REALWorld Law


Public procurement

Are public private partnerships (PPPs) common? Are they promoted or encouraged by the government?

United States

United States

Infrastructure projects can be delivered through the traditional design-bid-build delivery system or by other delivery methods more commonly used in the private sector; however, because of funding shortfalls and long-term objectives, methods used for private projects are not always viable or efficient in the public sector. Consequently, the public sector sometimes turns to more innovative approaches for the delivery of infrastructure projects, this often takes the form of public-private partnerships, sometimes referred to as ‘PPP’ or ‘P3s’.

Some of the first canals and commuter rail lines in the United States are examples of the private sector delivering infrastructure projects. Nonetheless, the P3 approach has been slow to catch on in the United States, and the US presents somewhat of an emerging market for public-private partnerships. P3 transactions are difficult to assemble and implement in the United States, even under the most favourable of circumstances. Moreover, P3 transactions are more common for major public improvement projects, which often:

  • are technically complex and involve significant planning
  • are controversial projects that can be de-railed or marginalized without the support of a multitude of stakeholders
  • are subject to a range of legal regimes that may not contemplate procurement on a P3 basis, and
  • place demands on financial markets that are difficult to satisfy and, therefore, tend to require significant financial engineering

In order to encourage the use of P3 transactions in the United States, the federal government has established programs to encourage the use of P3 transactions by making low-cost financing available for such transactions. Some of the more commonly used initiatives are:

  • Private activity bonds (PABs). The US Internal Revenue Code has been amended to permit the issuance of PABs to finance privately developed and operated highway and freight transfer facilities. This allows the private sector to finance the development and operation of such improvements with tax-exempt bonds. In essence, PABs are issued by a public entity, which acts as a conduit issuer for the project company. The project company is deemed the borrower and responsible for repayment.
  • The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) authorizes the US Department of Transportation to provide credit assistance to major transportation investments of national importance. TIFIA credit assistance is flexible, subordinated to senior debt, and may be provided in the form of a direct loan, a loan guaranty, or a line of credit. There are restrictions on the amount of such assistance that can be provided for a project, as well as other qualifying criteria. TIFIA was continued for another five years by passage of the Fixing America’s Surface Transportation Act (FAST) in 2015. TIFIA was extended for another five years and expanded the types of transportation projects eligible for funding through the passage of the Infrastructure Investment and Jobs Act in 2021.
  • The Water Infrastructure Finance and Innovation Act of 2014 (WIFIA) is closely modelled after TIFIA and authorizes federal credit assistance for drinking water, wastewater, and water resources infrastructure projects. The WIFIA program is implemented and maintained by the EPA and the Army Corp of Engineers. WIFIA was also extended for another five years through the passage of the Infrastructure Investment and Jobs Act in 2021.

Finally, although a collaborative endeavour with the private sector, a P3 transaction is a public-sector procurement. Therefore, another consideration is that the P3 remains subject to whatever rules govern the public entity in its procurement of improvements. A public entity cannot proceed with a P3 transaction unless the applicable statutory or legal framework allow procurement of a project by such a method. At this time, 37 states in the US, the District of Columbia, and Puerto Rico have enacted some sort of legislation to allow public-private partnerships. While initially limited to toll roads, P3 transactions now include power, water, light rail, airport, and government building projects.