OVERVIEW OF PUBLIC-PRIVATE PARTNERSHIPS IN 

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MARCH 5, 2014 

THE INTERNATIONAL EXPERIENCE WITH PUBLICPRIVATE PARTNERSHIPS 

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OVERVIEW OF PUBLIC-PRIVATE PARTNERSHIPS IN 

HIGHWAY AND TRANSIT PROJECTS 

(113–57) 

HEARING 

BEFORE THE

PANEL ON PUBLIC-PRIVATE PARTNERSHIPS 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MARCH 5, 2014 

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(II) 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

BILL SHUSTER, Pennsylvania, Chairman 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee, 

Vice Chair 

JOHN L. MICA, Florida 

FRANK A. LOBIONDO, New Jersey 

GARY G. MILLER, California 

SAM GRAVES, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

CANDICE S. MILLER, Michigan 

DUNCAN HUNTER, California 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

LOU BARLETTA, Pennsylvania 

BLAKE FARENTHOLD, Texas 

LARRY BUCSHON, Indiana 

BOB GIBBS, Ohio 

PATRICK MEEHAN, Pennsylvania 

RICHARD L. HANNA, New York 

DANIEL WEBSTER, Florida 

STEVE SOUTHERLAND, II, Florida 

JEFF DENHAM, California 

REID J. RIBBLE, Wisconsin 

THOMAS MASSIE, Kentucky 

STEVE DAINES, Montana 

TOM RICE, South Carolina 

MARKWAYNE MULLIN, Oklahoma 

ROGER WILLIAMS, Texas 

MARK MEADOWS, North Carolina 

SCOTT PERRY, Pennsylvania 

RODNEY DAVIS, Illinois 

MARK SANFORD, South Carolina 

VACANCY 

NICK J. RAHALL, II, West Virginia 

PETER A. DEFAZIO, Oregon 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

EDDIE BERNICE JOHNSON, Texas 

ELIJAH E. CUMMINGS, Maryland 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

TIMOTHY J. WALZ, Minnesota 

STEVE COHEN, Tennessee 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

JOHN GARAMENDI, California 

ANDRE ́ CARSON, Indiana 

JANICE HAHN, California 

RICHARD M. NOLAN, Minnesota 

ANN KIRKPATRICK, Arizona 

DINA TITUS, Nevada 

SEAN PATRICK MALONEY, New York 

ELIZABETH H. ESTY, Connecticut 

LOIS FRANKEL, Florida 

CHERI BUSTOS, Illinois 

PANEL ON PUBLIC-PRIVATE PARTNERSHIPS

JOHN J. DUNCAN, JR., Tennessee, Chairman 

CANDICE S. MILLER, Michigan 

LOU BARLETTA, Pennsylvania 

TOM RICE, South Carolina 

MARK MEADOWS, North Carolina 

SCOTT PERRY, Pennsylvania 

MICHAEL E. CAPUANO, Massachusetts 

PETER A. DEFAZIO, Oregon 

ELEANOR HOLMES NORTON, District of 

Columbia 

RICK LARSEN, Washington 

SEAN PATRICK MALONEY, New York 

(III) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... iv 

TESTIMONY 

Joseph Kile, assistant director for microeconomic studies, Congressional 

Budget Office ........................................................................................................ 3 

James M. Bass, interim executive director and chief financial officer, Texas 

Department of Transportation ............................................................................ 3 

Phillip A. Washington, general manager and chief executive officer, Regional 

Transportation District of Denver, Colorado ..................................................... 3 

Richard A. Fierce, senior vice president, Fluor Enterprises, Inc., on behalf 

of The Associated General Contractors of America ........................................... 3 

PREPARED STATEMENTS AND ANSWERS TO QUESTIONS FOR THE 

RECORD SUBMITTED BY WITNESSES 

Joseph Kile, prepared statement ............................................................................ 35 

James M. Bass: 

Prepared statement .......................................................................................... 46 

Answers to questions for the record from Hon. John J. Duncan, Jr., 

a Representative in Congress from the State of Tennessee ...................... 60 

Phillip A. Washington: 

Prepared statement .......................................................................................... 73 

Answers to questions for the record from Hon. John J. Duncan, Jr., 

a Representative in Congress from the State of Tennessee ...................... 90 

Richard A. Fierce: 

Prepared statement .......................................................................................... 98 

Answers to questions for the record from Hon. John J. Duncan, Jr., 

a Representative in Congress from the State of Tennessee ...................... 105 

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(1) 

OVERVIEW OF PUBLIC-PRIVATE PARTNERSHIPS IN HIGHWAY AND TRANSIT 

PROJECTS 

WEDNESDAY, MARCH 5, 2014 

HOUSE OF REPRESENTATIVES, 

PANEL ON PUBLIC-PRIVATE PARTNERSHIPS, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

Washington, DC. 

The panel met, pursuant to notice, at 9:59 a.m. in Room 2167, 

Rayburn House Office Building, Hon. John J. Duncan, Jr. (Chairman of the panel) presiding. 

Mr. DUNCAN. The panel will come to order. First, let me thank 

our distinguished panel of witnesses for being with us today to testify. And this is the second event and first hearing of the Panel on 

Public-Private Partnerships, or P3s, as they are commonly called. 

We had a very successful, very well-attended roundtable a couple 

of weeks ago, and now this is our first hearing. 

We are investigating how P3s can accelerate the delivery of 

projects across all modes of infrastructure. I think almost everybody in the Congress, both Democrats and Republicans, agree that 

we have very great infrastructure needs in this Nation. The big 

question is how do we pay for them. And so, there are various suggestions or ideas or proposals, but certainly many States and several State and local governments have decided that public-private 

partnerships are one of the solutions to the problem that we all 

face. 

Our roads and transit systems play a critical role in the movement of goods and people, and in the success of our economy. 

States are increasingly utilizing P3s to help them address their 

highway needs and other needs. We are happy to have one of the 

leaders in this effort today, a representative from the Texas Department of Transportation, with us. 

Americans are also using transit systems to—more than ever, to 

get them where they need to go. But, as we all know, building new 

transit lines can be a complex and costly effort. The Denver region 

decided to pursue a public-private partnership in order to significantly expand its transit system far more quickly and cheaply than 

would have been possible with traditional project delivery approaches. We look forward to hearing from a representative of Denver’s regional transportation district this morning. 

In this hearing we also want to explore how the public sector can 

ensure that public-private partnerships deliver public benefits, and 

how those benefits are protected over time. That is a very imporVerDate Aug 31 2005 11:33 Aug 22, 2014 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\P3\PRINT-~1\86925.TXT JEAN
2 

tant question. We also recognize that the private sector will only 

engage in projects that make economic sense for their business 

models. So it is important to understand what the private sector 

looks for when selecting projects to participate in. One critical issue 

we will discuss is how the public and private sectors can share in 

the risk of a project, especially in arrangements that can last for 

30 years or even longer. 

Finally, while public-private partnerships are, first and foremost, 

driven at the State and local level, the Federal Government has a 

very important role to play in these arrangements. Everything that 

this committee deals with, there is a very important Federal role, 

because people in Ohio sometimes use the highways in Tennessee, 

and vice versa. People in California sometimes use the airports in 

Texas, and vice versa. People in New York sometimes use the 

water systems in Florida, and vice versa, and so forth. And the 

same is true with our ports and railroads and every other topic 

that this committee deals with. 

The last surface transportation bill, MAP–21, significantly increased the size of the TIFIA program, which provides credit assistance to eligible surface transportation projects. We have heard 

from many stakeholders that the TIFIA program is a critical component of public-private partnerships in this country. We want to 

explore how the TIFIA program is working, and what changes we 

may need to make in the next authorization bill, which we hopefully can complete later this year. 

Private activity bonds are also important in the P3 arrangements, and I am sure we will hear about their role today, as well. 

Again, I want to thank the witnesses for being here today, and 

I now recognize the ranking member, Mr. Capuano from Massachusetts, for 5 minutes to make any opening statement he may have. 

Mr. CAPUANO. Thanks for being here, guys. I look forward to the 

discussion. 

[Laughter.] 

Mr. DUNCAN. Well, that is the quickest opening statement I 

think I have ever heard. Well, thank you. Thank you very much. 

We have now been joined by our chairman, Mr. Shuster, and it 

is always an honor and privilege to have him here with us, and so 

I would like to call on him for any comments he has at this time. 

Mr. SHUSTER. I just want to echo Mr. Capuano’s words. 

[Laughter.] 

Mr. DUNCAN. All right. And Mr. Meadows? 

Mr. MEADOWS. Ditto. 

Mr. DUNCAN. Well, well, this is a first, I can tell you. Of all the 

committee hearings I have chaired over the years, that is a first. 

Mr. SHUSTER. Mr. Chairman? 

Mr. DUNCAN. Yes? 

Mr. SHUSTER. Just a reminder, we are not in the Senate, so—— 

[Laughter.] 

Mr. DUNCAN. All right. Well, I previously welcomed all the witnesses. Our panel today is a very distinguished one. We will start 

with Mr. Joseph Kile, who is assistant director for microeconomic 

studies at the Congressional Budget Office, and then, following his 

testimony, Mr. James Bass, the interim executive director and chief 

financial officer of the Texas Department of Transportation. Next 

3 

is Mr. Phillip Washington, general manager and chief executive officer of the Regional Transportation District of Denver, Colorado. 

And finally, Mr. Richard Fierce, a senior vice president of Fluor 

Enterprises. And he is here on behalf of The Associated General 

Contractors of America. 

I ask unanimous consent that our witnesses’ full statements be 

included in the record. 

[No response.] 

Mr. DUNCAN. And hearing no objection, that will be so ordered. 

Since your written testimony has been made a part of the record, 

the subcommittee would request that you limit your oral testimony 

to around 5 minutes. 

And, Mr. Kile, we will begin with you. 

TESTIMONY OF JOSEPH KILE, ASSISTANT DIRECTOR FOR 

MICROECONOMIC STUDIES, CONGRESSIONAL BUDGET OFFICE; JAMES M. BASS, INTERIM EXECUTIVE DIRECTOR AND 

CHIEF FINANCIAL OFFICER, TEXAS DEPARTMENT OF 

TRANSPORTATION; PHILLIP A. WASHINGTON, GENERAL 

MANAGER AND CHIEF EXECUTIVE OFFICER, REGIONAL 

TRANSPORTATION DISTRICT OF DENVER, COLORADO; AND 

RICHARD A. FIERCE, SENIOR VICE PRESIDENT, FLUOR ENTERPRISES, INC., ON BEHALF OF THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA 

Mr. KILE. Thank you. Good morning, Congressman Duncan, 

Chairman Shuster, Congressman Capuano—— 

Mr. DUNCAN. Pull the microphone a little bit closer to you, if possible. 

Mr. KILE. Sure thing. Is that better? 

Mr. DUNCAN. Yes. 

Mr. KILE. Good. Good morning, again, and thank you for having 

me here today to talk about public-private partnerships before this 

panel. 

The United States has about 4 million miles of public roads. In 

1960 the number of miles of—since 1960 the number of miles of 

roads has grown slowly, but the demands on them have grown substantially. In particular, the number of vehicle miles traveled 

roughly quadrupled, rising from about 700 billion in 1960 to roughly 3 trillion in 2012. 

To pay for those roads, the Federal Government and State and 

local governments spent about $155 billion in 2012. Traditionally, 

a State or local government assumes most of the responsibility for 

carrying out a highway project, and bears most of its risk. Such 

risks include the possibility of cost overruns, delays in the construction schedule, and shortfalls and toll revenues for such roads. 

Alternatively, some analysts assert that public-private partnerships 

can increase the amount of money available for highway projects, 

and can complete the work more quickly, or at lower cost than is 

possible with the traditional approach. 

Over the past 25 years, governments at all levels have created 

about 100 public-private partnerships for highway projects that exceeded $50 million. Adjusted for inflation, the total value of those 

projects was about $60 billion. That is about 1.5 percent of the total 

amount spent by all governments for highways during that period. 

4 

But roughly half of that total has been committed during the past 

5 years. 

My testimony today is going to address the role of the public-private sector in financing and providing—that is, designing, building, 

operating, and maintaining a highway project—and I want to make 

three broad points. 

First is that private financing can provide capital necessary to 

build a new road, but such financing comes with the expectation 

of a future return for private lenders and private investors. Private 

financing only increases the available funds for highway construction when States or localities have chosen to restrict spending by 

imposing legal or budgetary constraints on themselves. Even so, regardless of the financing mechanism chosen, the ultimate source of 

money for highways is toll revenues paid by drivers and funds from 

taxpayers. 

Second, the cost of privately financing a highway project is 

roughly equal to the cost of financing it publicly after factoring in 

certain costs to taxpayers. Those costs include the risk of losses 

from the projects that are borne by the Federal Government, and 

the financial transfer made by the Federal Government to States 

and localities. CBO examined 29 highway projects that were undertaken since 1989 that cost more than $50 million and involve private financing. The amount of risk that was transferred to the private partner varied substantially from project to project. In some 

cases, the financial risk was borne primarily by taxpayers, who 

were responsible for repaying the debt incurred by the private partner. But in other cases, the private partner bore much more of the 

risk of the investment, in particular the risk that it might lose the 

money if the project did not receive the revenues that were expected. 

Of the projects that have been completed, some of those that 

were financed through tolls have failed financially because the private partners over-estimated the revenues that the project would 

generate. And, as a result, they were unable to fully repay the 

project’s debt. Perhaps in response to that history, projects that are 

still under construction tend to rely less on tolls for revenues. More 

commonly now, private partners are compensated through a State’s 

general revenues, which reduces the risks of not being repaid. In 

addition, financing provided by TIFIA and tax-exempt private activity bonds have become an increasingly important source of funds 

for highway projects. 

Third, and finally, CBO assessed the limited evidence on cost 

savings that might occur from bundling together other elements of 

providing highways—in particular, designing, building, operating, 

and maintaining them. 

On the basis of the evidence, it appears that public-private partnerships have built highways slightly less expensively and slightly 

more quickly than when compared with the traditional approach. 

Contracts that bundled two or more elements of the work may give 

greater control to the private partner, and a stronger incentive to 

reduce costs and meet established schedules. 

But contracts that achieve those goals can be challenging to formulate, especially in light of the lengthy period of time over which 

many contracts extend. The relative scarcity of data and the uncerVerDate Aug 31 2005 11:33 Aug 22, 2014 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\P3\PRINT-~1\86925.TXT JEAN
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tainty surrounding the results from the available studies make it 

difficult to apply the conclusions definitively to other such projects. 

Thank you very much. That concludes my statement. I would be 

pleased to answer any questions you might have. 

Mr. DUNCAN. Well, thank you very much, Mr. Kile. 

