Public-private partnerships (P3s) are popular among political leaders because they seem to offer something for everyone: infrastructure projects for the public good get accomplished using the capital and supposed efficiency of private enterprise.
But the phrase “not so fast” applies both to this assumption and often to the projects themselves.
The Purple Line, a 16-mile light rail line project designed to connect a set of Maryland suburbs of Washington, D.C., originally billed as a P3 success story, has now become more of a P3 cautionary tale, with epic delays and out-of-control cost overruns.
Public-private partnerships have become “an imprecise catchall” for a number of government-initiated projects, as we point out in our Infrastructure Public-Private Partnership resource guide. But in the world of infrastructure megaprojects, the term refers to projects that, to varied degrees, involved private sector companies in one or more—and sometimes all–of the following: project design; construction; financing; operating of the asset; and maintenance of the asset.
We often hear that policy makers turn to P3’s because “they don’t have the money” and need to go to the private sector (aka Wall Street) to get it. But no one has the cash up front to pay for infrastructure projects. Instead, they must take on debt–most often by floating low-cost municipal bonds. In some cases, policy makers believe in the “promise of privatization.” In other cases, voters reject bond measures for the projects, so policy makers say they have no choice but to turn to the private sector.
Borrowing the money is the easy part—paying it back is the hard part and there’s only one place to get that money–us, in the form of taxes, tolls, or fees. And it’s always more expensive. P3 agreements are long-lasting. Private investors get decades of returns, and the public decades of higher costs (just ask anyone who uses Chicago parking meters.)
With P3s, most of the risks rest with the public and the rewards with the private sector. That’s because the public side is concerned about the public purpose of the project, whereas the private side’s principal concern is profit.
Even before the Purple Line, P3s didn’t have a very good track record. As the Washington Post reported in 2016, “Some U.S. road projects structured as public-private partnerships have been declared failures, with the companies declaring bankruptcy and governments facing soaring costs or unfavorable contract provisions that they couldn’t escape.”
The Purple Line’s original completion date was next month. Now it looks like it’s more likely to open mid-2027, a delay kept from the Maryland legislature, which receives bimonthly updates on the project. What began as a five year, nearly $2 billion construction project is now approaching 10 years and a $3.4 billion price tag. The original contractor quit after a dispute with the state over cost overruns and both sides went to court, resulting in the state agreeing to pay the contractor a $250 million legal settlement.
“As governments have turned to such partnerships to finance expensive infrastructure projects, the Purple Line’s problems have highlighted the tension in government oversight of privately managed construction,” wrote the Washington Post reporter Katherine Shaver.
It’s not hard to see why there would be tension.
“Privatization follows the money,” I wrote in my book, The Privatization of Everything. “When we look to private capital to help solve infrastructure funding problems, those private interests putting up the money will inevitably guide public projects to the places that are most profitable for them.”
What’s worse is that the public loses control over an essential public good, for decades.. That control is handed over to a private entity that gets power and authority over our future—and less accountability to the public it serves.
P3s can also add unnecessary costs to a project. Besides the higher price for private capital, just think of the billable legal hours all along the way for each of the private parties involved in a 36-year project with an 876-page original contract—which has since been amended—that governs the Purple Line P3. When costs rise, companies are tempted to cut corners and relax labor standards.
In its review of last year’s projects, Public Works Financing, the trade publication of the P3 industry, celebrated that the Purple Line finalized financing for a new design-build contract that will put the project back on track.
“Given the challenges that the Purple Line faced prior to 2022, the successful restructuring proved the resiliency of the procurement model,” editor Michael Bennon wrote. “It was a huge success for the industry.”
If that’s success, what does a P3 failure look like?