America’s Emerging Public/Private Infrastructure Strategy

Part of the The Springer International Series in Infrastructure Systems: Delivery and Finance book series (ISDF, volume 101)

Chapter Summary

One CLIENT infrastructure strategy is required that accommodates both public and private methods of project financing, as well as all the methods of project delivery. No single delivery method is ideologically supreme. Projects, cash flows, capital sources, and technologies need to be configured together using viable delivery methods that explore alternative combinations of the strategic variables in a coordinated search for technical, financial, and political stability. There is no longer any room for blind ideology to one particular delivery method, since it is the mix of technology, engineering, architecture, construction, and finance that keeps innovation alive in both public and private infrastructure collections. In constrained financial environments, the goal of both public and private CLIENTS is to improve the quality and cost performance of an entire portfolio, either to conserve resources for other uses or to expand the quality and scope of infrastructure service. Two hundred years of experience in the United States confirms the difficulties that are ultimately presented to CLIENTS, shareholders, citizens when just one delivery method is anointed, and all others excluded.1 The mix of delivery and finance options provides a variety of interdependent incentives for both the public and private sectors to better understand infrastructure needs and to structure more efficient and higher quality means to meet the unending demand for infrastructure.


Delivery Method Public Infrastructure Infrastructure Service Procurement Strategy Infrastructure Facility 
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  1. 1.
    In effect, the dual track strategy so effectively employed by Congress throughout the 18th and 19th centuries in Quadrants I and II (See, Chapters 3 and 4, supra) is being reflected back to America by Hong Kong and the other nations of the Pacific Rim. Corporate and public CLIENTS must play their respective organizing roles in the establishment, maintenance, and refreshment of infrastructure. Many of these roles are best performed by CLIENTS. Indeed, some of these roles are best performed on behalf of the entire society by Government. Government has unique power as a sovereign, and for example, is generally immune from suit. Public and private CLIENTS can instantly improve infrastructure performance by structuring their procurement strategies (corporate policy or procurement legislation) to demonstrate their commitment to managing the entire infrastructure collection, an important factor in attracting private sector innovation and investment. Functions which are appropriately lodged in the government include: permitting, environmental review and approvals, acquisition of land (including condemnation), government defined scope, and competitive procurement processes.Google Scholar
  2. 2.
    See Chapter 4, supra.Google Scholar
  3. 3.
    One of the keys to Hong Kong’s success with the mixed project delivery strategy in Quadrants I, II, and IV was the fact that government consistently applied BOT process to large, complex, self-funding projects. Over a period of almost twenty years, the procurement procedures used in Hong Kong to solicit and evaluate BOT proposals were stable and predictable. Engineers, constructor, and financiers knew and understood the process, which was copied in several other nations across the Pacific Rim. The use of Design Build Operate for Hong Kong’s environmental projects in Hong Kong was a natural extension of BOT, with toll revenues replaced by wastewater processing fees and solid waste tipping charges. The prerequisites for successful use of DBO and DBFO processes in the United States already exist. These most important of these are established financial markets and a highly competitive, well qualified engineering and construction industry. To add DBO and DBFO to the list of regular procurement options, government must commit itself to these processes and demonstrate this commitment with a steady stream of projects over a period of years. Consistency builds confidence in financial markets that private investment in infrastructure is stable and competitive with other possible investments.Google Scholar
  4. 4.
    More than concepts are required to implement such a principled vision of American infrastructure development. The revised ABA Model Procurement Code (2000) provides the legislative structure that permits procurement officials, infrastructure planners, and private sector firms to implement this vision. Articles 1, 3, 4, 5, and 10 of the ABA Model Procurement Code (2000) are reproduced in their entirety in Appendix E. These articles contain those provisions of the Code related to infrastructure.Google Scholar
  5. 5.
    This pattern is not only inefficient in terms of overall capital expense. Typically, failure to complete expected maintenance and repair work during a structure’s normal life drives up energy and operating costs, while lowering quality of use.Google Scholar
  6. 6.
    One prominent focus of our research at MIT is integrating activity cost systems that identify actual sources and uses of funds inside the infrastructure portfolio. The goal is to dramatically improve the quality of the data available to infrastructure managers as to the actual cost of particular infrastructure facilities and services, the actual cost of maintenance and repair of specific pieces of infrastructure, and the value of maintenance and repair items that are deferred (not performed) due to shortfalls in capital or operating budgets. Contracts for infrastructure services may help public officials identify specific costs for specific infrastructure service or facility items, since the contract value is fixed and complicated overhead allocations need not be made.Google Scholar
  7. 7.
    See, Chapter 6.Google Scholar
  8. 8.
    Key articles of the Code are reproduced in Appendix E. Model Regulations in support of the 2000 edition of the Code, as well as Model Documents, are in preparation.Google Scholar
  9. 9.
    The estimate of a 15–25% reduction in life-cycle costs is based upon the results of our case studies in water and wastewater treatment, transportation, and road maintenance.Google Scholar
  10. 10.
    Inherent in the structure of the code are other important objectives of every procurement system: lower transactions costs for all participants, including government; transfer of technologies, methods, and techniques to all future procurements, irrespective of the original delivery method through which these innovations entered the infrastructure portfolio.Google Scholar
  11. 11.
    The existing plants are notoriously poor energy performers. Our discussions with the private sector bidders for the Indianapolis, Wilmington, and Franklin plants indicate that most of the private sector savings in operations come from the private sector’s ability to replace energy inefficient equipment and systems.Google Scholar
  12. 12.
    Brealey, R. A., and Stewart C. Myers. (1996). Principles of Corporate Finance,The McGraw-Hill Companies, Inc., New York.Google Scholar
  13. 13.
    This is not a labor issue. In all the wastewater procurements described in Chapter 4, DBO operators were asked, and happily agreed, to retain all existing employees while protecting or improving fringe and retirement benefits. The high percentage savings reported in all the procurements are not produced on the backs of working men and women.Google Scholar
  14. 14.
    The procurement methods set forth in the Revisions to the ABA Model Procurement Code (Appendix E) are consistent with this recommendation. Congress could rely on adoption of the Code by state and local jurisdictions as a way of confirming that fair, transparent, and competitive processes are followed in the award of contracts pursuant to the Congressional authorization.Google Scholar
  15. 15.
    Adoption of the revised ABA Model Procurement Code for State and Local Governments could be Congress’ way of confirming that fair, transparent, and competitive processes are followed in the award of contracts under the pilot program.Google Scholar
  16. 16.
    A number of examples are already underway, including the reconstruction of I-15 in Salt Lake City and the Eastern Corridor Toll projects in Southern California, which used Design-Build as the delivery method. Virginia DOT has successfully used DBO methods for interstate highway repair, maintenance, and operation throughout the state.Google Scholar
  17. 17.
    We all do, a gift from prior generations.Google Scholar

Copyright information

© Springer Science+Business Media New York 2000

Authors and Affiliations

  1. 1.Massachusetts Institute of TechnologyCambridgeUSA

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