The Kentucky Transportation Cabinet (KYTC) and the Ohio Department of Transportation (ODOT) completed an Options Analysis (OA) in September 2013 to help inform the states on how to deliver the Brent Spence Bridge Corridor project better, fast and cheaper.
However, this mega-project brings to light a very real problem: Adequate funds do not exist to replace and refurbish the Brent Spence Bridge Corridor using traditional revenues. Because of this, tolls will be used and alternative delivery methods will be considered if this project is to be completed within the next 40 years.
One alternative delivery method under consideration is a public-private partnership, commonly known as a P3. P3 delivery methods use a combination of public funds and private investments to build projects faster and more cost effectively than traditional delivery methods.
Under a P3 arrangement, certain types of risk associated with building, operating and maintaining the project would be transferred to the private sector. In particular, because the private entity doesn't get paid in full for up to the 35 years after opening to traffic, the states will have the benefit of a long-term warranty on the project and will not be liable for costly repairs if the project is not designed and built properly.
If it is determined that a P3 approach is preferable - and will result in greater cost-savings over the lifespan of the project - this alternative delivery method may ultimately be selected.
Because a public-private partnership is not a financing model that has been widely used locally, it is important to understand what a P3 is and what benefits it can bring to this project. Here are some important facts about P3s and what they involve:
- P3s are simply a different way of contracting to deliver a project. Traditionally, a state department of transportation contracts separately with private consultants and contractors for the design and construction of a highway/bridge facility and then operates and maintains the facility using its own forces. Having multiple parties and interfaces adds to the states' risk. P3 agreements integrate design, construction, financing and operations and maintenance into one performance-based contract and allow for the transfer of risks, such as long-term condition, delays and defaults, to the party best suited to manage them.
- In a P3, the private partner is not buying the roadway or bridge from the government. Think of a P3 as a lease, not a sale. In typical P3 arrangements, the government remains the owner at all times, with the private sector partner taking responsibility for performance that is spelled out within the partnership agreement.
- The private partner has specific standards it must meet. Both parties must sign a contract that spells out all of the responsibilities and expectations that the government partner will require of the private partner. Everything related to the operation and maintenance of the bridge or roadway is covered, such as the time to respond to incidents and accident damage, the effectiveness of lighting systems and the ride quality of the roadway. The failure to meet any of the specified performance standards could result in penalties or in the termination of the contract. In a well-crafted P3 arrangement, the government can actually maintain more control of outcomes than would otherwise be achieved under traditional delivery methods.
- A P3 deal does not give the private partner the power of eminent domain. Ever. With personal residences and small businesses located along the Brent Spence Bridge Corridor, some may be concerned that a potential private partner could take property through eminent domain. However, this power has always been reserved for the state; under no circumstances will eminent domain power be transferred to the private sector.
- The financing burden is not left with the government if a P3 contractor goes bankrupt. In fact the states would be protected to a greater extent than under traditional contracting because under a P3 the government makes few if any payments until the project is substantially complete and open to traffic. In the event of a corporate bankruptcy on the part of a private sector partner after the project is operational, roads would not be closed, and the traveling public would not be impacted. A new operator would simply be selected with oversight from the state.