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American infrastructure including roadways, highways, and bridges, is aging and in poor shape. The U.S. currently ranks 16th globally in infrastructure competitiveness (Deye, 2015), and our “national infrastructure received an overall grade of D+” (Natale, 2014) from the American Society for Civil Engineers (ASCE) in 2013. This indicates that America has a serious problem with crumbling infrastructure that if left unattended could have severe implications.

To solve this problem, America will need to make “sizeable infrastructure investments through 2020 according to the ASCE” (Deye, 2015). For highways alone, investment would need to “increase $80 billion annually and reach an estimated $170 billion between 2008 and 2028” (Ashuri and Mostaan, 2016). This level of investment would put great strain on federal, state, and local governments, and may even pose an impossible challenge. To bridge the gap between what government funding can provide and what is necessary to repair America's infrastructure, many people are turning to a type of funding known as “Public-Private Partnerships” or PPPs or P3s.

Public private partnerships are a “long-term, performance-based approach to procuring public infrastructure where the private sector assumes a major share of the risks in terms of financing and construction and ensuring effective performance” (Deye, 2015). There are a variety of ways public-private partnerships can be structured, but in all cases the “title to the asset remains with with the government” (Levy, 2008). In a typical public-private partnerships, a private company will take responsibility for paying for and operating a project. Because public-private partnerships “combine the best talents and resources of both sources and provide a viable solution to many of these infrastructure shortfall and growth problems” (Levy, 2008) they have become increasingly popular since 2005. This can be seen in Figure 1 below, which summarizes public-private partnership activity from 2005-2014

From this table, it can be seen that there has been much investment in public-private partnerships, and that public-private partnerships have been key in many projects.

Because public-private projects are a relatively new way of delivering construction projects, there is some uncertainty about their effectiveness, and the ethics involved. As these projects continue to be more popular, it will be important to ensure that they are being carried out ethically.

The ethical concern that arises from public-private partnerships stems from the public-private relationship itself.

Figure X: A graph of the scope of private and public responsibility in PPPs (Roehrich et al., 2014)

As seen from figure x, public-private partnerships involve a great of overlap between the responsibilities of the public and the private. Both must work synergistically, and not parasitically to produce efficient projects. However this leads us to our main concern, which derives itself from a fundamental fact that private investors and private companies have inherently different purposes than the public sector; for an effective public-private partnership both must have similar aims. Without proper communication and agreement, often times cost overruns are delegated to the public sector, “often leading to the taxpayer picking up the ‘extras’ tab.” Because of the nature of the “private” aspect of public-private partnerships, there are many instances in which the public is hidden from certain aspects of projects, leading to questions of, as Riccio (2014) puts it:

Where exactly does the funding come from, and where does it go? Who makes the ultimate decisions regarding scheduling, neighborhood encroachment, and pricing in the case of toll facilities? Could changes to the contract (especially those favoring the contractor) have been anticipated and avoided? And if not, how is it known that the costs are the minimum amount possible? (p. 51)

There are many stakeholders involved in this issue. On the public side, there is the public sector, which is controlled by the government, public investors, and the general public/residents. In terms of the public sector, it is clear that first and foremost they want to benefit the public. The public sector exists to serve the public and provide infrastructure and services. So by allowing private companies to encroach on public projects, the government is taking a massive risk in both quality and control; this leads them to pursue values “such as accountability, transparency, and quality” in working with the private sector.

Figure X: Definitions of selected public values (Reynaers, 2013)

If any of these values on figure x are not upheld, there are many disastrous effects; projects can be stalled or shut down, public trust can decline exponentially, and in some cases, the public sector can walk away with vestiges of what was promised whilst the private can walk away with a profit (Klein, 2015). In terms of public investors, as with any investor, they want their money to be protected and profitable. The public investment in this case would be in the form of bonds. Bonds are sold to fund the public side of these projects; a big attraction to them is that they are promised a certain return rate. However, this return rate can be limited because the public sector bears almost all this risk in these projects (Pattberg, 2012). This can lead investors to turn to private investment, and perpetuate the problem in which the private side maintains the most control in a public-private partnership. Lastly, on the public side, there are the general public and residents. This group is perhaps the most important because they are the taxpayers, and they are those who have to live with these projects. As the taxpayers, they are expected to receive goods and services for their taxes. When complex infrastructure projects arise from public-private partnerships, what can emerge is a system in which the taxpayers are essentially just making the private sector a profit. Or even worse, what can emerge are projects that do not meet quality standards, and ended up costing exponentially more money to the taxpayers due to poor planning, and the misallocation of funds. It is imperative that such relationships are negotiated clearly and carefully to avoid such predicaments (Klein, 2015).

On the private side, the stakeholders are the private companies themselves, and private investors. What they have in common is that, being a part of the private sector, their primary motivation is making profit. However, a key point that sets the private side apart from the public is that the private side does not necessarily need to see a successful project. Moreover, there are no inherent factors in the private sector that motivate it to create a necessity for an efficient, successful, or even a completed project. While this can vary between which private corporations are involved, it is clear that currently, as Pattberg (2015) puts it, “partnerships are most frequent in those that are already heavily institutionalized and regulated” … “they are predominately not concerned with implementation but rather with further institution building”. Furthermore, Pattberg also notes how these institutions “remain subject to takeover by opportunistic individuals and to potentially perverse dynamics” (p. 242). The ethical concern affects this party the most positively in that they are in the greatest position to benefit from it. With less transparency, and more corporate power over contracts, projects can be delayed, funds can be misallocated; all in a somewhat clandestine effort to benefit the private side (Roehrich et al., 2014). It is apparent that in its current state, public-private partnerships are seen by many private entities as opportunities for business success, which can create a dangerous atmosphere of suspicion and doubt between both parties that must be mitigated if public-private partnerships are to be seen as viable for long term development.

