September 05, 2012 - Transportation, P3
This is the second in a series of three posts of a questionnaire with Min Wei, CFO of Cubic Transportation Systems, following his bylined article in Mass Transit Magazine, “What are Some Tips for Successful Public-Private Partnerships?”
Budget shortfalls, shrinking traditional funding sources, aging and under-capacity infrastructure and other challenges are leading more transit operators to form Public Private Partnerships (PPP or P3) with the private sector to achieve sustainability and growth. Here is what you should expect in a P3 and some best practices, drawn from Cubic Transportation Systems’ more than 20 years of P3 experience working with leading financial advisors and banks to construct, deliver and service some of the largest projects in the automated fare collection (AFC) industry.
1. What are the benefits to the agency for P3?
The primary benefits of a transit related P3 are risk transfer, accelerated project delivery, external funding, lower operating costs, and higher non-transit revenues. Risk transfer may be in the form of making the private partner responsible for delivering at a fixed price by a predefined date, for example. Project delivery can be accelerated through a design-build contract approach instead of a traditional design-bid-build procurement that adds additional review requirements. Through a P3, a transit agency can transfer the funding responsibility to the concessionaire and help overcome budgetary or capital constraints.
Another benefit is that a concessionaire can potentially improve rider experiences and reduce costs by leveraging its know-how and already established service facilities, business processes and partners. In the transit AFC space, for example, some of the key operating costs, such as payment media, bank card fees, and cash collection costs, can be transferred to the concessionaire. An experienced private partner will also help a transit agency develop, generate, maximize, and share new non-transit incomes streams.
2. What tradeoffs should be considered when evaluating whether P3 is right for your agency?
We feel an important part of Cubic’s value is evaluating P3 tradeoffs without advocating for one method over another, just as we normally would as a system integrator and program manager. One key tradeoff is the level of day-to-day control that the transit agency is willing to cede to get the funding, risk transfer and other benefits. If the public partner is more interested in building internal capacity and retaining control of the function, P3s may not be the right approach. Another tradeoff is that if the concessionaire is assuming price and delivery risk and responsibility for meeting KPI goals, then changes to the project scope or performance standards will likely require additional costs and possibly schedule changes. Finally, there are certain risks that concessionaires generally will not assume and that must be retained by the transit agency; these include protection against changes in laws and interference or approval delays by third-party governmental entities.
To view the first two questions Min answered, see our “What Are P3s and Where Do They Belong in the Transit Sector?” post.