Small-scale public-private partnerships
Public-private partnerships (P3s) have become a common way for transit agencies to manage risk and increase efficiency. As popular as P3s are, most of the existing research into them focuses on large projects. While some of this research can be applied to small- to mid-sized P3s, these P3s come with their own challenges. A recent Transit Cooperative Research Program (TCRP) guidebook aims to examine what specific strategies can maximize the chance that smaller P3s will succeed. The guidebook includes an Excel-based checklist to help agencies determine if the P3 model is appropriate for a specific project.
A public-private partnership is at its simplest a joint effort between a public agency and private corporation. However, this could describe any sort of contracted operations. The guidebook lays out two conditions that have to be met for a project to be considered a P3:
- Service provision - A P3 must involve a continuous service rather than a one-time transaction. Building a facility does not generally constitute a P3, but building and operating one could.
- Risk transfer - The core purpose of a P3 for a transit agency is to transfer risk to the private sector. The private entity accepts this risk because of the potential returns on investment.
Transit agency P3s generally fall into five broad categories: capital improvements, operations and maintenance, real estate development, marketing agreements, and innovative technology (such as the provision of wifi service).
In creating the guidebook the team conducted 16 interviews with the public and private partners in various P3s. From these interviews they assembled a list of nine best practices that agencies should keep in mind when pursuing a public-private partnership:
- Identify champions early - P3s are most likely to succeed when there are individuals on both sides championing the project. The public champion is vital for connecting departments within the agency and getting approvals, while the private champion can influence approval and secure funding.
- Leverage public assets - The public partner should never lose sight of its bargaining power. The private partner is coming to the table because of the public sector’s assets (often real estate). These unique assets are a more powerful contribution than cash, which the private sector is capable of providing.
- Transfer as much risk as possible - The private sector has the ability to take on more upfront risk than the public sector, and this is fundamentally what makes P3s work. A P3 should be structured to minimize the public agency’s financial risk. As seen in the previous point, the public agency can instead leverage assets such as land easements.
- Set formal objectives - For a P3 to be successful, it needs to benefit both parties. Setting clear objectives and performance targets at the start of the project is important for defining success. The transit agency should determine its goals before issuing a request for proposals and looking for a partner.
- Draw on private-sector expertise - Transit agencies are knowledgeable about operating transportation systems. They are not always as skilled in the areas of real estate, sponsorship, or technology. In pursuing a P3, an agency should try to recognize its blind spots and let the private partner step up with its specialized expertise.
- Select an appropriate, tailored contract method - A proper contract forms the base of every good P3. This is the legal expression of the goals, costs, and responsibilities established during the planning process. A contract should be explicit about evaluation, especially in regards to risk transfer and performance monitoring. In a P3 with multiple private partners, consistent contracts build mutual trust.
- Involve operational staff early - A P3’s public-sector champion is likely going to be someone high at the agency removed from the actual operations of the project. Getting input across the agency early on will both improve the quality of the plan and promote broad buy-in.
- Create a realistic schedule - Because they involve multiple agencies, P3s have a large number of moving parts and layers of complicated approval processes. These issues should be carefully considered at the planning stage in order to create an appropriate timeline. Committing to an overly ambitious timeline sets both parties up for costly delays.
- Establish formal methods of communication and monitoring - Communication is critical to the success of a P3. There should be a single project lead at each organization, and these leads should have formal weekly meetings to track progress. Once a project has been implemented, weekly or monthly reports are necessary to monitor progress.
P3 Project Screening Checklist
The P3 Project Screening Checklist is an Excel-based tool developed from the guidebook’s research. While the checklist cannot provide a definitive answer on whether or not an agency should pursue a P3, it can help the agency consider all of the factors that go into making an informed decision. The checklist consists of 57 questions that can be answered with pull-down responses; the selected response will prompt the user to provide an explanation. The questions are divided into five sections: project definition, partnership definition, initiation, planning, implementation, benefits, and other.
The Anaheim Regional Transportation Intermodal Center (ARTIC) is a $200 million transportation hub in Anaheim, CA. The 67,000 square-foot facility was envisioned as a regional connector, but also as a destination within a redeveloping downtown. The project included 12,000 square feet of retail space, which the city recognized it was unprepared to manage itself. The city contracted management of the retail space (as well as the rest of ARTIC) to Lincoln Property Co. (LPC). LPC was considered a desirable partner because it had experience both with national transportation centers of similar scale and with local Anaheim development. While LPC is proving to be an effective partner, it would have been better to bring the company on before constructing ARTIC to utilize its expertise in designing retail spaces.
MBTA Boston Landing Station
The Massachusetts Bay Transportation Authority (MBTA) and Massachusetts Department of Transportation (MDOT) partnered with NB Development Group to build an infill commuter rail station in Brighton, MA. NB actually instigated the project, as it wanted transit access for its new headquarters. The owner of the company lived in the area and served as a strong champion for the project. MBTA and MDOT agreed that there could be a station in the area, but could not prioritize it. NB made the project a reality by committing to fund, design, and build the $20 million station and provide some of the operations and maintenance funding for the ten years. As of April 2017 the station is still under construction; the project was delayed because technical staff were not involved early enough, leading to cost underestimates.
The relationship between San Mateo County Transit and MV Transportation is an example of an incentive-based contract that lacks the necessary risk transfer to be categorized as a P3. MV Transportation currently operates various transit services for SamTrans. The contract specifies a variety of performance standards. MV can receive bonuses for exceeding these standards or be penalized for failing to meet them. While this system has led to cost savings and improved service flexibility, a system of revenue sharing would transfer more risk to MV, incentivize even better performance, and make the relationship a true P3.
- The FTA provides guidance on appropriate public-private partnership activities.
- This publication gives a substantial background into the legal issues involved with P3s, including taxation, bonding, and leasing.