Mr. Bass? 

Mr. BASS. Good morning. My name is James Bass, and I am the 

interim executive director and chief financial officer at the Texas 

Department of Transportation. I would like to thank Chairman 

Duncan and Ranking Member Capuano for holding this hearing 

today. I will discuss the State’s perspective using public-private 

partnerships—or P3s, for short. 

As the panel is well aware, States are struggling with the lack 

of predictable funding for our transportation projects. The surface 

transportation program, until very recently, was one of the most reliable of all Federal undertakings. Now there are recisions, earmark claw-backs, short-term extensions, and a trust fund that can 

no longer fully replenish itself. These are obviously not ideal circumstances in which to deliver projects, because they disrupt the 

planning process for agencies, local communities, and our privatesector partners, both on the construction and the engineering side. 

In recent years, Texas has looked to the private sector more frequently to help us not only pay for, but to construct large-scale 

projects that otherwise would be years away from construction. 

These P3s are enabling the State to leverage our resources and deliver projects to our citizens much more efficiently and expeditiously than with the standard pay-as-you-go methods of the past. 

In Texas, P3s for transportation projects are entered into using 

a procurement process that allows TxDOT to select the proposal 

that provides the best value to the State. These agreements provide 

for the design and construction, rehabilitation, expansion, or improvement of a transportation project, and may also provide for the 

financing, maintenance, and operation of such a project. 

Through the use of P3s, TxDOT has been able to narrow the gap 

between our transportation needs and our transportation assets, 

and has helped citizens to realize our transportation goals of improved traffic flow and improved air quality. Without the option of 

these P3s, several projects would not be developed for a number of 

years, including State Highway 130 segments 5 and 6 in central 

Texas, and a number of long-awaited projects in the Dallas-Fort 

Worth region. 

There are different ways to structure a P3 agreement, and the 

terms of these agreements vary, based on the level of private sector 

participation. In Texas, a concession agreement gives the developer 

responsibility to perform some or all of the development, financing, 

operation, and maintenance of a facility for up to 52 years. In exchange, the developer is provided a right to the revenue generated 

by the project, and these projects also can potentially provide for 

revenue sharing with TxDOT over the life of the contract and, in 

some cases, include an upfront, lump sum payment. 

Other potential advantages include the developer assuming the 

risk for cost, schedule, traffic and revenue, financing, and meeting 

State and Federal standards over time. It also removes the financial burden of operating and maintaining the project from TxDOT. 

6 

And it also reduces and, in some cases, eliminates the amount of 

public funds needed to construct the project. 

One of the benefits of building projects under a P3 is that elements of risk are transferred from the public sector to the private 

developer. However, there are some risks that are better managed 

by TxDOT than by the developer. And one of our core principles is 

to allocate risk in such a way that we maximize the benefits of the 

P3 to the public. These risks are identified and allocated on a 

project-by-project basis. 

Private activity bonds and TIFIA are very important tools that 

have helped several Texas projects be more feasible. A point that 

is generally missed in the descriptions of MAP–21 is that it—the 

reinvigorated TIFIA program had the practical effect of adding at 

least an extra year of project delivery to the 2-year bill. 

MAP–21 also solved key challenges that have historically held 

back the TIFIA program. We are very encouraged by the substantial increase in funding for the program, the increased share of 

project costs that TIFIA can finance, and the congressional desire 

to make the TIFIA program more efficient. 

To date in Texas we have received over $4.2 billion in TIFIA assistance. And when that’s been combined with local, private funding, has yielded over $13 billion in total projects. These projects 

have been critical to relieving congestion and contributing to efficient movement of people and goods in the heavily populated areas 

of our State. 

Prior to MAP–21, USDOT was allowed discretion to evaluate and 

choose eligible projects under specific criteria. Over time, USDOT 

continued to add criteria such as livability to its list of selection criteria. These criteria, while seen by some as beneficial to help narrow down projects for funding, went beyond what was laid out in 

the law. MAP–21 eliminates discretionary selection criteria, and establishes a limited set of objective criteria that require a yes-or-no 

determination of satisfaction, and TxDOT welcome this change. 

MAP–21 provides critical changes and increased funding, but 

changes can be made to further enhance the program: reinforce 

that 49 percent of eligible project costs are allowed under MAP–21; 

streamline the letter-of-interest phase and enforce strict deadlines 

for the review of LOIs; incorporate the TIFIA application process 

with project procurement, in order to maximize competition. 

Again, I appreciate the opportunity testify today on the success 

of partnering with the private sector to deliver transportation 

projects in Texas. P3s in Texas have and will continue to play a 

vital role in how we deliver critical transportation projects. 

And I look forward to answering any questions. 

Mr. DUNCAN. Well, thank you very much, Mr. Bass. I had the 

privilege of chairing the Highways and Transit Subcommittee when 

we wrote MAP–21, so I appreciate some of your favorable comments there. 

Mr. Washington? 

Mr. WASHINGTON. Chairman Duncan, Ranking Member 

Capuano, Mr. Shuster, members of the Panel on Public-Private 

Partnerships, I want to thank you for the opportunity to present 

our testimony and our story in Denver on P3s. 

7 

Various P3s have been very crucial in the success of our program 

called the FasTracks Program, which I believe is still the single 

largest voter-approved transit expansion program in this country. 

We encourage Congress to increase the focus on P3s to spur faster development of transit assets. We believe the new transportation 

reauthorization bill is a great vehicle to assist in that. We also 

strongly urge Congress to preserve and expand the financing tools 

that make P3s possible, those being TIFIA and private activity 

bonds. 

What I would like to focus on today is some of the innovative 

public-private partnerships approaches that we have employed in 

Denver. One is the Eagle P3 project. This is a design, build, finance, operate, maintain, or DBFOM P3 buildout over 36 miles of 

commuter rail that will connect downtown Denver to the Denver 

International Airport. The second one is our Denver Union Station 

project. This will be the new intermodal hub of our system. And 

what’s very unique there is the enhanced real estate value of the 

land adjacent to the transit assets is being used to pay off the transit development. 

And while not discussed extensively here today, we are in partnership with the Colorado Department of Transportation on a P3 

to deliver a high-occupancy toll lanes project, or BRT system, bus 

rapid transit system, between Denver and Boulder. 

RTD Denver, in that FasTracks program, this is 122 miles of additional light rail and commuter rail, 18 miles of bus rapid transit, 

and 57 new stations, which brings into— brings the opportunity of 

transit-oriented communities, as well. 

The RTD’s Eagle program, which is a line to the airport, or twoand-a-half lines, we pursued this as a public-private partnership 

because of the efficiencies that we believe could be attained 

through the P3 approach. This Eagle project is being procured 

through a concession agreement between RTD and the Denver 

transit partners to design, build, finance, operate, and maintain 

these components for a 34-year period. The agency will retain all 

assets—ownership of all assets at all times, set the fares, fare policy, keep all the project revenues. We will make payments through 

what is called availability payments to the concessioner, based on 

established performance metrics. That project is about 60 percent 

complete. And funding consists of Federal dollars, a full funding 

grant agreement, TIFIA, private activity bonds, and, of course, private sector equity. 

The Denver Union Station project, which is the hub of our system, is a huge engine for transit-oriented communities and downtown Denver, significant expansion of mixed-use neighborhoods 

surrounding that station. It has been the catalyst in attracting 

some $1 billion in development around that station, which, as I 

mentioned earlier, is helping to pay off the transit elements and 

the loans. 

The TIFIA loan program, along with the railroad rehabilitation 

improvement fund, or RIF program loans—the TIFIA loan is for 

$145 million, RIF is $152 million. Those are the backbones of financing of this project, and they constitute about 64 percent of this 

$500 million program, which is the hub of our system. 

8 

Finally, let me say that with the P3 delivery method and other 

financing mechanisms previously mentioned, we are moving forward with plans for the construction of these projects that I mentioned. However, we don’t see them as a substitute, of course, for 

the strong support for the general transportation investment, or 

the new transportation reauthorization bill. 

I will say that the jobs that have been created, the transit-oriented communities that have been created around these projects, 

is extraordinary. I invite the panel to come out on May the 9th for 

the opening of this Denver Union Station hub to see firsthand a 

public—successful public-private partnership that will open on May 

the 9th. 

I look forward to your questions. 

Mr. DUNCAN. Well, thank you very much. And from all reports, 

your project has been very successful, so we will look forward to 

hearing your answers to some of our questions. 

Mr. Fierce? 

Mr. FIERCE. Chairman Duncan, Ranking Member Capuano, and 

members of the Panel on Public-Private Partnerships, I am Richard 

Fierce. I am a senior vice president at Fluor Corporation, speaking 

here today on behalf of Associated General Contractors. Fluor has 

been a proud member of AGC for many years. AGC represents over 

26,000 firms in our industry. 

I also serve presently as the president of the Association for the 

Improvement of American Infrastructure, AIAI, an organization 

that was formed a little over a year ago, a nonprofit advocacy 

group promoting the use of P3s in the United States. 

A couple of introductory comments about Fluor and Fluor’s his- tory in P3s. We are a 100-year-old company with about $27 billion 

in revenues last year, and 41,000 employees on 6 continents. We 

have been involved in P3 delivery for over 20 years now, and have 

been involved with a number of firsts in the United States: the 

Conway Bypass in South Carolina; E–470 in Denver; the 895 

project in Virginia, now known as Pocahontas Parkway; and segments 1 through 4 of SH 130 in Texas. 

We are also proud to be presently delivering the Eagle P3 for Mr. 

Washington, and we recently completed the Capital Beltway HOT 

Lanes, here in the District of Columbia. We are also currently delivering the Tappan Zee Bridge in New York. 

My comments about P3 are fairly simple. I don’t want to oversell 

P3s, they are not a magic bullet that somehow convert projects that 

aren’t feasible into showpieces. But they are an important tool in 

project delivery, we think an important tool that should be in every 

procurement agency’s toolkit. And it is a tool that can help close 

financing gaps by delivering private sector debt and equity. But I 

don’t like to focus on the finance gap; there is others eminently 

more qualified to speak to that than I am. 

But I like to speak to a feature of P3 that I don’t think as many 

people appreciate, and that is we truly believe that public-private 

partnerships deliver more project for the dollar. And you might say, 

‘‘How does that happen?’’ It happens because of increased collaboration between the public and private sectors. 

The private sector gets involved earlier in project definition, and 

is involved later through delivery of the project in operations and 

9 

maintenance. That early involvement enables construction and design and the public sector to communicate and help shape the 

project while you can still shape the project. It allows life-cycle 

costing to be taken into account while the design is underway. And 

then, that long-term involvement through operations and maintenance is, in part, the private sector’s skin in the game. 

So, how do we deliver innovation? We deliver innovation frequently through a process they refer to as alternative technical 

concepts. During the procurement process, the private sector comes 

up with ideas, ways to try to deliver a better project, a more economical project, a more efficient project. You might think that that 

collaboration could happen with any project delivery. But the fact 

of the matter is, when the private sector has skin in the game in 

the form of equity, when it has skin in the game in the form of a 

long-term operations and maintenance contract, we think the public sector is a little bit more receptive to our innovative ideas, because they know that we have to live with them for 30 years. 

In addition to the harder issues of project scope, we also like to 

point to some of the soft issues. We believe public-private partnerships better deliver small, disadvantaged, and minority business 

content. We are very proud of the content we delivered on the Capital Beltway, over $540 million of DBE SWaM content on a project 

that started out at $1.4 billion. So we think that we deliver more 

project for the dollar, and better ability to deliver some of the soft 

items, as well. 

Thank you, and I look forward to your questions. 

Mr. DUNCAN. Well, thank you very much. You have been a very 

helpful and informative panel. And to have an expert here from the 

Congressional Budget Office, and a highway expert, and a transit 

expert, and an expert from the private sector added to the three 

witnesses we had at our first meeting a couple weeks ago, we have 

gotten off to, I think, a great start here. 

We are doing this panel at the request of Chairman Shuster, who 

has been a great leader for this committee. And I would like to call 

on the chairman at this time for any comments or questions that 

he might have. 

Mr. SHUSTER. Well, thank you very much. I appreciate that, and 

appreciate all the witnesses being here today. Just a couple of 

questions. 

On the design-build—I think I ask this question every time I get 

in front of folks. And were you able to quantify the savings by design-build? Any of you that operate on them have an answer? 

Mr. Kile, you want to start? 

Mr. KILE. I am sorry, I don’t have an immediate number in front 

of me, Mr. Chairman. But in the report we wrote in 2012, and in 

doing some research updating that for today, we did look at some 

of the design-build and the operate and maintain experience, and 

learned that they are somewhat cheaper to build, and come to fruition somewhat more quickly than under the traditional approach. 

And I think it is a matter of the communication that can go on between designers and builders and those who operate and maintain, 

and some additional reference to life-cycle costs of projects. 

And I guess the only cautionary note I would throw on that is 

that the experience with these types of public-private partnerships 

10 

is relatively limited, and so it is difficult to apply the general lesson 

to any specific example. 

Mr. SHUSTER. So there is a savings, but you just can’t quantify, 

you can’t say 10 percent, 20 percent? 

Mr. KILE. I think that that is hard to say, and I think that that 

would depend on the specifics of the project at hand. 

Mr. SHUSTER. Right, right. Mr. Bass, why don’t you go, because 

you talked pretty extensively. And then I will go to Mr. Washington. 

Mr. BASS. I would say, like Mr. Kile just stated, we don’t have 

any objective figures to show. One of the things—we have comparisons to what we were—we would have estimated the cost to be 

under a design-bid-build, but since we didn’t go that route and 

went with the design-build, it is really just speculation, compared 

to what our estimates were. But we have certainly seen by—under 

the design-build, allowing the overlap of design and construction to 

go on at the same time, rather than the historic sequential process, 

the project is being delivered sooner to the public than the traditional methods. 

We also think coming with that is some cost savings, as well. 

Mr. SHUSTER. Mr. Washington? 

Mr. WASHINGTON. Yes, sir. I would comment on our design, 

build, finance, operate, and maintain Eagle project, where that 

project came in $305 million below our internal estimates. This was 

very interesting to us. Mr. Fierce mentioned alternative technical 

concepts, or ATCs. We began to see the ATCs that were submitted 

during the procurement phase, and we knew that we had tremendous savings there. So the ATCs really, really helped. The 305, no 

one anticipated that amount of savings from the internal estimate 

that we had on the books. 

So, I would say, in that respect, tremendous, tremendous savings. And I would also add that us concentrating on the performance metrics, not so much being prescriptive with regard to the 

technical pieces—let the private sector figure out the technical 

pieces—I just want the train to get from downtown to the airport 

in 30 minutes. And so that helped us. 

