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Five Reasons Public-Private Partnerships Could See Big Growth Under the Bipartisan Infrastructure Bill

The Infrastructure Investment and Jobs Act has finally become law—an over $1 trillion bill that will provide historic levels of investment in America’s infrastructure. Although the IIJA did not make leveraging private capital a focus, the legislation has the potential to be the catalyst for a significant increase in public-private partnerships or P3s.

Despite their benefits, P3s remain relatively rare in the United States compared to the rest of the world. Although there is no single data source for tracking P3s, studies have generally found that P3s represent only about 1-2% of infrastructure spending in the U.S., whereas they make up 5-20% of infrastructure spending in other developed countries. The drafters of the IIJA may not have explicitly set out to grow the U.S. market for P3s, but there are five reasons to expect that the bill could do just that.

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  1. There’s a lot more money. Under the IIJA, traditional infrastructure programs are set to receive significantly more funding. Most surface transportation programs will see an increase of at least 34%, with some growing even more. This robust federal funding will enable infrastructure agencies to develop a pipeline of projects with a reasonable expectation of funding to support them. The lack of a project pipeline has been a disincentive for private partners to engage with public agencies. The time and cost involved in identifying opportunities, navigating local requirements, and preparing bids has been seen as prohibitive when there is little likelihood of more opportunities in the future. Moreover, as infrastructure programs grow, the capacity of state and local agency staff to deliver projects will be stretched, making P3s more attractive as a way to share more project risks and responsibilities with private partners.

  2. There will be more opportunities to compete for federal funds. The IIJA includes several new competitive grant programs. The transportation section alone includes $5 billion for mega-projects, $7.5 billion for regional and local projects, and billions for electric vehicle infrastructure and improvements to passenger and freight rail networks. Because of their highly competitive nature, these programs will force infrastructure agencies to think outside the box when developing project applications. A project that proposes to leverage private sector expertise to expedite delivery may have a competitive edge. In fact, “innovative project delivery techniques,” “innovative financing,” and “collabora[tion] with other public or private entities” are specifically called out in the regional and local grant program as elements that will earn project sponsors extra points in the evaluation process.

  3. More projects will go through value-for-money analysis. The IIJA includes a new requirement for projects that are seeking financing from the Transportation Infrastructure Finance and Innovation Act (TIFIA) or Railroad Rehabilitation and Improvement Financing (RRIF) programs: any project with a total cost over $750 million must complete a value-for-money analysis. Value-for-money analysis looks at the life-cycle costs of a project under various delivery approaches to determine which approach would deliver the best value over the full life of the asset. BPC has recommended that all major projects undergo value-for-money analysis to ensure that infrastructure agencies are considering P3s as an option where they would make sense and making the most cost-effective investment decisions. This new requirement for TIFIA and RRIF is a good start.

    The IIJA also requires that any transportation project proposed to be delivered as a P3 must have had a value-for-money analysis done. A better approach would have been to apply this requirement to all major projects, not just P3s, so that state and local agencies would consider alternative delivery approaches throughout their programs. Still, greater use of value-for-money analysis, even for a limited set of projects, will help to increase agencies’ experience with such studies, which may ultimately lead to expanded use beyond what the IIJA requires.

  4. Permitting reforms will reduce project costs and risks. The average time it takes to complete a federal environmental impact statement—as measured from the notice of intent to start a project’s review to the record of decision—is 4.5 years. Moreover, critical projects can require many other permits and authorizations, at all levels of government, before advancing to construction. The potential for costly and time-consuming delays in permits and other project approvals has been a significant barrier to P3s in the United States, as private companies have been reluctant to assume that risk. The IIJA includes permitting reforms intended to speed up federal reviews by, among other things, establishing a federal goal of reviewing and permitting projects within two years, making the Federal Permitting Improvement Steering Council permanent, and increasing funding for federal agencies responsible for permitting decisions. Greater certainty about the timeframe for reviews will help to reduce the permitting risk that is keeping private partners away.

  5. More help will be available for communities that want to explore P3s. Recognizing that lack of capacity to develop P3s is one of the main reasons why state and local agencies rarely pursue them, the IIJA includes new technical assistance programs to help evaluate and develop P3 projects. The IIJA provides $20 million annually in grants to states, localities, and tribal governments to build organizational capacity or retain expert services to identify, analyze, and plan potential P3 projects. Rural and tribal communities will also benefit from IIJA’s direction to DOT’s Build America Bureau to provide additional support to those communities for project planning and development, which could include assistance with value-for-money studies or identifying opportunities for private financing and project bundling.

While these provisions of the IIJA will make P3s easier to accomplish, there is more work to do to ensure that P3s reach their full potential. Public agencies need to develop asset inventories so that they have a comprehensive picture of their infrastructure conditions and needs. Private companies must develop effective strategies for working with affected employees and labor unions. On-going oversight and education are needed to overcome public concerns about the role of the private sector in public infrastructure. Coupled with the key elements of the IIJA, these steps would make the U.S. more conducive to P3s, bringing additional private sector expertise and capital to bear in tackling America’s infrastructure challenges.

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