By Arup's Tim Treharne and Luis Odon
The promise of the Biden Administration’s ambitious American Jobs Plan to modernize and repair our nation’s infrastructure is broadly understood as essential for America’s recovery and future. Any lack of consensus is mostly around how to fund the plan, whether with new corporate taxes or by reducing its scope. Anticipating the challenges of paying for the far-reaching program, the Administration’s plan invokes pursuing partnerships with private industry to increase sources of investment. In fact, in addition to accessing private capital, the public sector can leverage well-structured partnerships with private infrastructure investors to maximize social value.
Increasingly, state and local governments in the United States are developing infrastructure with private partners, a method that has delivered projects on time and on budget in other areas of the world, particularly the United Kingdom, Europe, Australia, Canada, and Latin America. Cognizant of how the public-private partnership (P3) model can maximize value for taxpayers as well as enable projects that might not otherwise get a green light, many states have adopted legislation permitting and encouraging these development models.
Making private finance work for the public sector
States and local governments are also beginning to appreciate how a carefully planned P3 procurement approach can grant public sector agencies considerable control over defining and requiring specific services and results for projects. This model enables the public authority to establish distinct roles and responsibilities, effectively allocate risk, define obligations, and require transparency of outcomes and performance, all at the outset.
Whereas a traditional service delivery model separately contracts individual elements, such as design, construction, and management, P3 procurement is an integrated long-term provision for services that are bundled into a single contract. The public partner typically retains ownership of the assets and infrastructure. Significantly for infrastructure work, P3 services are paid for against performance, incentivizing the private sector to deliver throughout all phases of infrastructure development, operations, and maintenance.
Promoting social and planetary health through infrastructure
In addition to leveraging private-sector capital to meet the challenge of reversing years of disinvestment in our infrastructure, P3 procurement can help public authorities advance the climate and social equity mandates of the American Jobs Plan. Funding is targeted for projects that expressly address these issues, such as a $20 billion program to reconnect neighborhoods isolated by previous infrastructure developments.
More importantly, the plan includes equity and environmental requirements for the processes and outcomes of every project. Where the administration calls for $180 billion to reinvigorate US public investments in research and development and technologies of the future, for example, it also stipulates that these investments work to eliminate racial and gender inequities in research and development as well as STEM industries.
P3 procurement can be especially effective in upholding a spectrum of public interest provisions, standards, and impact goals. The private partner’s long-term commitment to the project naturally embeds them with the community, involving them in the concerns and wellbeing of the impacted public. And as the procurer, the public agency can make its objectives, such as strong labor standards, “contractible,” if the stipulated standards can be translated into contractual terms that may be measured and verified.
Internationally, many countries are complying with and have gone beyond global standards to positively influence the lives and land affected by their public works.
Now in its fifth generation of P3 concessions, the Colombian government developed a robust suite of social, sustainability, and economic impact programs for Vía 40 Express, a toll highway project in Bogota. The government seized every opportunity to use the project to beneficially impact the environment and all stakeholders, including communities of immigrants living nearby. Programs range from educational enrichment for local schools to training and awareness for the public to better understand the project’s environmental protection measures.
Harnessing the expertise of aligned partners
There is no reason the public sector in the US cannot mirror, if not surpass, this deployment of infrastructure projects to induce social and climate outcomes. Public agencies can tap into the extensive experience of mission-focused private infrastructure investors to advance their impact goals. These investors apply project-wide systems to meet their mission targets, manage and mitigate risk, and ensure projects adhere to plan.
Most incorporate the UN’s Sustainable Development Goals framework into their own environmental, social, and governance (ESG) commitments. Many also measure the social and sustainability performance of their infrastructure assets according to international equity and sustainability standards and ratings agencies, such the UN Principles for Responsible Investment (UN-PRI) and the Global ESG Benchmark for Real Assets.
Impact development and reporting for Meridiam, an international infrastructure investor and UN-PRI signatory, includes selectively filtering investments and a detailed process of project analysis, benchmarking, monitoring, and impact evaluation assessments. Further, their system incorporates financial incentives for meeting social and environmental targets.
Profit with purpose generates innovation
Encouraged by corporate finance protocols, benchmarks, and tools to balance profit with purpose, private industry is reaching for more ambitious goals and specialized expertise. Corresponding to its 2020 commitment to invest and manage its portfolio in alignment with global net zero emissions by 2040, the US-based Macquarie Infrastructure Corporation, also a UN-PRI signatory, is operating Hawaii’s first-in-the-state renewable natural gas (RNG) facility. It processes the naturally occurring gas generated by sewage from a wastewater treatment plant and injects the RNG into the Hawaii Gas utility pipeline on Oahu.
The Administration’s plan to accelerate emerging technology sectors and innovations will be key to meeting the challenges of the climate crisis. The plan targets $35 billion to develop technologies for cheaper energy storage, lower-cost clean vehicles and transit, sustainable fuels for aircraft and ships, and carbon-neutral building materials. Public agencies harnessing the expertise of investors on parallel pursuits of climate-smart technologies will better jump-start new technology solutions for infrastructure.
Using P3 procurement for far-reaching transformation
There is also tremendous potential to use the P3 procurement model for a broader array of project types and transform infrastructure and public services to better serve all communities. So far, most P3 applications in the US have been for toll roads. We have also seen this method used effectively to influence social and environmental outcomes with the civic facilities in Long Beach and the Port of Miami Tunnel. But this approach could equally be applied to schools, hospitals, universities, transit facilities, and resilience projects.
We are at a juncture where infrastructure development in the US could be a powerful mechanism to address social inequity and global warming. Regardless of the eventual size and scope of the Biden plan, the will is there for the US to significantly rebuild and improve our infrastructure. Both public and private sectors share a growing understanding of how economic growth and quality of life are inextricably bound to social and climate progress.
Private infrastructure investors are ready for solid, mission-focused infrastructure projects with acceptable risk profiles. Government sponsors who can make the case for their infrastructure projects will be well-positioned to benefit from aligned partnerships that are committed to positive transformation through infrastructure.
Using a predevelopment phase for goal-oriented infrastructure
A well-structured P3 procurement arrangement is critical to achieve the best from the private partner and fulfill objectives and project goals. Key to this is the consideration of objectives and desired outcomes followed by force ranking these objectives to help determine a framework for optimal procurement structuring. Other key considerations include determining if a program of projects might deliver greater efficiencies over individual projects and the extent to which specialized resources within the agency are needed.
Beginning the procurement with a predevelopment phase can also be an important step for certain projects to develop a purposeful framework that effectively guides the entire project. This also allows for the early appointment of a developer that can work under a predevelopment agreement in partnership with the public agency to advance the project.
This predevelopment phase is particularly important for the proposed scope of the American Jobs Plan, as this is also the time for the public sponsor to establish overarching social and environmental goals and formulate a framework where those goals might be tangibly realized in the context of the impacted community and surroundings. For the private developer, working closely with the public authority from an early stage allows them to frame an agreement that is investable and carefully aligns interests with the public agency for the long term.