Thinking About Public-Private Partnerships During an Economic Crisis
For good reason, COVID-19 is dominating the current news cycle, and we will not attempt to either summarize or contribute to the many ongoing discussions regarding the potential magnitude and duration of the economic crisis in which we now find ourselves. But in light of the current pandemic, and the natural instinct to move anything not directly related to COVID-19 on the back burner, we do think it worthwhile to highlight the role that P3s can and should play in the coming months—both to address the current situation, and to help keep our economy competitive and preserve our quality of life well into the future.
In the short term, there are clear, pressing infrastructure needs, particularly in the public-health sector. Many government agencies are scrambling to develop new public testing and hospital facilities. In addition, calls for an economic-stimulus package often include requests for new infrastructure funding, or even a New-Deal-style federal infrastructure agency responsible for funding and constructing public-works projects across the country. In this environment, it is easy to lose sight of the benefits of P3s. P3s require careful planning, and urgent, unanticipated needs may therefore counsel towards emergency procurement procedures and delivery models that require less up-front planning and resources (although the private sector may still be an important part of the solution to these needs). In addition, many governments began looking to P3s in recent years as a solution to a lack of federal infrastructure funding—if federal infrastructure funding becomes readily available, those same governments may conclude that P3s are no longer needed.
But P3s remain a powerful tool to deliver critical infrastructure on more advantageous terms to the public sector than traditional delivery methods. Whatever the amount of public funding made available for infrastructure projects, it will almost assuredly not meet the nation’s current infrastructure needs (estimated by the American Society of Civil Engineers to be $4.5 trillion by 2025), and efficiency therefore matters. If a P3 can be used to stretch each public dollar further, it does not matter whether the federal government is going to provide a million dollars or a trillion—in either case, those dollars must be spent wisely. In addition, P3s lower and ensure funding of ongoing maintenance obligations. If state and local governments spend $1 trillion in “free” federal money on new infrastructure projects, without also funding future maintenance obligations, that infrastructure can be expected to fail and need replacement sooner than would otherwise be the case. And so the cycle repeats. A DBFOM P3, on the other hand, necessarily minimizes and addresses funding for long-term maintenance obligations, and that advantage should not be overlooked.
Finally, we wish to encourage state and local government agencies to stay the course, to the extent possible, with respect to their currently planned P3 projects. Although triage is to be expected in the current crisis, the arrival of a pressing public need does not diminish the magnitude of our many pre-existing public infrastructure needs. Our bridges and sewer systems are still failing. We still must face the consequences of climate change. And when the COVID-19 crisis passes, having as many new infrastructure projects teed up and ready to go will help address those and other critical needs that much sooner. Fortunately, there are many important tasks for the delivery of a P3 project that can continue to move forward, even as most funding and construction resources are diverted to other needs. For example, market research can still be conducted (even if virtually), and design criteria, solicitations, and project documents can all still be prepared by the appropriate technical, financial, and legal consultants, with guidance from agency staff and stakeholders. So even if a P3 project must be moved to the back burner in the short term, let’s keep the water boiling.