional DBB model, the government entity hires the design engineer and construction contractor through separate bidding processes. The government retains the finance team which raises private capital in the tax-exempt municipal bond/bank loan market or may use a combination of private capital, federal and state grants, and local funds.

Design-Build (DB)

In the DB method, the design engineer is part of the contractor’s team. The government entity retains a separate design engineer (often in-house engineers) to prepare the preliminary design package in the RFP.

Design-Build-Finance (DBF)

P3s with a financing component leverage access to private sector debt and equity commitments, combining these resources with public sector funds. The contractor team retains the finance team which raises private capital or may use a combination of private capital, federal and state loan programs (e.g., TIFIA/WIFEA loans and private activity bonds). For more information on financing options for the private sector, click here.

Design-Build-Operate-Maintain (DBOM)

DBOM models are typically used for revenue generating infrastructure projects such as public utilities or toll roads. The private company that designs and constructs the facility also operates it for a set duration, usually around 20 years. During this time, the company is generally responsible for the operating and maintenance risk of the constructed facility. Ownership of the facility will be transferred back to the government at the end of the contract. To learn more about the benefits of a DBOM model over a DBB model, click here.