Mr. SHUSTER. Right. Mr. Fierce? 

Mr. FIERCE. Yes, just offer a bit of anecdotal evidence here, a 

quote from the chairman of the New York State Thruway Authority 

Board, Chairman Milstein, describing our Tappan Zee design-build 

proposal, ‘‘produced a savings of at least $1.7 billion, compared 

with the original State and Federal cost estimates.’’ So we do think 

that design-build, done properly, can really unleash value. 

Mr. SHUSTER. What is your total on that bridge, the Tappan Zee 

Bridge? 

Mr. FIERCE. Our contract value was $3.14 billion. 

Mr. SHUSTER. And they were saying it is going to be closer to $5 

billion. 

Mr. FIERCE. That may include work on either—may include work 

outside of our contract. 

Mr. SHUSTER. Right, right. And, Mr. Washington, you said the 

land that is being developed around your project, is that because 

of land values going up, tax base? Or is that because you own the 

land and you are selling it? How is that money coming into you? 

11 

Mr. WASHINGTON. That is tax-increment financing. So the development going on around by other parties are paying that TIF revenue into the project. This is a partnership between the transit 

agency, the city, and the DOT, as well. 

Mr. SHUSTER. So it is land value increase, you are taxing—— 

Mr. WASHINGTON. Yes. 

Mr. SHUSTER [continuing]. Getting property tax to fund it? OK. 

Mr. WASHINGTON. Yes, sir. 

Mr. SHUSTER. Thank you very much. I yield back. 

Mr. DUNCAN. Well, thank you very much. And certainly you get 

a lot of attention when you talk about savings hundreds of millions, 

or even $1.7 billion on projects. So that is great for everyone concerned. 

Mr. Capuano? 

Mr. CAPUANO. Thank you, Mr. Chairman. I want to thank the 

panelists. I tell you, I love these panels. I am having fun with this, 

and I really want to have more of a conversation than anything 

else, because I have a lot to learn. 

But when I first started this, when I was asked to chair this, 

honestly, I wouldn’t have put design-build in as a P3. I mean I 

guess it is, but that is not my definition of one. I accept it as one. 

So I kind of look at design-build as almost its own separate entity. 

I look at—when I think of P3, I think of more the financing, the 

operating, and the maintenance aspect of it. So, to a certain extent, 

I distinguish that. 

But I also want to remind people why design-build wasn’t adopted—well, how we got to the system we have, the design-bid-build. 

We did it because a lot of people across this country stole money. 

And we, little by little over the years, separated it out so that the 

same guy who was designing it wasn’t building it and stealing 

money. 

Now, I am not saying—it was inefficiency intended to avoid malfeasance. Now, I am not saying it doesn’t need to be tightened up, 

I actually think it is a good idea. But let’s not forget how we got 

where we are, and what the potential downfalls are if we go too 

far down the road too quickly. It doesn’t mean I oppose it, I actually like the idea, but I am conscious of not opening up the barn 

door and forgetting how we got where we are. 

So, I want to take, for me, design-build and kind of put it to the 

side. I know it is, but in my mind it is not really the P3 that I am 

most interested in. And I want to chase something, particularly 

with you, Mr. Kile. 

A couple of weeks ago we had some people from Indiana in, and 

I asked a simple question. The Indiana toll road was sold—and I 

am not sure I got my numbers exactly right—something like $3.8 

billion for a 75-year lease, which works out to approximately $50 

million a year that the State would be getting. And I asked a very 

simple question. How much do you get in tolls off the Indiana toll 

road? How much did you get before? How much do you get now? 

Because if you are getting $50 million a year, and the State is collecting $60 million, why would you sell it? Or, if you are getting 

$50 billion and you are only making $40 million, why would anybody buy it? 

12 

So, for me, honestly, the statement that you made—or the report 

made that you repeated—I want to quote directly from the very 

first page of the CBO report—‘‘The cost of financing a highway 

project privately is roughly equal to the cost of financing it publicly 

after factoring in the costs associated with the risk of losses from 

the project, which taxpayers ultimately bear, and the financial 

transfers made by the Federal Government to States and localities.’’ Now, you repeated that, and I am starting to see that more 

and more on some of these projects, not all of them. 

Are there—did you—when you made this statement, were you 

able to get detailed financial reports on many projects, number one. 

And, number two, did you come up with a conclusion as to which 

projects might make more sense than others? We all know there 

has been some bankruptcies. We all know that we are still struggling of which—what projects are most subject or most open to a 

P3. Did you make any conclusions like, for the sake of discussion, 

tunnels are more—are better than bridges, or express lanes are 

better than tunnels, or anything like that? Were there any of those 

conclusions made? 

Mr. KILE. So, in assessing the projects that we looked at, which 

are primarily laid out in tables three and four of the testimony and 

of the report, we looked at—there were a wide variety of projects 

with different amounts of both public and private financing involved with them. The private firms that are putting up money are 

presumably doing so with the expectation of returns on their investment. And those returns would ultimately come from either the 

government—a government, not necessarily the Federal Government, but a government—in terms of an availability payment, or 

through tolls imposed on users. 

And so, from the investors’ perspective, I would think that they 

would be most interested in making an investment, or they would 

be able to feel pretty—— 

Mr. CAPUANO. Are you able to distinguish which projects maybe 

make more financial sense than others? 

Mr. KILE. So we did not look at, specifically, whether roads or 

tunnels or other kinds of—one type or another—— 

Mr. CAPUANO. Because for me that is—Mr. Bass, Mr. Washington, Mr. Fierce, have you been able to look at which projects— 

I mean you have had more experience with them than I have— 

which projects make more sense? 

I guess my problem with always asking State or local officials is 

your job is to build things. Your job is not necessarily to worry 

about the long-term financial aspects of these things. And I understand that, and I don’t think that is a bad thing. You have a different role than I do. So, to a certain extent, I understand why you 

want to build things right now and get the money any way you 

can. Don’t blame you. But from my perspective, I got to be worried 

about the next generation of people building things, and whether 

they are going to have the money, or whether we are going to 

spend it all—which I know some of my friends on this panel are 

always worried about other things, but I am worried about everything, including transportation. 

Look, I like spending money as much as the next guy, but I have 

kids. And hopefully some day I will have grandchildren. I want 

13 

them to have decent roads, too. And I don’t want to waste it all— 

not waste it all—I don’t want to use it all for my benefit and have 

nothing left. And I am just wondering. Have you had any experience of which projects might work better than others? 

Mr. BASS. Well, one of the things, on the revenue sharing in 

Texas, unlike Indiana—my understanding is they took all of that 

future revenue stream in a single, upfront payment. What we have 

elected to do in Texas is, in some cases, take an upfront payment. 

But on all of our projects we also have revenue sharing. And if the 

project performance is greater than anticipated, over time the 

share of revenues that come to the State of Texas increases as well. 

Mr. CAPUANO. Would you agree with CBO’s conclusion that, over 

time, that the actual cost of doing most of these is approximately 

equal to the taxpayer? Do you agree with that or disagree with 

that? 

Mr. BASS. No, I would agree with that. One of the things is the 

access to the capital. So one of the things we do in Texas when we 

have a proposal, or we are looking at a project, we will look at trying to deliver the project through the traditional method, but we 

will also look at, well, what if we just issued toll revenue bonds and 

did a design-build project. 

What we find in many circumstances is that the traffic and revenue estimates from the public sector show that there is not 

enough demand to fully fund the project. So there is going to be 

a funding gap that would need to come from fuel taxes or registration fees. And when we look in our planning documents, there is 

no funding to fill that funding gap. What the private sector brings 

in many of these projects is that funding. 

But then also, the partnership—one of the keys of the design, 

build, finance, operate, and maintain, as been mentioned earlier, 

that in the initial construction, when that same party is going to 

be responsible for maintaining it over time, they are building in 

life-cycle costs that, when it is segregated, design, build-build, and 

then operate and maintain over time, I am not sure that really gets 

integrated into the delivery of projects under the traditional method. 

Mr. CAPUANO. I apologize, my time is way over. I appreciate the 

chairman’s indulgence. And I want to come back to this, but I do 

want to conclude with that, to me, goes to my last point, which I 

will make later, but I want to just draw a big, bold line under it. 

Other than the quickness of being able to do these projects—which, 

I agree, the design-build does do—the other part of the problem is 

I am concerned about spending tomorrow’s money today. But I am 

also concerned that what this really does is it draws a big, bold line 

under Government’s inability or unwillingness to make tough decisions. And some of those tough decisions are to institute or increase 

tolls or other fees to bring those life costs into it. It doesn’t mean 

we can’t do it, we just don’t do it. And so, therefore, we are shifting 

it off to somebody else to make that project. 

I apologize, and I thank the chairman for his indulgence. 

Mr. DUNCAN. Good questions. In fact, most people’s main concern, or one of the main concerns about the public-private partnership is the question about whether we leave some of the taxpayers 

20 or 30 or 40 years down the road left holding the bag. 

14 

But I want to go—I am going to reserve my questions to the end 

and go now to Mrs. Miller. 

Mrs. MILLER. Thank you, Mr. Chairman. To the panel, particularly to the gentlemen from Texas and Colorado, I am just very excited about Chairman Shuster actually having the Federal Government taking sort of a lead, I guess, if I will, from the States, 

where—they are always the incubators of innovation, and really, 

creative thought, and creative financing, and all these kinds of 

things, because certainly our country—and every country, a really 

developed nation—doesn’t have enough—it doesn’t have adequate 

funding to do all the infrastructure investment that we want to. So, 

I was particularly interested to hear how you are doing in your 

States. 

As you might be aware, there is—I think there are 27 States currently that even have legislation allowing for a P3. I am from 

Michigan. My State does not. And so, my question is sort of how 

could you—what kind of advice could you give to a State that is 

contemplating doing a P3, but yet we don’t have any legislation 

yet? 

You know, there must be some sort of best practices that you 

learned from your current legislation. Did you look at a particular 

State as a model, as far as their legislation is concerned, to assist 

their State legislatures or their DOTs in proceeding with a P3? 

And then, in addition to that, was there anything in your particular legislation that was really helpful? Or, if you could go back 

and tweak your legislation, so sort of, you know, helping the others 

to come along behind you, and whether or not you think it is appropriate for us at the Federal level, I am all about the Tenth Amendment, and never want to get interfering with the State, but rather, 

helping them a bit. And perhaps we should be telling the States 

early on here that there is a strong possibility this kind of thing 

may be included in our transportation reauthorization, so they 

might be thinking about looking to their State associations, et 

cetera, to put legislation in place for the State so that they can advantage themselves of this kind of a P3, if they are interested. If 

they are interested. 

So, I know it is sort of a broad-based question, but really wanting 

to position the various States. I mean, as I said, my State does not 

have P3 legislation. But I can think of a number of projects, one 

in particular, that I am going to be pushing here with my Governor 

and my State senators and House Members. And yet, I would like 

to be able to say, well, you know, you guys want to take a look at 

maybe Texas or Colorado, or some of the best States’ practices, 

what they have done, and that could assist us in other States. So 

I throw that out there. 

Mr. BASS. Well, I would first say many of the successes in the 

States wouldn’t be possible without your assistance. A lot of our 

P3s would not have moved forward without TIFIA and private activity bonds. They just would not have been moving forward. 

As far as other States’ legislation, I believe we looked to—one of 

the forerunners in P3s in the U.S. was the State of Virginia. And 

so, we looked at that as perhaps a template. 

What I would tell other States is that it is not a silver bullet. 

It won’t solve all of the problems. There are risks, and with those 

15 

risks come pro and cons. For a while, the USDOT Office of Innovative Program Delivery had a group of P3 States that would meet 

and kind of share experiences, and was going to make those P3 experts, if you will, available to States that were considering P3 legislation, with the thought being that hearing from a colleague, rather 

than someone perhaps with a financial interest in it, they might be 

more comfortable with that. 

Lastly, one of the benefits in our legislation in Texas currently 

is before we move forward with any P3 project, we have a committee of local stakeholders that receives information from the 

DOT on the risk allocation for the particular project. And those 

local stakeholders then give their approval for the project to move 

forward under one of the different forms of P3s. And I think that 

is very helpful for us, because you have the grass roots effort in 

support of the project, and then also an understanding of what the 

risk allocation are. 

Mrs. MILLER. Yes? 

Mr. WASHINGTON. And I would echo some of the things that Mr. 

Bass said. I think one of the big things is what this panel is doing 

right now. I mean you are bringing P3s out in the open. And so 

many States, it is thought to be some sort of black box, some sort 

of dangerous thing. 

So, I think part of this is education, education of the various 

States, education of city leaders, State leaders, on what P3s are, 

and the understanding that this is just one tool in the toolbox that, 

in our case, and in many of the other cases, can get projects done 

quicker. And there is mechanisms to put in the program that protects—and all of us are doing this—to protect future generations 

when we talk about operating and maintaining, in our case, for a 

28-year period, and looking at various performance metrics and assigning penalties and incentives through that 28-year period. 

So, I think it is an education piece to educate the various States 

on the risk allocation and all those other things. 

Mr. FIERCE. I would like to point out that—or offer that the AIAI 

would be happy to help and provide best practices. We are actively 

in the process of collecting best practices. And again, not only from 

all of the States that have enabling legislation, but also many of 

the members are active in P3 in other jurisdictions in Europe and 

in Canada, where it is much more prevalent. 

And so, one of the goals of AIAI is to collect best practices and 

share that with States who are either looking to enact enabling legislation for the first time, or perhaps to amend existing legislation. 

And I would also point out, as Mr. Bass said, Virginia’s PPTA 

has absolutely been a model for the industry, and they have certainly gotten a lot of good projects out of their statute there in Virginia. 

Mr. DUNCAN. All right. 

Mrs. MILLER. Thank you very much. 

Mr. DUNCAN. Thank you very much. Ms. Norton? 

Ms. NORTON. Thank you very much, Mr. Chairman. This is a 

real learning experience, certainly for me, because all of my experience with public-private partnerships has been in real estate, 

which is far more traditional. 

16 

I must tell you that when it comes to building, with the Federal 

Government itself building, and we have to deal with the CBO, 

much of what I have heard today wouldn’t fly past the CBO because of where the risk is. 

Mr. Bass, I really want to take off from how you candidly answered just a few minutes ago that you did not think that you 

would have moved, or been able to move, without the TIFIA and 

the like. I would love to see what I have seen in real estate apply 

in this committee. Increasingly, I am coming away with the notion 

that there is no free money and no easy money anywhere in the 

public or private sector. And I am troubled, frankly, by the increasing reliance on public funds: the private activity bonds, the TIFIA, 

and the like. 