There are many ways we could apply to help make PPP projects more effective. Some ways include determining the right concession period and establishing a PPP program organization to properly allocate resources and risks to both parties, as well as developing project portfolios to help reduce corresponding costs.

One of the ways we could implement to achieve the goal of avoiding the aforementioned ethical issues of Public-Private Partnership in infrastructure development is by more accurately computing its concession period. A concession period is defined as the construction, control, operation, and maintenance of a particular project for a specified period of time (Main Types of PPP). The concession period provides a platform for both parties, particularly the government and the private party, to achieve a win-win scenario. Specifically, it enables them to achieve such a scenario as it guarantees a “minimum profit” and proper allocation of risks between parties (Carbonara, Costantino, and Pellegrino, 2014).

Certainly, real-world situations involve significant uncertainties, such as business risks and cost overruns. And of the ways we could incorporate such uncertainties is by utilizing the Monte Carlo simulation. A study about Build-Operate-Transfer (BOT) ports have distinctively incorporated both factors – concession period and uncertainty. Those ports are able to do this as they “propose interval for a concession period negotiation that consists of two critical points” (Carbonara et al., 2014), which provides an interval that allows for an optimal concession period. Consequently, an appropriate amount of time can be determined to achieve that win-to-win scenario, which ameliorates the unfairness presented as it properly allocates the responsibilities of both parties equally.

Additionally, PPP industry experts recognize another fundamental factor that greatly determines the PPP’s “development, procurement, and delivery” mechanism – organization (Mostaan and Ashuri, 2016). Organization has demonstrated proper distribution of units and resources that have shown to reduce lead times. This is especially important because it ensures the availability of resources essential to each department to ultimately accomplish the project’s main goal. Those experts also acknowledge the “lack of leadership and expertise” with the absence of these organizational resources. Aside from that, organization also provides “a single point of contact” between the two parties, which plays an important role as it eliminates the chance for miscommunication. The overall point of establishing an organization is to delegate authority so that parties involved are fully aware of his/her responsibilities in the project and would therefore hold them to account (Mostaan and Ashuri, 2016).

One way of reducing the unnecessary transfer of funds is by developing project portfolios (Mostaan and Ashuri, 2016). Transaction costs can be costly and so experts have determined that portfolios can help reduce them by chunking small, related projects into one more general project portfolio. This undoubtedly reduces the costs to both parties as it also removes costs for individual projects. Such a technique has been displayed in an experiment by the Missouri Department of Transportation’s “Safe and Sound Program”. This experiment has also emphasized the reduction of costs when outsourcing is involved. Besides that, by appropriately grouping small projects together, the chance for rework and alterations in requirements for individual projects are significantly reduced, making the entire system clearer and more robust (Mostaan and Ashuri, 2016)

The government has the ultimate power whether to pursue P3 partnership or not. The Lawmakers can opt for other methods to fund the large scale infrastructure projects throughout the nation by increasing taxes on certain products and commodities and using these to fund projects which would diminish the need for P3 model. According to Andrew Dye of Harvard Kennedy school review “ if the federal government were to increase the federal excise tax on gasoline of 18.4 cents per gallon, the incremental funding streams to the states could decrease the overall appetite to pursue P3s”(Dye, 2015). This model could be extremely effective in the sense that the time to complete a project would decrease dramatically without relying on private third party contractors. The government will also have the maximum power thereby monitoring the safety and validity of these projects closely.

CONCLUSION

There is no denying in the fact that the public-private partnership model is here to stay. As stated above the overall US infrastructure received a grade of “D+” from the ASCE in 2013. It needs to improve upon its existing infrastructure in order to drive its economic growth and stay competitive, compared to other economies around the world. So far the P3 model, despite of criticism, has been successful to a large extent. For example, the P3 model has helped to increase the capacity in I-593, fifteen years earlier than expected in Florida! (Dye,2013). Successful endeavors like these can be found in the state of Maryland, California, and Texas etc. which has helped both the infrastructure and the local economy. It is impossible for the government alone to undertake a massive infrastructure project throughout the nation, this is where the P3 model comes into play. In order to improve this existing model, communication between the parties which is often seen as a major hindrance in most of the cases should be sorted out. It can achieve this by determining an accurate concession period, creating project portfolio and establishing proper law for a legitimate P3 model. These all things should be implemented so that the taxpayers aren’t overburdened and the private contractors have proper resources to carry on with these projects. Undertaking these steps can eliminate the unnecessary delays in the projects and provide the nation with a proper infrastructure which can ultimately drive growth in the local economy!

So overall both looking forward and backward , we are fairly confident that the P3 model is a proper implementation to help improve the infrastructure and hopefully in the coming years , the government takes the necessary steps to make this partnership a success.