Exploring the Benefits of Public-Private Partnerships in Cedar Park, TX

When I first started looking into the opposition to transportation projects in Texas, I assumed it was mainly due to the public's aversion to tolls and public-private partnerships (P3s). However, after speaking with groups that support tolls and P3s, I discovered that many of the state's large construction companies have been lobbying against the expansion of tolls and the introduction of new P3s for design, construction, funding, operation, and maintenance. A representative from one of these groups sent me lobbying scripts provided by Associates General Contractors of Texas (AGC of America's state subsidiary), which calls itself “the voice of the construction industry” and an “organization of qualified construction contractors and industry-related companies.”From my perspective, the points raised in these lobbying scripts were only partially true. Furthermore, they contradicted the white paper on partnerships that has been on AGC's national website for about 15 years.

This information prompted me to take a closer look at why design-tender-build (DBB) and design-build (DB) contractors in Texas may be uncomfortable with design-construction-funding-operation-maintenance (DBFOM) P3s. To do this, I collected data on the last decade of DBFOM projects to find out which companies were the design and construction contractors for each one and to what extent each project used local subcontractors. Last month, I released a Reason Foundation policy brief titled “Contractors and Public-Private Partnerships in Transportation” based on my findings. Contrary to AGC of Texas' claims, not all of the projects were built by U. S.

contractors. Of the 18 projects, six had only U. contractors and two others were each built by teams that included U. Several of P3's major developers used only their sister construction companies as design-build contractors, and all 18 projects used dozens and sometimes hundreds of local subcontractors, averaging more than half of the total project budget. The data refutes the notion that U.

contractors are excluded from DBFOM public-private partnerships. What AGC of Texas ignores is that design, construction, financing, operation, and maintenance (DBFOM) is so different from conventional low-supply construction projects than only prequalified equipment (i.e., design and construction contractors who have gotten their feet wet with smaller DBFoms are gaining qualifications to be part of larger teams in future competitions). In analyzing these and other supposed concerns about public-private partnerships, I realized that many state legislators probably don't understand how different a 50-year-old DBFOM project is compared to a low-bid design, tender, and construction contract. They may not know that in a public-private partnership with revenue risk, bonds have no recourse which means that if something goes wrong, taxpayers are not at any financial risk because the P3 developer and his investors are responsible for that bond. It is true that there have been several bankruptcies in U.

and Australian P3 projects at risk of income but there has never been a taxpayer rescue for those bankruptcies. There are two types of termination for these projects: “termination for convenience” if state or local politics or other things change 10 years into a 50-year concession; and “termination for just cause” if the public-private partnership company fails to comply with the terms of the agreement. The latter usually does not require compensation while the former does since the project developer and investors signed a contract expecting 50 years of revenue instead of 10 from the project; compensation must be provided through a formula agreed upon before signing the final contract. What contractors who oppose public-private partnerships may overlook is that income-risked P3s expand the size of the state's construction market. Unfortunately, AGC of Texas is harming its members and limiting transportation project options that could help workers and businesses in the state by preventing Texas from returning to tolls and DBFOM projects. Public-private partnerships increase the size of the infrastructure pie; hopefully state policy makers take notice. Recently, Cedar Park City Council voted to approve RedLeaf Properties as its Master Developer for a project located on Bell Boulevard (US 18) between Buttercup Creek Boulevard and Park Street.

The project is supported by a master plan developed by experts from around the country along with comprehensive financial models and forecasts for both public and private sectors as well as significant public investment so far. The City is also conducting an in-depth study to update its Future Land Use Plan and identify community priorities. In conclusion, public-private partnerships offer many benefits such as expanding infrastructure options while protecting taxpayers from financial risk; however, many state legislators may not be aware of these advantages due to effective lobbying by large construction companies against tolls and P3s. It is important for policy makers to understand how DBFOM projects differ from conventional low-bid contracts so they can make informed decisions about transportation projects.

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