You know, this is in an experimental stage, and I think we ought 

to let the experiments play out. I regard the Dulles Toll Road as 

very different and interesting, and perhaps instructive, but certainly not typical of what we have been talking about today. I regard Mr. Washington’s project as far more typical. 

And I must say, Mr. Washington, I had staff to compile the 

amount of Federal funding, and I am flummoxed by it, by the high 

level of public assistance involved. Of the $2 billion project, $1 billion from the Federal New Starts grant. I mean you have been very 

fortunate. It says a great deal about how well perceived what you 

are doing is. That is $1 billion, $280 million from a TIFIA loan, 

$396 million in private activity bonds. A private partner put in $54 

million in equity. That is less than 3 percent of the project cost. I 

try to imagine my work in real estate and trying to get through 

CBO with that kind of risk transference. 

The private activity bonds are expected to reduce the cost of financing. But I must say, compared to what? I mean, for example, 

compared to the cost of financing traditionally? I would like to see 

what control there would be. 

I am not sure about the performance metrics—what would happen if they weren’t met. Apparently, even the risk of ridership is 

not assumed by the private partner. I am left to wonder what risk 

there is. I think this is a good deal for the private partner, which 

makes me wonder whether it is an equitable or fair deal for the 

public, particularly when you consider how much Federal money is 

involved here. 

And I would like to see how you would respond, Mr. Washington, 

and whether you would agree with Mr. Bass, that such a project 

as this could not have proceeded without the very high level of public funding and low level, frankly, of private risk. Yes, sir? 

Mr. WASHINGTON. Yes, ma’am. 

Ms. NORTON. I am just using you as a case study. Please forgive 

me. I happen to have some of the rundown of figures there, and 

they amaze me in some respects. 

Mr. WASHINGTON. Sure. 

Ms. NORTON. So I am trying to find out what the real advantage 

here—— 

Mr. WASHINGTON. Right. 

Ms. NORTON [continuing]. Was of the public-private partnership. 

Mr. WASHINGTON. Well, I will—thank you for the question, 

madam. 

17 

Let me say that the private activity bonds, the transit agency 

was the issuer. And the private sector is paying that back. So the 

$396 million, that is the arrangement there, that we are the—the 

Government agency is the issuer. So I would add that, actually, to 

the $54 million in equity. So that is one thing. And that was an 

arrangement that—— 

Ms. NORTON. So how much is that, $300 million? So if you add 

the amount they are going to pay back with interest? 

Mr. WASHINGTON. Yes, ma’am. 

Ms. NORTON. And that would be in what amount? 

Mr. WASHINGTON. I believe it is about 6 percent, if you will. And 

I will get that exact figure for you. I believe it is about 6 percent. 

So, that was the arrangement. So if you add those two up that 

the private sector is paying back on the $396 million, the public activity bonds, and then the private equity of $54 million that they 

brought to the table, you are up over $450 million or so. In 

terms—— 

Ms. NORTON. Still a fraction of the public contribution. 

Mr. WASHINGTON. Pardon me, ma’am? 

Ms. NORTON. Still a fraction of the public contribution. 

Mr. WASHINGTON. Yes, yes, yes. There is no way that we could 

have done this project without the help of the Federal Government, 

both on the full funding grant agreement of $1.03 billion and also 

the TIFIA. We could not have done this project. 

I think we were happy to be—to have been selected to go into 

FTA’s Penta-P program back in 2007, 2008. This program was designed to expedite the New Starts process. And so, we are the only 

agency left, as I understand it, in that program to see if the private 

sector can be encouraged to invest in transit projects. And so, I 

think that had quite a bit to do with it, this pilot program, in our 

case, being the only agency left. And I am happy to say that we 

are about 60, 65 percent complete with the project, and about to 

open in less than 24 months. So I think that had a lot to do with 

it. 

But there is no doubt that we could not have done this publicprivate partnership, had we not been in the Federal Government’s 

pilot program, and without the funding that came with it. 

Ms. NORTON. Just so long as the Federal Government knows 

what it is doing—that it has simply got to fund these projects. I 

do think that has to be on the record, if we want them to succeed, 

and whatever advantages accrue. Let me ask you, though—— 

Mr. DUNCAN. Well, and Ms. Norton, we will come back to you. 

I have got to get to some of the other Members. 

Mr. Barletta? 

Mr. BARLETTA. Thank you. You know, time is money. And I was 

mayor for 11 years, and when I was running for mayor, the main 

road in my city was going to be redone, total reconstruction. I was 

all excited, thinking how lucky am I, I am going to walk in, we are 

going to get a whole new downtown, everyone is going to think I 

had something to do with it. I served 11 years, and now the project 

is just starting. So the new mayor now is pounding his chest, he— 

the new road. 

18 

But the point is that 10 years, because of all the delays, this $10 

million project became a $26 million project, and the scope of the 

project has been cut almost in half. So time is money. 

You know, America’s infrastructure needs to be fixed, and fixed 

in a hurry, our roads, bridges. You know, and we are struggling on 

ways on how to do that. At the same time, the private sector—my 

family was in the road construction business, as well—the private 

sector is sitting on the sidelines, dying for work, looking for work. 

And we all know competition drives down the price. 

So, I want to go back to, Mr. Kile, your comment about the financing of the highway project privately is roughly equal to the 

cost of financing it publicly. And a couple things were going 

through my mind as—you know, for example, a 30-year—and that 

may work out on paper, but on a 30-year maintenance project, for 

example, where the private sector is obligated to maintain that 

road for 30 years, versus the public sector. 

You know, maybe on paper, you know, the numbers may look different. But in reality, in that 30 years the public sector probably 

won’t maintain the road, because they don’t have the money to do 

it. And at the end of the 30 years, I believe it is going to cost the 

taxpayers a lot more money for reconstruction of that road, because 

it wasn’t maintained, versus us doing that. 

As well as, you know, this competition again, also in the private 

sector, forces them to use technology. For example, I know the contractor that is doing the I–75 down in Florida. They are doing toll 

maintenance, total control of I–75. And I know that the technology 

that they are using, that they are buying, the equipment that they 

are buying to be able to deliver that for less money, will allow the 

private sector to go out and bid these projects and be able to do 

these projects less, which is a savings to the taxpayer. 

So, I guess what I am getting at is, Mr. Kile, in your analysis, 

does it take into account how P3s can provide, in the 30-year maintenance contracts, the security and the savings to the taxpayer? 

Does it take that into account? 

Mr. KILE. So, in our review of existing studies, we did—I do note 

that we found that public-private partnerships that combine together elements of operations and maintenance with designing and 

building do tend to, on average, lower costs by a small amount. 

And I think that would be a reflection of some of the competitive 

forces of which you speak. 

I would also presume that in any particular contract that includes a 30-year maintenance component, that that is bid into the 

price of the contract, as well. And I can’t speak to whether or not 

any particular State or locality would be able to maintain or operate that road either more or less effectively than that particular bid 

would be, simply because we didn’t look at that issue. 

Mr. BARLETTA. Because I truly believe, in reality, that we are 

going to save the taxpayers a lot of money. When we get the private sector involved and doing projects, maintaining projects, and 

these public-private partnerships, and all different types that exist, 

I do believe the bottom line, because of the competition and how 

the private sector works, that there will be a savings to the taxpayer. 

19 

But I guess our biggest hurdle is scoring, and how we overcome 

that. And the problem is that Government is so rigid in the way 

we do things. And sometimes the way we looked at things was because of the way things were done for the last 30, 40, 50 years, but 

business and the private sector is more flexible. They are different, 

and it operates differently. And how do we get the Federal Government to begin—to be more flexible in realizing that, at the end of 

the day, in 30 years, we have saved the taxpayers money, but we 

may not be able to score and prove it to the Members of Congress 

here today who will decide whether or not we do that. 

Mr. KILE. Right. So, any time the Federal Government would 

enter in a contract—and CBO doesn’t normally assess the cost of 

any particular contract; we are, rather, assessing authorizing legislation—but to the extent that the Federal Government is entering 

into a long-term commitment, it is our job to try to present the information about the cost of that commitment upfront, and that is 

a principle that CBO has, and OMB has, and has actually preceded 

the existence of CBO as a long-held budgeting principle in the Federal Government. And I think the idea is that, by providing that 

information on a consistent basis, project-by-project, long-term, 

short-term, that allows you and your colleagues to assess the cost 

and understand the benefits that—— 

Mr. BARLETTA. But there are upfront costs where you are talking 

about—but how about over the 30-year time, 40-year time, 50-year 

time? How do we calculate that into—— 

Mr. KILE. So, again, as I said, we don’t estimate the cost of any 

individual project. But in understanding the nature of a long-term 

commitment, it is our job to provide information to you about the 

cost of that long-term commitment, whether it is, you know, a few 

years, or 30 or 40 or 50 years. And hopefully that allows you the 

information that you need to have to judge whether or not the savings that would come from the alternative approach are valuable. 

And I think that that is a judgment that, ultimately, you and your 

colleagues need to make, and it is not something that comes directly out of the cost estimate. 

Mr. BARLETTA. All right. Thank you. 

Mr. DUNCAN. Thank you very much. Mr. DeFazio? 

Mr. DEFAZIO. Thank you, Mr. Chairman. Mr. Washington, you 

didn’t go into detail, and I wanted to get that, about the value capture district around Union Station. I am trying to understand that. 

How did that work? 

Mr. WASHINGTON. Yes, thank you for the question. Denver Union 

Station, as I said, is the multimodal hub of our whole system. We 

purchased Denver Union Station in 2001, I believe it was, for about 

$50 million, with the idea of that being the hub. I would have to 

say at that time we did not anticipate that there would be—that 

that hub would be such a tremendous attraction for developers. 

Mr. DEFAZIO. Right. I am just trying to get to—I understand 

that. I mean in Portland we have special taxation on light rail 

routes for beneficial property owners. What I am trying to get is 

the vehicle you are using for the value capture district. What is it? 

Is it property taxes? Is it—what is it? 

Mr. WASHINGTON. Yes, it is tax incremental finance, so TIF revenue. 

20 

Mr. DEFAZIO. OK. 

Mr. WASHINGTON. Yes, sir. 

Mr. DEFAZIO. OK. That is what I was trying to get at. 

Mr. WASHINGTON. OK. 

Mr. DEFAZIO. OK. Just to all the panel, if you could, I think we 

have come a long way on P3s since I held initial hearings on this 

about 6 or 7 years ago. We have got best practices now that have 

been put out by DOT, or at least partially recently that I think are 

quite good and instructive, to avoid some of the early abuses, like 

with Mitch Daniels and Mayor Daley. 

But given that, given that it is a useful tool and we know how 

to better use it now, what percentage—you all know how massive 

our infrastructure deficit is. I am sure you have both read the Commission reports from the Bush era, you know how far behind we 

are. What percentage of that can P3s realistically address? You 

have to have a revenue stream, or you can have availability payments. Otherwise, it is mostly tolling. 

I come from the West, we are not going to toll the interstate system. Of the 140,000 bridges that need repair or replacement, we 

are not going to toll 140,000 additional bridges in America. What 

percent—because I just want to make the case here that P3s are 

a tool, part of the toolbox, but they aren’t the solution. What percent could it address? Anybody got an idea? Go ahead, you are 

brave. 

[Laughter.] 

Mr. WASHINGTON. Yes, I would just have to speculate. I would 

think between 10 and 20 percent. I mean that is my best guess. 

Mr. DEFAZIO. And that would be using all the tools—I mean that 

would be both tolling and/or availability payments or other methods. 

Mr. WASHINGTON. Yes, sir. 

Mr. DEFAZIO. Of leveraging. Yes. Mr. Bass, you wanted to—— 

Mr. BASS. For what it is worth, my guess would be less than 

that. As you said, you need unique characteristics in order for a P3 

to work. Sometimes it needs to be a revenue-generating project. If 

you go to an availability payment model, in my opinion, at the end 

of the day that is just another way of the State issuing debt or borrowing money long-term, and there might be other, more efficient 

ways to do that within debt limits at the State level. So, I would 

probably say, overall, 5 percent or less. 

Mr. DEFAZIO. Interesting. I am interested about your skepticism 

on availability payments. Mr. Kile, you addressed availability payments in your report, and you studied some of them. Do you have 

a—do you agree with his potential—his criticism and his concern 

there? 

Mr. KILE. Well, so I certainly would say that, ultimately, if the 

private sector is putting out money, it is doing so in expectation of 

a return, whether that is tolls or availability payments. And to the 

extent that they are availability payments, they are really drawing 

on the resources of either a State and local government, or the Federal Government. 

Mr. DEFAZIO. OK. Anybody else got a comment on that? Mr. 

Fierce? 

21 

Mr. FIERCE. Yes, I would like to make a comment on availabilitystyle P3s. 

One, it is not really an either-or. You can have a toll facility that 

is—where the private-sector concessionaire is compensated on an 

availability basis, rather than a real toll basis. But if you look at 

some of the nations where P3 is much more active, Europe and 

Canada in particular, the vast majority of their transportation P3s 

are done on an availability basis. 

We believe that delivers all of the value benefits, the innovation, 

et cetera, without saddling the private sector with some things that 

are totally beyond—— 

Mr. DEFAZIO. Right, but how do they finance those availability 

payments? I think it is through massive taxation that would be 

somewhat objectionable here, like $3 a gallon, and things like that. 

Mr. FIERCE. It would be taxation or, again, user pay in the form 

of tolls, but where the private sector is only exposed to keeping the 

facility open for—— 

Mr. DEFAZIO. Right, right. But do you agree that this is still— 

I mean the estimates we have had here, it is a tool, but it is a limited tool. 

Mr. FIERCE. Yes, absolutely. 

Mr. DEFAZIO. OK. 

Mr. FIERCE. In fact, I tried to make that point in my verbal comments—— 

Mr. DEFAZIO. Yes, OK, great, thank you. 

Mr. FIERCE. But I would agree with Phil’s estimate, that 10 to 

20 is probably not a bad ballpark for—— 

Mr. DEFAZIO. OK. 

Mr. FIERCE [continuing]. The market. 

Mr. BASS. If I could expand on the availability payments, I think 

it is a valuable tool. I am not a huge fan currently, at the current 

market price. What we have heard in many cases is there is toll 

revenue generated by the project. And if it is sufficient, then everybody gets paid. If not, the State steps in and fills in the funding 

gap, which, in other sectors, would be known as an appropriation 

risk. 

Mr. DEFAZIO. Right. 

Mr. BASS. Well, an appropriation risk in Texas is nowhere in the 

double-digit interest rates. It is much more at 5 percent or less. 

Even though the availability payment funding element may be 10 

to 15 percent of the overall project, my understanding is that currently, the market pricing for that element is 10 to 11 percent. 

