FHWA Issues Interim Guidance on P3 Assessments for Major Projects

The Federal Highway Administration (FHWA) recently issued guidance for implementing various aspects of the Moving Ahead for Progress in the 21st Century Act (MAP-21), including:  Infrastructure; Environment, Planning and Realty; Safety; Operations; and Innovative Program Delivery.  The guidance became effective October 1, 2012.

The interim guidance on Innovative Program Delivery includes provisions for implementing the new public-private partnership (P3) assessment requirement for Major Project Finance Plans under MAP-21.  The new P3 assessment requirement is, in our view, a welcome development that brings the U.S. closer to an approach that has been adopted with substantial success in Canada’s efficient and mature P3 market.

Interim Major Project Financial Plan Guidance – P3 Assessment

The interim guidance discusses two significant changes to the financial plan requirements for Major Projects arising from MAP-21:  (1) a financial plan may include a phasing plan in the event there are insufficient financial resources to complete the entire project; and (2) a financial plan must assess the appropriateness of a P3 to deliver the project. 

“Major Projects” means Federal-aid projects with estimated total costs of $500 million or more and other projects as may be identified by the Secretary (see 23 U.S.C. 106(h)(1)). 

FHWA will now approve a financial plan for a Major Project only if it includes an assessment of P3 appropriateness.  FHWA requires that all initial financial plans submitted on or after October 1, 2012 include such an assessment, regardless of whether a P3 is the anticipated project delivery method.  To this end, all cost estimate reviews conducted prior to the issuance of the NEPA decision document must include a component to analyze the allocation of risk in delivering the project via the P3 model.

The interim guidance provides that the P3 assessment is expected to be brief and should include:  documentation of the results of the risk allocation analysis; discussion of whether a P3 or traditional procurement could more effectively leverage the revenue stream for the project; a discussion of the current State statutory authority for P3s (including with respect to public sector debt capacity); and a concluding statement regarding appropriateness of a P3 to deliver the project.

Positive Development

The new P3 assessment requirement is a welcome development in the U.S. market, which trails more mature P3 markets such as Canada and the United Kingdom in effectively leveraging the P3 delivery model, despite our enormous infrastructure deficit.  The MAP-21 requirement for P3 assessment is an excellent first step in mainstreaming P3 as a project delivery alternative.  By requiring a preliminary P3 screen for major Federal-aid projects, it will hopefully help bring to market projects that would have either cost more (when taking into consideration lifecycle costs) or taken longer to complete, or would not have been undertaken using traditional procurement methods.

By way of comparison, jurisdictions within Canada have long applied mandatory P3 screens to potential infrastructure projects.  In British Columbia, one of the most active P3 jurisdictions within Canada, consideration of P3 suitability is mandatory for all projects having a minimum capital cost of $50 million.  At the federal level, the P3 screen is applied to projects of $100 million or more.  Municipalities, the newest front for P3s in Canada, are encouraged to undertake a P3 assessment early in the decision-making process to identify projects suitable for P3 development, and some have adopted formal P3 policies (e.g., City of Edmonton has a mandatory P3 screen for complex projects of CAD$30 million or more).  That P3 screens have been applied for years and are being expanded in application is a testament to Canadian faith in the P3 model.   Its use has contributed to the robust P3 pipeline and timely addressing of infrastructure needs in Canada, a large percentage of which could not be addressed in the absence of the P3 delivery model.
 
While a mandatory P3 assessment for major Federal-aid projects is not a panacea for addressing infrastructure needs in the U.S., it is arguably an important step in raising the collective awareness, consideration and appreciation of P3s at a national level, and should encourage more States and public authorities to examine P3 as a valuable project delivery alternative where appropriate. 

Further Guidance Needed

The interim guidance is relatively brief and does not contain guidance regarding details such as whether the TIFIA application/oversight, if applicable, would meet the Major Projects Financial Plan requirements.  FHWA is in the process of developing formal revisions to its guidance documents, which presumably will provide further clarity and information.

Fred Kessler co-authored this entry.

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