Risk Valuation and Allocation For Public-Private Partnerships (P3s) [fact sheet]

Federal Highway Administration2022PDFBriefUnited States. Federal Highway AdministrationUnited States. Federal Highway Administration. Center for Innovative Finance SupportDeCorla-Souza, PatrickUnited States. Department of Transportation. Federal Highway AdministrationUnited StatesPublic private partnershipsContract administrationInfrastructureProject managementDesign build constructionThe use of Public-Private Partnerships (P3s) marks a shift away from traditional ways of procuring and financing highway projects. Under the P3 model, a private partner participates in a long-term contract involving some combination of design, construction, financing, operations, and maintenance, including collection of toll revenues. Under traditional public procurement of highway projects, the public agency retains most of the risks. Yet these risks are not usually quantified, nor are their costs always included in the project cost estimates. A key component of P3 procurement involves the sharing or transfer of certain risks from the public agency procuring the project to the private sector partner. The concept of "transferring risk" requires that the private partner be responsible for cost overruns or expenses associated with the occurrence of that risk.143