Mr. DEFAZIO. Well—— 

Mr. BASS. To me, for the risk being assumed, an appropriation 

risk of various States, that seems a little expensive, given other options that might be available. 

Mr. DEFAZIO. Well, I hadn’t heard that number. Thank you. 

Thank you, Mr. Chairman. 

Mr. DUNCAN. All right. Thank you, Mr. DeFazio. Mr. Rice? 

Mr. RICE. OK, I think we are kind of beating this—everybody is 

kind of asking the same question in a different form. 

But if you have a properly structured design bill—let’s just talk 

about a new construction project, just for simplicity—a properly 

structured design bill, the Government, theoretically, should be 

22 

able to replicate the time, compressed time, either with a PPP or 

without one, correct? Does everybody agree with that? Mr. Kile? 

Mr. KILE. So I think that the advantage of—that the literature 

has found of linking together some elements—say design and build, 

just for example—is that it allows the designer to take into consideration issues that would not arise until the build. And, by putting 

those together, it may allow some savings that way. 

Mr. RICE. But you could do a design-build with or without a PPP, 

correct? 

Mr. KILE. I think that is probably correct. 

Mr. RICE. And so, the time constraint should be the same, either 

way. Is that right, Mr. Bass? 

Mr. BASS. Yes. I think it gets back to the earlier statement, 

whether or not you consider a design-build to be a P3 or not. I 

think it is a P3 101. But a design-build with or without financing 

from the private sector, you are still going to get the time benefits 

of accelerated delivery. 

Mr. RICE. Right. Mr. Washington, do you agree with that? 

Mr. WASHINGTON. Yes, I do. I would agree with that. 

Mr. RICE. And, Mr. Fierce, you agree with that? 

Mr. FIERCE. Yes. 

Mr. RICE. All right. So, if it is not a time factor—and you should 

be able to replicate the cost savings, as well, assuming you have 

a properly structured design-build, whether you do it with a P3 or 

without a P3, is that correct, Mr. Kile? 

Mr. KILE. So, again, I think that goes back to who bears the risk 

in these public-private partnerships. And—— 

Mr. RICE. Well, I am not talking about—I will get to risk. 

Mr. KILE. OK. 

Mr. RICE. I am talking about pure construction cost. 

Mr. KILE. So again I go back to what we found earlier, that there 

is some evidence that the cost can be lower. That is a—taking into 

account the contracting issues. And presumably, those contracting 

issues are bringing together some communication that otherwise 

wouldn’t have existed. That, in principle, could be replicated. 

Whether that happens in practice I think my colleagues on the 

panel would probably be in a better position to—— 

Mr. RICE. What confuses me is you could do a design-build without having a public-private partnership. 

Mr. KILE. I think that is right. 

Mr. RICE. You could use the same contractor with or without a 

public-private partnership. Why would the cost be lower with a 

public-private partnership than without one? 

Mr. KILE. So I think it is just a matter of the experience shows 

that communication does actually in fact occur more with when 

those elements are coupled together than when they are not, and 

that the public-private partnership is the vehicle that has brought 

that together. 

Mr. RICE. So you think it actually saves money to do a designbuild inside of a P3, or coupled with a P3, versus a design-build 

without private financing? 

Mr. KILE. All right. So, again, I go back to the studies, and the 

experience is relatively limited. As I mentioned in my statement, 

there are only about 100 of these in the United States that have 

23 

been over $50 million. And so the experience with them is relatively limited. But, based on that limited experience, they have 

been delivered slightly faster and slightly less expensively than 

they otherwise would have been. 

Mr. RICE. Do you agree with that, Mr. Bass? 

Mr. BASS. Yes, I would say one of the—on the design-build, if you 

are just talking those elements, again, I think the cost savings are 

going to be the same. Where it becomes savings to the State and 

the taxpayers, I think, is once the operation and maintenance responsibilities are packaged together in that. So you have private 

sector looking at the initial cost, knowing that they are going to be 

the ones responsible for maintaining whatever they build for 15, 

30, 50 years, depending upon what variety of P3 is utilized. I think 

that is where you get a lot of synergy and you get overall—you get 

savings over time. Maybe not as much upfront in just the construction of it, but in the 30- to 50-year operations, that is where a lot 

of the benefits come. 

Mr. RICE. So you think that comes from the—if a private contractor knows he is going to have to maintain it forever, maybe he 

is a little more careful when he builds it? 

Mr. BASS. Yes. 

Mr. RICE. And it should be that way, because if you do designbuild either way, inside or outside of the—— 

Mr. BASS. Correct. And some of it gets—I think Mr. Washington 

was talking before—in the traditional design-bid-build, the State is 

very—generally speaking, the local government is very specific on 

the specifications. In a design-build and P3 over time, it is more— 

this is the maintenance standard that needs to be achieved. We are 

not going to tell you and proscribe how to get there. It is just this 

needs to be maintained and attained, and then that allows the private sector to look at it and figure out how they can do that most 

efficiently. 

A lot of times the life-cycle cost from the public sector perspective, in my opinion, those life-cycle costs are not always integrated 

as well as they could be into the initial design. 

Mr. DUNCAN. Mr.—— 

Mr. FIERCE. One comment on the timing. You had indicated is 

the time for procurement and project delivery the same, and all of 

us here nodded our heads. You also, though, have to look at when 

the project can be delivered. 

So, I believe when we did the 895 project in Virginia, that project 

was on the State’s wish list. We were able to bring it forward by 

about 17 years, and deliver the project earlier. So there you kind 

of get into the comment Mr. Barletta made earlier about waiting 

10 years for this improvement to be made. So, not only do you deliver the project quicker, when costs are lower, but you also have 

that public sector benefit of there is 10 years that the traveling 

public is enjoying the congestion relief, and enjoying the asset that 

you have delivered earlier. 

So the actual procurement might take the same amount of time, 

and the design-build may take the same amount of time as in a 

straight D–B delivery, but it may be that the P3 opens up funding 

much earlier, and they bring the project forward in time by many 

years. Again, I think on 895 it was estimated to be 17 years. 

24 

Mr. RICE. I understand the financing advantage of a P3, and 

that, you know, it is not public financing. At least some of it is private. And it would appear to me—I don’t understand why, I 

guess—except that maybe the contractor pays a little more attention when he is building upfront—but why the cost would be any 

different if you did the design-build inside or outside of a P3. It 

would appear to me the cost should be exactly the same in a normal world. 

But—so when you get into the financing mechanism, that financing costs money. Private companies are not going to—they are not 

going to put their money up unless they get a reasonable return. 

Mr. DUNCAN. I am sorry, the—— 

Mr. RICE. The taxpayers are paying that—I am sorry. The taxpayers are paying that return as an additional cost on the project, 

in exchange for shifting risk. 

Mr. DUNCAN. We have got to move on to—— 

Mr. RICE. Sorry. 

Mr. DUNCAN. So Mr. Maloney? 

Mr. MALONEY. Thank you all for being here. Thank you, Mr. 

Chairman, for convening the panel. I just have some questions on 

the Federal Government’s role in all this TIFIA. Is TIFIA program 

the right size? Or should be bigger? 

Mr. BASS. I think, under MAP–21, it is much closer to the right 

size than it was previously. And so I think, and would hope going 

forward, that you and your colleagues are able to continue it at 

least under the MAP–21 levels. 

Mr. WASHINGTON. And I would agree with that. You know, bigger 

is always better. So I would say if we can increase it, that would 

be great. I think if—streamlining the process would be wonderful, 

both on the TIFIA, the RIF, and the PABs. The public activity 

bonds definitely, we would like to see that increased. I think that 

is a huge tool for P3s around the country. 

Mr. FIERCE. Yes, we believe that TIFIA is a great program. I 

think the word ‘‘streamlining’’ is exactly what we would like to see 

happen there, make the process more efficient—— 

Mr. MALONEY. Could have been a little faster on the Tappan Zee? 

[Laughter.] 

Mr. FIERCE. The Tappan Zee was quite remarkable. But I would 

also echo everyone’s comments on PABs, absolutely the life blood 

of P3 and transport in the United States. And we would love to see 

PABs topped off, or the cap lifted. 

Mr. MALONEY. Mr. Kile, you have an opinion about that? 

Mr. KILE. CBO doesn’t have an opinion on the size of these programs. 

Mr. MALONEY. Fair enough. Is—if $1 billion is about right, would 

$5 billion be better? Or is there an upper limit that you would like 

to see? In other words, what is the right size? Do you have a view 

on that for TIFIA? 

Mr. WASHINGTON. On the—oh, TIFIA. Not sure what the right 

size is, but doubling it would be nice. 

Mr. MALONEY. And what about the project—what about the percentage of the project that it covers? Is that—do we have that 

right, at 49 percent? Or is that too high, too low? 

25 

Mr. BASS. I think Congress has it right at 49 percent. However, 

the implementation remains at 33 percent. Even though MAP–21 

allows for the participation to be up to 49 percent, I am not aware 

of any project that receives more than 33 percent. I am aware of 

a few that asked for the 49 percent and were told to reapply at 33 

percent. 

Mr. MALONEY. Right, right. And I take it, then, by your answers, 

which anticipated my question, that the cap on PABs, you would 

like to see that higher, as well? 

Mr. WASHINGTON. Absolutely. 

Mr. MALONEY. And is this a diminishing return? I mean and— 

I mean we—I think what people need to understand about TIFIA, 

right, is that it—that for the amount of credit assistance we are 

giving, the amount of project cost is a multiplier of that that we 

are supporting. And I think with 49 loans, we are at something like 

$59 billion of project costs that TIFIA has. 

I mean let me just ask you all. Of those 41 loans that the TIFIA 

program has made, how many of those projects would be going forward without those TIFIA loans? Do you know? Do you have a 

sense of that? Is the answer none of them? 

Mr. BASS. I can speak for in Texas, and without TIFIA assistance 

for the projects in Texas, I am not aware that any of them would 

be moving forward. 

Mr. MALONEY. Certainly not the Eagle project, right? 

Mr. WASHINGTON. No. 

Mr. FIERCE. Few, if any. 

Mr. MALONEY. Right. Is it fair to say that the TIFIA program has 

probably been the most successful Federal infrastructure policy of 

the last 15, 20 years? 

Mr. FIERCE. I think we would certainly add our voice to that. 

Mr. MALONEY. Let me ask about DOT’s role. Would you—what 

do you think about the creation of a P3 unit within DOT to assist 

States with sort of best practices? 

Actually, excuse me. Before I leave TIFIA—because I have only 

got a minute left—on SH 130, are we going to see—what is going 

to be—are we going to see a bankruptcy on that? And what is going 

to be the hit to the TIFIA program if we do? 

Mr. BASS. I am not sure on the southern segments 5 and 6 on 

State Highway 130. Been reported and downgrades by Moody’s rating agency for the bank loans that are on there. I think there is 

another payment coming up this summer, and after that, and it 

will be interesting to see if the developer and their investors are 

able to work to restructure. But I think we will know more by the 

end of this year. 

Mr. MALONEY. Let me just ask you in the time I have remaining, 

Mr. Fierce, DBEs. Would you support increasing the prominence of 

the DBE requirement within an expanded TIFIA program? 

Mr. FIERCE. Well, the devil is in the details, but we certainly see 

P3 as a platform that allows better delivery against those goals. 

Some of the goals can be quite demanding already. Our goals on 

the Capital Beltway for DBE and SWaM content was 40 percent. 

So we are not here advocating let’s continue to tighten, tighten, 

tighten. Let’s actually deliver against the goals we have. Let’s see 

better progress against what we are doing already. And we think 

26 

that P3, through the best value procurement process, really enables 

folks to give those programs their due. And we think they do deliver better results than conventionally delivered road and bridge 

programs. 

Mr. MALONEY. Well, thank you, Mr. Chairman. My time has expired, but I—in a future opportunity, I would love to hear more 

about the role of DOT, creation of a P3 unit within DOT, what the 

proper Federal role is in assisting the States who are obviously on 

the front lines of this. And I appreciate the indulgence. Thank you. 

Mr. DUNCAN. Well, thank you very much. Mr. Meadows, thank 

you for your patience. 

Mr. MEADOWS. Thank you, Mr. Chairman. Appreciate your leadership. Thank each of you for your testimony, and sharing your 

ideas today. 

Mr. Washington, I will start with you. Your written testimony 

was very detailed, extremely detailed, and so I want to compliment 

you on that and, obviously, ask you, in your experience, what is the 

greatest danger of a P3 becoming nothing more than a Big Government program with all the inefficiencies of perhaps Government 

agencies? Because I heard your testimony earlier. You said you 

really just care about getting somebody from one place to the other 

and it taking 30 minutes, which was refreshing to me, because as 

we add rules and regulations and review processes on top of it, you 

know. 

So, what advice would you have for this panel on how we can 

avoid just becoming a bigger bureaucracy, as it relates to P3s? 

Mr. WASHINGTON. Well, thank you for the question. I would say 

the greatest danger is not putting together a comprehensive concession agreement. I go to bed every night on Saturday nights reading 

the concession agreement for the Eagle project. I think where P3s 

get sort of sideways is not being very, very tight on what you expect, especially in the operating and maintaining phase. 

Mr. MEADOWS. So what you are saying is to go with that concession agreement, to make sure that you have dotted your I’s, crossed 

your T’s, and that there is not things that are either left out, or 

cost overruns that say, well, that was not part of our concession 

agreement, we are going to charge you extra for that? Is—— 

Mr. WASHINGTON. Yes, sir. 

Mr. MEADOWS. Put in laymen terms? 

Mr. WASHINGTON. Yes, sir. 

Mr. MEADOWS. OK. So let me bounce back to TIFIA and some of 

the questions as it relates to that. What—in terms of concurrent 

review with regards to TIFIA and speeding up the process, is that 

something that you think that we could do? Or is there a certain 

pecking order that must take place, or would that help? 

Mr. WASHINGTON. Concurrent reviews are always welcome. We 

were really blessed to be, one, in the Penta-P program that DOT 

FTA put together, that streamlined approach. We have a term that 

we went from concept to contract in 3 years. And that is really unheard of, I think, when you look at new starts and projects and all 

of that. So, going into the Penta-P program, concurrent reviews, 

the fact that the Federal Transit Administration brought on a consultant team, a third-party consultant team, to review some of the 

submittals further, helped streamline that process. 

27 

So, I do believe that, in our case, the streamline approach was 

instrumental in our success, and I would encourage that to continue. 

Mr. MEADOWS. All right, because we are all—each one of these 

projects are very different. And so, to say one is successful, and 

more successful because—it is comparing apples and oranges. 

Mr. WASHINGTON. Right. 

Mr. MEADOWS. Can you help this panel and this committee actually work with the chairman to define some of those what is a— 

how do we define success, you know? Is a 3-year approval process 

success? Is a 5-year? Can you help us, based on the success of your 

project, define those limits, in terms of where we should look more 

for concurrent review and approval processes? 

Mr. WASHINGTON. Well, to define success, some of the things that 

I put in my report talked about those performance specifications, 

rather than detailed design specifications. Establishing a rigorous 

schedule and timelines. I think a lot of times we get sidetracked, 

as public agencies, with missing deadlines. 

Mr. MEADOWS. So you would suggest that procurement and those 

timelines be tied to the TIFIA application and procurement process, then? 

Mr. WASHINGTON. As best as you can, I would say. But the 

schedule that I am talking about is just the general, overall procurement schedule. 

Mr. MEADOWS. Right. 

Mr. WASHINGTON. And that could be extended to reviews by DOT 

and other entities, as well, sticking to those. 

Mr. MEADOWS. My time is about to expire. I will yield back, Mr. 

Chairman. I thank you for your leadership in this matter. 

Mr. DUNCAN. Well, thank you very much, Mr. Meadows. We will 

go—Mr. Barletta, do you have anything else you—all right. We will 

go back to Mr. Capuano, and then I will conclude at the end. 

Mr. CAPUANO. Thanks, Chairman. And, again, gentlemen, thank 

you. I think this stuff is great. I like this much better than the typical hearings we have. I have actually stayed awake, and alert, and 

involved. 

[Laughter.] 

Mr. CAPUANO. But I do want to raise a couple of, obviously, 

issues that both are on my mind, and some of them that came up 

in the meantime. 

I just want to be clear that everybody here understands. Private 

activity bonds exist because, and solely, because of Federal tax policy. And, by the way, for those of you who haven’t read it, the— 

Chairman Camp’s proposal would repeal private activity bonds. 

And his estimate—actually, not his estimate, the estimate of the 

Joint Committee on Taxation—is, over the next 10 years, that 

would raise—by repealing, it would save our paying out $23.9 billion of taxpayer money. 

So, when you say that private activity bonds are not taxpayerfunded, they are. They only exist because the Federal taxpayers 

are actually giving tax dollars to investors. Otherwise, those investors go someplace else and make more money. Natural thing. So I 

just want to be clear about that, that is a big, bold line I want to 

draw under that. 

28 

I also want to go back to what I said, Mr. Bass, Mr. Washington, 

especially the comment you made, Mr. Washington. I know—I am 

a former mayor. Your job is to build things and to move people. I 

get that. My job is a little bit different. And that is why I don’t 

blame you for taking the money from any place you can get it. Mr. 

Fierce, you are in the private sector. Your job, your people’s job, is 

to build things. You get the money from anywhere you want. 

But there is a big problem to me—at least a big question coming 

on these things. I am getting the feeling slowly that private activity 

bonds and TIFIA and P3s are all because we, in Congress, don’t 

have the courage to put the money into things that you need: a 

Highway Trust Fund, transit fund. And I would just simply ask 

you, would you really, Mr. Washington and Mr. Bass, forget the 

policy and the philosophy? If you want to build things, wouldn’t it 

be just easier if we did what we need to do, and find a way to fund 

the New Starts program? I am looking at your Eagle. Half the 

money is coming out of New Starts. That is traditional. 

Mr. Bass, I looked at some of your numbers, though not as clear, 

but the same idea. Most of your money is coming out of traditional 

financing on State and Federal Government thing. Wouldn’t it just 

be easier if we fully funded the Highway Trust Fund, or if we fully 

funded the New Starts program, or some of the other traditional 

programs that we have, rather than trying to come up with all 

these fancy ways to avoid us doing something that no politician 

wants to do? 

Mr. BASS. I would say yes. Generally, the most efficient way to 

purchase anything is with cash. However, I didn’t purchase my 

house with cash, because I am not in that position—— 

Mr. CAPUANO. But even the traditional way is not cash. States 

almost always float bonds on these, but they are traditional bonds 

in the traditional sense of the word. They are straightforward. 

They are not secondary, backed up by taxpayers another way. They 

are straightforward State bonds. 

Mr. BASS. Right. And so, I would perhaps argue with the $23.9 

billion savings, because if private activity bonds weren’t there, 

would States then issue—still at tax-exempt rates, so the Federal 

Government is still not receiving the income—— 

Mr. CAPUANO. That is a fair point. 

Mr. BASS. Or, conversely, do the projects just not happen? 

Mr. CAPUANO. Well, see, that is the other thing—— 

Mr. BASS. And what does that do to the overall economy? 

Mr. CAPUANO. I understand. But if we put more money on the 

table, these projects would happen. And that is part of the problem, 

is that—Mr. Fierce, you say 17 years on a project. Well, of course, 

if I put more money on the table, projects are going to happen 

quicker. And it may not be 17 years, it may be a different 

prioritization. But the fact that we are putting money on the table, 

even directly or indirectly, makes projects happen faster shouldn’t 

come as a surprise to anyone. 

And I tell you, Mr. Fierce, be careful of your examples, because 

the one you picked, the Pocahontas, is in trouble, and we all know 

it. So I don’t want to nitpick, because I don’t have a real problem 

with the ones that are in trouble, I really don’t. I am not afraid 

29 

of all of us making a mistake and hopefully learning from whatever 

mistakes we make. 

But I also want to talk to Mr. Kile. When you did these things, 

I mean some of the things—we talked about cost. First of all, it 

bothers me a little bit to say that future elected officials won’t do 

their jobs. I am a former mayor. I maintained my roads. Now, I 

will tell you that I did make difficult decisions. Some of those difficult decisions? Yes, some maintenance on roads or buildings 

didn’t happen when I really wanted it to happen, because I had to 

hire another cop, or another teacher, or whatever it might be. So, 

yes, that is difficult. 

But when we say that we don’t trust future elected officials to 

do their job, we are also tying their hands in whatever crisis they 

may face 20 years from now. Some of the TIFIA bonds we are 

doing, the principle and interest don’t become due for 15 or 20 

years. Fifteen to twenty years from now, I don’t know what Denver 

or what Texas is going to be facing. Maybe the Governor then will 

want to do something different with that money, and won’t be able 

to, because the Governors today and the mayors today said, ‘‘We 

are tying your hands, we are going to do this.’’ 

Now, I think that is terrible of us to say that all future elected 

officials won’t do their jobs as well as we do, we are better than 

them. That is ridiculous, it is insulting. And, to be perfectly honest, 

I always think that the next generation, hopefully, will do better 

than us. Not worse, but better. 

But, Mr. Kile, I want to go back. When you did some of your 

numbers, did you take into account the tax losses given to investors 

for depreciation costs when they buy these things? 

Mr. KILE. So on the specifics of the tax loss, the depreciation, 

that would be a JCT estimate. But I think the general principle 

that you are on here is that the TIFIA is a loan from the Federal 

Government, and it is a loan at—— 

Mr. CAPUANO. It is a great loan. I wish I could get one. 

Mr. KILE [continuing]. At preferred interest rates—— 

Mr. CAPUANO. For my house. 

Mr. KILE [continuing]. That they can’t on the private market, 

and that that imposes costs on the Government. 

And similarly, tax-preferred bonds like private activity bonds are 

a kind of debt instrument that does impose costs on the taxpayer. 

Mr. CAPUANO. But did you—I apologize—did you take into—I 

mean, as I understand it, the people who invest in these things— 

Texas cannot, and Colorado cannot depreciate your highways, because you don’t pay taxes anyway, so you don’t get depreciation. 

Private investors get to deprecate their investment in these items. 

And I have—my old days, before I became a full-time elected official, I was a tax attorney, 100 years ago—so, you know, you don’t 

want me doing your taxes any more, but I still remember the concepts. 

I have never really liked the concept of depreciation, but that is 

a different issue. Whether you like it or not, it is a massive item 

when you invest in something on a tax sheet. And did you take— 

and that costs—that money comes directly out of the pockets of 

Federal taxpayers. If you get—if somebody else gets depreciation, 

30 

I, as a taxpayer, have to pay it. So did you take that into account, 

or did you not? 

Mr. KILE. Yes. As a general statement, that is one of the things 

that equalizes the cost—— 

Mr. CAPUANO. So you did. 

Mr. KILE [continuing]. Between public and private borrowing. 

Mr. CAPUANO. And did you take into—for instance, I read in— 

I think it was your report, one of these reports—that both the people of Illinois and the people of Indiana, one of their complaints, 

or two of their complaints, one of which had to do with maintenance, they said that some of the private people weren’t maintaining, but I will leave that alone. The other one, they were both pretty uniform that there was traffic diversion off of the roads that 

were sold, and on to other roads. 

Now, again, I can’t speak for individual projects, because, obviously, some projects don’t divert traffic, but some projects do, especially when you raise toll rates. Did you take into effect the—any 

estimated costs on the increased cost to those local cities and 

towns, or to the States, or whoever maintains those roads, when 

you divert 10 or 20 or 30 percent of your traffic off of one road and 

you put it on another road? This other road now has to be maintained at a higher capacity. Were any of those costs factored in? 

Mr. KILE. Right. So CBO actually generally does not assess the 

cost of any individual project. But I think the experience with the 

Skyway, for example, has shown that, as tolls have gone up, that 

some traffic has moved to other roads. 

Mr. CAPUANO. I guess, again, for me, I love the idea of coming 

up with new tools in the toolbox, I really do. I know I am probably 

sounding like I am not a big P3 guy, but it is not really the fact. 

I actually like the idea, I just want to make sure that we are trying 

to find the ones that work, versus the ones that don’t, and, in the 

long run, what is best for the taxpayers. And, in the long run, making sure that tomorrow—and, again, I come from Massachusetts, 

and I will tell you that we have had two major projects in my lifetime that have actually tied up Federal dollars because they ran 

into problems at the time and they had to put bonds out that basically said we will put up and we will pay for the next 10 or 20 

years future Federal dollars. 

Right now, today, the Commonwealth of Massachusetts is losing 

hundreds of millions of dollars each year directly from the Federal 

Government, because it comes from the highway fund and goes directly into paying for past activity, which means we don’t get to 

build the bridges or the roads or whatever it is today that we 

would otherwise be doing. 

And I am really concerned about that, because my big fear is you 

move a project up 17 years, yes, I get to use it. What happens 17 

years from now when the next guy needs to do a road or a bridge? 

I have used their money. And I am really not interested in a 

drunken evening out, spending the family jewels to, you know, 

have a good time tonight. Now, don’t get me wrong. Tonight it is 

going to be a great idea. But tomorrow it is not such a great idea. 

And that is kind of what I am trying to do. I am trying to find 

out the financing of these things. And I would appreciate, Mr. 

Bass, Mr. Washington, any details you can send me on the financVerDate Aug 31 2005 11:33 Aug 22, 2014 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\P3\PRINT-~1\86925.TXT JEAN
31 

ing—well, within reason, I don’t want 10,000 pages, because my 

staff will get killed. But I would really like to see. Again, I am not 

trying to prove anything, I am just kind of trying to figure out 

where P3s really should fit and where they shouldn’t. And we 

might not even be there yet. We may not be able to make that 

judgment. But, if you can, I really appreciate that. 

Mr. WASHINGTON. Just a quick comment, and I really appreciate 

your comments. The PABs, TIFIA, all of these things are great programs. But I would just as soon not do them, and not have to do 

them. So, to answer your question whether the Congress can make 

this all easier by doing a new transportation reauthorization bill, 

amen and hallelujah. 

So, I think the other piece of this is project management, good 

project management. I think that is a huge key. That is what I was 

getting to when I talked to schedule adherence, and all of those 

kinds of things. That is a whole other piece. When you mentioned 

the projects in Massachusetts, those projects are all over the country, I think, just bad project management leading to cost overruns 

and all those things. 

But just to go on record, great programs, PABs, you know, we 

love those things. We are doing them because we have to do them, 

as I see it. And if we had a good transportation reauthorization 

bill, and New Starts programs, and all those things, we probably 

would not have to do these things, which I would welcome. 

Mr. CAPUANO. Thank you, Mr. Washington. 

Mr. BASS. I would echo that, and perhaps offer that some of the 

concerns you have with private activity bonds, or what I am hearing you say, is true whether that is a State general obligation bond 

or a State revenue bond or a State—the State is issuing debt and 

taking future revenues in order to get a project delivered today, 

whether that is associated with a P3 or not. 

Mr. CAPUANO. Right. 

Mr. BASS. And so, those policy decisions are being made at the 

State and local level every day, in part because of the funding challenges that they are faced with. 

Mr. CAPUANO. That is true. Thank you very much, and I really 

appreciate the chairman’s indulgence. 

Mr. DUNCAN. Well, good comments. Thank you, Mr. Capuano. 

Mr. Barletta, any additional thoughts? 

Mr. BARLETTA. No. 

Mr. DUNCAN. All right. Let me just say this. I am so pleased that 

we have had participation, active participation, by almost all the 

members of this panel, the congressional panel, and then we have 

had a great panel of witnesses. And you all have been, I think, very 

helpful, and have really impressed me. 

But let me just say a few things. You know, this is my 26th year 

on this committee, and I had several chances to move to other committees, but I chose to stay here because I think the work of this 

committee is extremely important, and I am interested in all the 

things that we work on. It has been referred to over the years as 

the committee that builds America. 

And I also have liked the bipartisan manner in which this committee has operated during most of that time. During that time— 

we have 6-year limits on chairmanships on the Republican side. So 

32 

I chaired the Aviation Subcommittee for 6 years, I chaired the 

Water Resources and Environment Subcommittee for 6 years, I 

chaired the Highways and Transit Subcommittee for 6 years. So all 

very different kinds of things. But probably the most frustrating 

thing to me during all of that time is the length of time these 

projects take, when I think they could be done—and everybody tells 

me they could be done in half the time or a third of the time. And 

some other countries are doing things much faster. 

And then, also, I have noticed through the years that when we 

are forced to, we do these projects faster, like the Interstate 35 

bridge in Minnesota, or some of the earthquake work in California, 

different things. But it is—in the past, it has always been the environmental rules and regulations and red tape that have held things 

up so much. And I have mentioned it many times in here. 

I will never forget, years ago, the—in front of the Aviation Subcommittee one time the Atlanta Airport people said it took 14 years 

from conception to completion for their newest runway, which is 

now many—several years old. But it was all this environmental 

stuff. And then, when they finally got all the approvals, they did 

the runway in 33 days. Now, they did it in 24-hour days, they were 

so relieved to get all the approvals, so you could say 99 days. 

And then, I chair the Highways and Transit Subcommittee, and 

the Federal highway people come to us and they tell us two different studies, the last two studies they had, it said it took 13 

years from conception to completion, and another one said 15 years 

from conception to completion on the average highway project. And 

these weren’t transcontinental roads, these were 9- and 12-mile 

projects, and so forth. 

Mr. Bass, do you see any—hopefully, some of the things we put 

in MAP–21 have helped, but I will ask any of you if you want to 

make any comments on that. Are we—we paid lipservice for years 

to environmental streamlining. Are we finally starting to make 

some progress in that area? And how do you, Mr. Bass—how has 

Texas aligned the P3 process with all the environmental rules and 

regulations? Any comments? 

Mr. BASS. Well, first, commenting on MAP–21, we are excited 

and in the process of taking over the lead responsibility, similar to 

what California did a few years ago, on the environmental review. 

And we think that is going to save a tremendous amount of time 

through the environmental process, as much as 25 percent is what 

I am hearing. 

But you are exactly right. The—on the P3 side, it is critical as 

we go through the procurement, to make sure that the project is 

on schedule, or already has been environmentally cleared, so we 

don’t get an elongated procurement with the private sector as we 

keep waiting for the next permit, or the next environmental review. 

But we are excited by the opportunity provided in MAP–21 for the 

State to take over that primary role. 

Mr. DUNCAN. All right. Mr. Washington, you know from an earlier comment I made—and Mr. Capuano has been much more articulate about this—but I have great concern about, you know, a 

few years down the road, how these projects turn out. And what 

recourse—are you satisfied with the recourse that your agency has 

33 

if a private sector operator doesn’t meet the contractual terms of 

service 5 years from now, 10 years from now? 

Mr. WASHINGTON. Yes, sir, we are, because we have put together 

a very comprehensive concession agreement. This is a 28-year operating and maintaining agreement with penalties and incentives. 

The penalties are much harsher to the private sector than the incentives are. And so, there is great incentive, I believe, for the private sector to keep the system operating in a good state of repair. 

One quick example that I thought was very, very relevant in preparing to come here is we had a couple of bridges that were not 

up to the requirements for the program. And because the concessionaire, the private-sector concessionaire team has, I think, to 

maintain and operate those bridges for a 28-year period, they came 

to us. It was really a combination of us and them coming to me and 

saying, ‘‘Hey, listen, we need to replace these girders.’’ 

Now, I have to think that some design-build firms would have 

tried to give me the key and walk away after the construction on 

that defective bridge. Not all of them, but that could have happened. But the incentive to make sure that bridge was ready, because they have to operate and maintain it for a 28-year period, 

and the specter of penalties, I think, provided some pretty good incentive to replace those bridges with no impact on schedule or cost. 

And so, that example, when we talk about a full design, build, 

operate, maintain, and the life-cycle piece that Mr. Bass talked 

about, I think you get that if you put together a very good concession agreement, and there is great incentive to operate and maintain without being penalized. 

Mr. DUNCAN. All right, thank you very much. Mr. Fierce, I 

thought Mr. Rice, Congressman Rice, asked a real good question. 

He asked, ‘‘How do we keep these very big P3 projects from becoming just another Big Government-type project?’’ And we heard Mr. 

Kile say that, basically, in the projects of the limited studies that 

they have been able to do so far, that the costs have been roughly 

the same in the private sector and the public sector. 

Do you—you represent, or you work for a very large corporation. 

I know there are some economies of scale, but do you sometimes— 

does your company sometimes operate like a Big Government entity? And how do you keep it from doing that? 

And, secondly, in any of the projects that you have firsthand 

knowledge about, do you think the public sector could have done 

them as cheaply or more cheaply than your company has? 

Mr. FIERCE. Well, in terms of the risk of a large corporation acting like a large bureaucracy, that is very real. And, you know, we 

try to avoid that by driving down decisionmaking authority and accountability as much as we can into the smaller operating segments. Presumably, that same lesson works in Government, but 

that is probably way above my pay grade. 

But in terms of kind of the big bureaucracy in terms of project 

delivery and how does it operate in one project to the next, yes, 

there is—some are better and more streamlined and less bureaucratic than others. It really does kind of devolve to the final P of 

the PPP, which is the partnership. 

When we really hit it out of the park and have a great project 

that we are proud of, typically our public-sector partner is also very 

34 

proud of it, and it is because everybody has rolled up their sleeves 

and really acted in a collaborative manner, rather than—sometimes conventional project delivery tends to be a bit 

confrontational. And the best of the P3s tend to be very collaborative, and the partnership aspect of it really delivers value. 

Mr. DUNCAN. Well, you did—Mr. Washington talked about a $300 million savings on his project, and you talked about the $1.7 

billion in savings, if I understood you correctly, on the Tappan Zee. 

Is that correct, $1.7 billion? 

Mr. FIERCE. Yes. I was quoting from Chairman Milstein. 

Mr. DUNCAN. OK. 

Mr. FIERCE. Against their internal estimates. 

Mr. DUNCAN. All right. Mr. Kile, why—in your studies that you 

have done, why do you think other countries have gone so much 

more into public-private partnerships than we have, here in this 

country? 

Mr. KILE. We really didn’t—I don’t think I have a complete answer on that. We really didn’t look very carefully at the reasons 

that other—some other countries have used them more heavily 

than in the United States. 

Mr. DUNCAN. Did you look—so did you look at public-private 

partnerships in other countries? 

Mr. KILE. I am familiar with some, but I really haven’t looked 

at them systematically. 

Mr. DUNCAN. I think we are going to try to look into that a little 

bit. 

Last week, Mr. Capuano and I and others went to an Aspen Institute breakfast with the president of the World Bank. And he 

was—he really impressed me. I thought he was one of the smartest 

men I have ever heard. And he was a former president of Dartmouth. 

And, anyway, he said he was becoming obsessed with trying to 

figure out a way that the—to help the public sector be able to deliver benefits to the public as efficiently and at the same cost or— 

as the private sector. And he said right now we are a long ways 

from that. And he thought the main reason was—is that it is so 

hard, it is very difficult to get rid of poor, or bad, or incompetent 

employees in the public sector. I mean do you see that, or agree 

with that, or—you seem to say—or the impression I got was that 

you said the public sector was delivering efficiencies just as good 

as the private sector, or almost as good. 

Mr. KILE. So we didn’t look at that particular issue, with respect 

to employees. Basically, I think in our review of studies that have 

looked at both public and private partnerships in the traditional 

approach, as I said, they are a little cheaper and a little faster. And 

I think that that experience is probably a reflection of the communication that goes on and the coordination in different phases of 

the program. And that is the evidence for that conclusion. 

Mr. DUNCAN. All right. Well, thank you. Thank you very much. 

I have really enjoyed this hearing, and I appreciate your hard work 

that you have put into your testimony. And you have provided a 

lot of good information to the panel. 

And that will conclude this hearing. Thank you very much. 

[Whereupon, at 11:51 a.m., the panel was adjourned.] 

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Æ 


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U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

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86–925 PDF 2014

THE INTERNATIONAL EXPERIENCE WITH PUBLICPRIVATE PARTNERSHIPS 

(113–65) 

HEARING 

BEFORE THE

PANEL ON PUBLIC-PRIVATE PARTNERSHIPS 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

APRIL 8, 2014 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

Available online at: http://www.gpo.gov/fdsys/browse/ 

committee.action?chamber=house&committee=transportation 

(II) 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

BILL SHUSTER, Pennsylvania, Chairman 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee, 

Vice Chair 

JOHN L. MICA, Florida 

FRANK A. LOBIONDO, New Jersey 

GARY G. MILLER, California 

SAM GRAVES, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

CANDICE S. MILLER, Michigan 

DUNCAN HUNTER, California 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

LOU BARLETTA, Pennsylvania 

BLAKE FARENTHOLD, Texas 

LARRY BUCSHON, Indiana 

BOB GIBBS, Ohio 

PATRICK MEEHAN, Pennsylvania 

RICHARD L. HANNA, New York 

DANIEL WEBSTER, Florida 

STEVE SOUTHERLAND, II, Florida 

JEFF DENHAM, California 

REID J. RIBBLE, Wisconsin 

THOMAS MASSIE, Kentucky 

STEVE DAINES, Montana 

TOM RICE, South Carolina 

MARKWAYNE MULLIN, Oklahoma 

ROGER WILLIAMS, Texas 

MARK MEADOWS, North Carolina 

SCOTT PERRY, Pennsylvania 

RODNEY DAVIS, Illinois 

MARK SANFORD, South Carolina 

DAVID W. JOLLY, Florida 

NICK J. RAHALL, II, West Virginia 

PETER A. DEFAZIO, Oregon 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

EDDIE BERNICE JOHNSON, Texas 

ELIJAH E. CUMMINGS, Maryland 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

TIMOTHY J. WALZ, Minnesota 

STEVE COHEN, Tennessee 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

JOHN GARAMENDI, California 

ANDRE ́ CARSON, Indiana 

JANICE HAHN, California 

RICHARD M. NOLAN, Minnesota 

ANN KIRKPATRICK, Arizona 

DINA TITUS, Nevada 

SEAN PATRICK MALONEY, New York 

ELIZABETH H. ESTY, Connecticut 

LOIS FRANKEL, Florida 

CHERI BUSTOS, Illinois 

PANEL ON PUBLIC-PRIVATE PARTNERSHIPS

JOHN J. DUNCAN, JR., Tennessee, Chairman 

CANDICE S. MILLER, Michigan 

LOU BARLETTA, Pennsylvania 

TOM RICE, South Carolina 

MARK MEADOWS, North Carolina 

SCOTT PERRY, Pennsylvania 

MICHAEL E. CAPUANO, Massachusetts 

PETER A. DEFAZIO, Oregon 

ELEANOR HOLMES NORTON, District of 

Columbia 

RICK LARSEN, Washington 

SEAN PATRICK MALONEY, New York 

(III) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... iv 

TESTIMONY 

PANEL 1 

Hon. John K. Delaney, a Representative in Congress from the State of Maryland ........................................................................................................................ 2 

PANEL 2 

Larry Blain, Ph.D., chairman of the board of directors, Partnerships British 

Columbia ............................................................................................................... 5 

David Morley, vice president, business and government strategy, Infrastructure Ontario .......................................................................................................... 5 

Cherian George, managing director (Americas), global infrastructure and 

project finance, Fitch Ratings ............................................................................. 5 

Matti Siemiatycki, Ph.D., associate professor, geography and programme in 

planning, University of Toronto .......................................................................... 5 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Hon. John K. Delaney ............................................................................................. 36 

Larry Blain, Ph.D. ................................................................................................... 38 

David Morley ............................................................................................................ 42 

Cherian George; ‘‘Global PPP Lessons Learned: Special Report’’ follows prepared statement ................................................................................................... 47 

Matti Siemiatycki, Ph.D. ......................................................................................... 62 

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(1) 

THE INTERNATIONAL EXPERIENCE WITH 

PUBLIC-PRIVATE PARTNERSHIPS 

TUESDAY, APRIL 8, 2014 

HOUSE OF REPRESENTATIVES, PANEL ON PUBLIC-PRIVATE PARTNERSHIPS, COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, Washington, DC. 

The panel met, pursuant to notice, at 10:02 a.m., in Room 2167, 

Rayburn House Office Building, Hon. John J. Duncan, Jr. (Chairman of the panel) presiding. 

Mr. DUNCAN. I would like to go ahead and call this hearing to 

order here. 

First let me welcome our distinguished witnesses and thank 

them for testifying here today. Our first witness will be a Member, 

Congressman John Delaney, and we are certainly happy to have 

him with us today. And, as tradition dictates, he will testify and 

then we will start the regular panel of witnesses. 

This is the fourth event of the Panel on Public-Private Partnerships. We have investigated public-private partnership case studies. We have looked at the role they play in our highway and transit systems. And we have investigated their emerging role in the 

delivery of water systems. And we have other hearings and roundtable discussions coming up in the next couple of months. 

We have had good discussions about the benefits public-private 

partnerships can provide. But we have also had frank discussions 

about the pitfalls and the challenges these complex arrangements 

can carry. The use of public-private partnerships in this country is 

fairly recent. Other countries have had a much more extensive history of partnering with the private sector to deliver infrastructure 

projects. 

In fact, one of the leading countries is just to the north of us. 

Over the last two decades, Canada has become one of the most advanced and active markets for public-private partnerships. To date, 

there have been more than 200 projects there that are operational, 

under construction, or in procurement, and that would translate 

populationwise to, of course, something like 3,000 in this country. 

We will hear about the Canadian experience, along with testimony 

on the global trends in public-private partnerships. 

This country can learn from other countries and their experience 

in how to identify projects well-suited for a public-private partnership, and how to invest arrangements that protect the public interest. In June we are scheduled to go to the United Kingdom and 

hear some of their experiences. We have earlier met with some 

members from the Transport Committee of the British Parliament. 

2 

Again I want to thank the witnesses for being here. And I would 

now like to recognize the ranking member, Mr. Capuano, for any 

statement he wishes to make. 

Mr. CAPUANO. Thank you all for coming. I am looking forward to 

the testimony. 

[Laughter.] 

Mr. DUNCAN. Thank you very much. 

We are always honored to have the chairman of the full committee, Chairman Shuster. And I would like to call on him at this 

point. 

Mr. SHUSTER. Thank you, Mr. Chairman. I will be just a little 

bit longer than Mr. Capuano. 

But I want to welcome our witnesses here, welcome our good 

friend from Maryland. His district borders mine in western Maryland, western Pennsylvania. I know he is just a freshman, but has 

had a lot of great ideas. We appreciate your thoughtfulness and appreciate you being here today. 

And I look forward to hearing from the Canadian Government 

especially as we move forward on a surface bill but also looking forward to the future of the FAA reauthorization, looking to Canada 

and some of the great public-private partnerships they have done 

up there across the board. So once again, I thank everybody for 

being here, and yield back. 

Mr. DUNCAN. All right. Thank you very much. 

Mr. DeFazio? 

Mr. DEFAZIO. That is fine, Mr. Chairman. Thank you. 

Mr. DUNCAN. All right. Mr. Rice? 

Mr. RICE. [Shakes head side to side.] 

Mr. DUNCAN. Mr. Perry? 

Mr. PERRY. [Shakes head side to side.] 

Mr. DUNCAN. All right. Well, not anybody long-winded this morning. So Mr. Delaney, you may proceed with your testimony, and 

thank you very much for coming to be with us. 

TESTIMONY OF HON. JOHN K. DELANEY, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF MARYLAND 

Mr. DELANEY. Thank you for having me, Mr. Chairman and 

ranking member and Chairman Shuster and the rest of my colleagues. I appreciate the opportunity to come and talk to you today 

about a very important subject for the country, investing in our infrastructure and developing smart public-private partnership 

frameworks to do that. 

I have written testimony that I would like to submit for the 

record. Thank you. 

Mr. DUNCAN. Yes. Without objection, so ordered. 

Mr. DELANEY. So in my judgment, investing in our infrastructure 

should be our top domestic economic priority as a Nation. And I 

say that for three reasons. 

First, investing in our infrastructure creates jobs. And it creates 

jobs that have a decent standard of living associated with them. 

Secondly, it is incredibly important for our competitiveness, particularly in a global and technology-enabled world, where you need 

a competitive infrastructure to compete globally. 

3 

And third, it is proven to be a good investment. The data suggest that for every dollar we spend on infrastructure, we get $1.92 of 

economic benefit. So in my opinion, by any measure this should be 

our top domestic economic priority. 

And we face a very significant challenge as a Nation as it relates 

to the quality of our infrastructure. But that challenge is also a 

very significant opportunity. The American Society of Civil Engineers estimates that we have about a $4 trillion hole or gap in our 

infrastructure investment. In other words, that is the amount of 

money we would have to spend as a Nation to bring our infrastructure up to world-class standards, which I think we all want to do 

if we want to compete in the world that we live in. 

But to fill that gap—in other words, to increase investment in infrastructure—to that magnitude, you have to engage private capital against this challenge. Historically, infrastructure investment 

has been done by government—Federal Government, State government, local governments. But right now at this moment in time, 

most governments are financially challenged. Yet at the same time, 

the private sector has more cash, almost $5 trillion of cash, on its 

books than it has ever had. 

So it seems to me very smart public policy involves engaging that 

private sector capital against this need, this challenge, this opportunity we have as a Nation, this need and this challenge that has 

typically been filled by the public sector. And that is why the work 

you are doing around developing smart public-private partnership 

frameworks to meet this challenge is so important. 

And fortunately, there are bipartisan solutions to this challenge, 

one of which is something called the Partnership to Build America 

Act, which is a piece of legislation I introduced in the House about 

10 months ago. Right now the Partnership to Build America Act 

has 30 House Republicans and 30 House Democrats as cosponsors 

of the legislation. In addition, about 2 months ago it was introduced in the Senate, and are a dozen Senators, also bipartisan, 

that have cosponsored the bill in the Senate. 

So as it stands today, the Partnership to Build America Act is 

the most significant piece of bipartisan legislation in the Congress 

dealing with infrastructure. And in my opinion, by definition it is 

also the most significant piece of bipartisan economic legislation in 

the whole of the Congress. 

What the Partnership to Build America Act does is create a financing entity called the American Infrastructure Fund, which is 

designed to be a permanent financing enterprise that can provide 

loans and bond guarantees to States and local governments. And 

it is particularly focused just on States and local governments. It 

cannot be used by the Federal Government. 

It can finance all forms of infrastructure, all the food groups, if 

you will—transportation, energy, communications, water—and it 

will exist for 50 years. It is capitalized upfront with $50 billion of 

permanent capital that is put in the entity at its inception. So it 

is never subject to annual appropriations from Congress, and that 

capital will stay in the entity for 50 years. 

That capital can be levered 15 to 1. So in other words, it will create a $750 billion revolving infrastructure bank bond guarantor to 

finance States and local governments for 50 years. We think that 

4 

money can turn two to three times; in other words, it will provide 

$2 trillion of infrastructure financing and create over 3 million jobs. 

But in addition to being large scale and unique in terms of its 

financing capability, it is also unique in terms of how it is capitalized. The $50 billion is not put in by the Federal Government but 

is put in by companies. And the way they do that is they by 50- 

year, 1 percent nongovernment-guaranteed bonds. 

And as an incentive to get the companies to buy these bonds, we 

say that for every dollar of these bonds that a company buys, they 

can repatriate a certain amount of their overseas cash back to the 

United States tax-free. 

So what we are doing is we are tying into the huge amount of 

U.S. corporate cash that is sitting overseas. Almost half of U.S. corporate cash sits overseas. And we should be creating pathways for 

that money to come back as part of tax reform. But in the meantime, we are tapping into that money to capitalize this bank. 

So this strategy will create a $750 billion revolving infrastructure fund for 50 years without any taxpayer spending to capitalize 

it at the inception. And one of the reasons it has been so bipartisan 

is because it fuses together two concepts that each party has talked 

about for a long time. 

Democrats have talked about increasing our investment in infrastructure for 20 years, and we have been right about that. And my 

Republican colleagues have talked about creating paths for the 

overseas cash to come back to the United States so it can be invested in our economy, and they have been right about that. The 

Partnership to Build America fuses those ideas together to launch 

the American Infrastructure Fund. 

So thank you, Mr. Chairman, for giving me an opportunity to 

talk about the bill. I would be happy to answer any questions to 

the extent Members have those. 

Mr. DUNCAN. Well, thank you very much. By tradition and as a 

courtesy to our later witnesses, we do not ask questions of a Member since we have a chance to discuss these things with you at 

later times on the floor. And we know that you have many other 

things on your schedule. I will say that what you are talking about 

has great appeal to the members of this committee. 

Mr. Capuano, do you want to say anything? 

Mr. CAPUANO. No. 

Mr. DUNCAN. Chairman Shuster, do you want to say anything? 

Mr. SHUSTER. No, sir. I just appreciate Mr. Delaney being here. 

Again, we have sat a couple of times and spoke, and he is a true 

believer in infrastructure, as I am and members of this committee. 

And I appreciate all his hard work and effort. Thank you. 

Mr. DUNCAN. Well, thank you very much. 

Mr. DELANEY. Thank you, Mr. Chairman. 

Mr. DUNCAN. Thank you. 

All right. We will call up the first panel at this time. I understand that all the witnesses are here. So if they will go ahead and 

take their seats at the witness table. 

Our first witness will be Dr. Larry Blain, who is chairman of the 

board of directors of an organization called Partnerships British 

Columbia. The second witness will be Mr. David Morley, vice presiVerDate Aug 31 2005 11:33 Aug 22, 2014 Jkt 000000 PO 00000 Frm 00136 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\P3\PRINT-~1\86925.TXT JEAN
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dent for business and government strategy of Infrastructure Ontario. 

The third witness is Mr. Cherian George, managing director of 

the global infrastructure and project finance of Fitch Ratings; and 

finally, our last witness will be Mr. Matti Siemiatycki, associate 

professor of geography and programme in planning at the University of Toronto. 

Of all the hearings that I have chaired and participated in, I do 

not believe—in fact, I know—that I have never had one where we 

have three out of four witnesses being from Canada. This is extremely unusual, but we are pleased that all of you are here. And 

we know that with the experience that each of you have that you 

can give us a lot of good information and knowledge about the subjects with which we are dealing. So thank you very much for being 

here. And Dr. Blain, you may begin your testimony. 

TESTIMONY OF LARRY BLAIN, PH.D., CHAIRMAN OF THE 

BOARD OF DIRECTORS, PARTNERSHIPS BRITISH COLUMBIA; 

DAVID MORLEY, VICE PRESIDENT, BUSINESS AND GOVERNMENT STRATEGY, INFRASTRUCTURE ONTARIO; CHERIAN 

GEORGE, MANAGING DIRECTOR (AMERICAS), GLOBAL INFRASTRUCTURE AND PROJECT FINANCE, FITCH RATINGS; 

AND MATTI SIEMIATYCKI, PH.D., ASSOCIATE PROFESSOR, 

GEOGRAPHY AND PROGRAMME IN PLANNING, UNIVERSITY 

OF TORONTO 

Mr. BLAIN. Good morning. Thank you very much for having me. 

As Canadians, I can assure you we are not used to being invited 

to speak about our experience in Canada, so it is indeed a pleasure 

for us. I would like to comment today on our experience with the 

delivery of performance-based infrastructure, and within that, our 

particular experience in the Province of British Columbia. 

In 2002, the Premier of British Columbia announced the creation 

of an agency, Partnerships BC, and me the CEO, to deliver a partnership program and to announce its first PPP project. This decision was essentially based on philosophic inclination and the experience in other countries demonstrating that the private sector 

could bring efficiencies and innovation to a major capital project; 

would take commercial risks that could be better managed by business rather than by Government, while ownership of the asset can 

remain with the Government as owner. 

Their project was a hospital, and it was completed on time and 

on board, and led to a value-for-money proposition when compared 

to traditional procurement. The users of the hospital—the clinicians, the patients, the visitors—rave about the progressive design 

and user-friendly atmosphere. 

Since 2002, the Canadian performance-based partnership market 

has evolved to becoming one of the most advanced and attractive 

in the world. To date, as the chairman mentioned, there have been 

more than 200 projects that are operational, under construction, 

and in procurement. 

Of the 10 Canadian Provinces, 6 have agencies that are focused 

on PPP procurement, and local governments across the country are 

using performance-based procurement for major projects. The Federal Government formed PPP Canada. It is a crown corporation 

6 

that partially funds partnerships projects and also advises on the 

procurement of Federal projects. It is a new institution. 

As Governments moved into performance-based procurement, the 

private sector responded. International developers set up Canadian 

operations. Canadian developers expanded their capacity to do 

partnership business. Canadian construction companies became 

members of bidding consortia rather than contracting directly with 

Government. 

Business and legal advisors developed expertise. The Canadian 

banks developed a capital market for loans and bond issues. Canadian pension funds and life insurance companies seeking long-term 

high-quality investments added infrastructure to their asset allocations. 

Looking back over this period of development, the core benefits 

of PPP infrastructure procurement that have emerged in the minds 

of the politicians and the Government leaders would be these. 

Planning discipline and preparation: Many pitfalls are avoided 

before a shovel hits the ground because PPP requires more advance 

planning. 

Certainty: Projects are on or under budget, on or ahead of schedule, and key risks are assumed by the private partners. These benefits are driven by financially motivated contracting. 

Three, life-cycle asset management: A holistic approach to asset 

management over a 15-, 20-, 30-year period of time. 

Four, efficiencies in innovation: Competition and the profit motivate can lead to startling results where the winning proposal provides solutions that the public owner never contemplated. This 

happens over and over again. 

It is also important to emphasize what partnerships are not, at 

least in Canada. A partnership does not need to be associated with 

new source of revenue. We have PPP roads that are not toll roads, 

we have non-PPP roads that are tolled, and we have PPPs that are 

tolled but the public owner retains the risk—all variations. 

And to be absolutely clear, a performance-based infrastructure 

project is not a free project. The obligation of the owner to make 

performance payments over the life of the contract is on the Government books. 

And finally, performance-based infrastructure works best and 

generates the most benefits as new greenfield projects and should 

not be confused with the privatization of existing assets. 

I would like to wrap up with a summary of what Governments 

can do to create a successful and attractive infrastructure market. 

These conclusions are based upon the Canadian experience, and I 

do not presume that they would apply in your context here. 

First, a policy framework driven by political commitment is critical. In Canada at the Federal level and in many Provinces, including BC, the cornerstone of policy is the requirement that for 

projects over a certain amount—and in our case it is $50 million— 

a PPP approach has to be considered in the planning process. This 

provides a great deal of discipline across Government. 

An interesting capital planning policy development within the 

United States that I am aware of taking place within the West 

Coast Infrastructure Exchange, which includes Oregon, California, 

and Washington, and also BC. Within the exchange, each jurisdicVerDate Aug 31 2005 11:33 Aug 22, 2014 Jkt 000000 PO 00000 Frm 00138 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\P3\PRINT-~1\86925.TXT JEAN
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tion is examining its capital planning policy, and Oregon, for example, has recently passed a law which now requires performancebased screening for the Department of Treasury for projects over 

$50 million. So in Canada, we do not have legislation to do this, 

but it is done by policy. 

Second, the six Provinces in Canada that are undertaking partnership projects and the Federal Government have created institutions that are focused on the planning and delivery of performancebased infrastructure. These organizations vary across the country, 

but what they have in common is that they provide services across 

Government in all sectors, and they provide technical expertise and 

a memory of guidance and documentation. 

Each agency provides a single interface with the private sector 

and provides a consistent approach for that Government across all 

sectors. They talk to each other, which serves to provide a degree 

of consistency and standardization across the country—although, I 

repeat, we do differ. 

The West Coast Exchange is contemplating an exciting approach 

to achieving the same end. It is proposing a certification process 

whereby projects and procurement can be certified by the exchange 

as following best practices, and this will provide great comfort to 

bidders in the market and thereby heighten the appeal for that 

market. 

Finally, the greater the flow of partnership projects in a market, 

the greater the appeal of that market to bidders, that they can amortize the cost of entering and sustaining a presence in the market 

across a greater number of projects. Bidders typically do not limit 

themselves to a single sector, and therefore a market that has a 

multisector approach will be more appealing. 

BC has a population of approximately 4 million, and since 2002 

there have been more than 40 performance-based projects amounting to more than $17 billion in total capital cost. 

Starting essentially with projects in the healthcare and transportation sectors, the range of projects has expanded to include rapid 

transit, a sports center, an electric generating powerhouse, water 

and waste water treatment plants, waste-to-energy plants, social 

housing, correctional facilities, a university campus, a workers accommodation facility, an airport, and a high-security Government 

building, all by the same organization. This approach gives BC 

much more attention in the market than would be warranted if the 

focus remained limited to just one or two sectors. 

I hope I did not go over my 5 minutes. That completes my testimony. Thank you. 

Mr. DUNCAN. Thank you very much, Dr. Blain. 

Mr. Morley? 

Mr. MORLEY. Thank you, Mr. Chair. I am honored to appear before this committee. 

Infrastructure Ontario values the relationships that we are 

building with the United States, particularly as a member of the 

National Governors Association Panel on Public-Private Partnerships. On a personal note, working with American colleagues builds 

on my experience in the State Department’s International Visitor 

Leadership Program. My goal today is to share information with 

8 

you about Infrastructure Ontario’s approach to public-private partnerships, called alternative financing and procurement. 

To start, Ontario is home to about 131⁄2 million people, and the Government is investing a total of $12 billion per year between 

2013 and 2016 to renew public infrastructure. Infrastructure Ontario, or IO, is the Government of Ontario’s agency responsible for 

delivering large and complex infrastructure projects. 

IO was created in legislation, is accountable to the Government, 

and is led by a board of directors. While we work on behalf of the 

public interest, the majority of our board members and our employees have significant private sector experience. 

Using alternative financing and procurement, or AFP, IO has completed projects worth $6.5 billion in total construction value, 

has projects in construction worth $6.9 billion, and has projects in 

procurement worth $8.3 billion. 

These numbers translate into real investments in the largest 

public transit project in North America, a highway to the CanadaU.S. border, 35 new public healthcare facilities, nearly 100 new 

courtrooms, close to 20 police detachments, and facilities for the 

2015 Pan/Parapan American Games. These projects are changing 

citizens’ lives in their communities for the better. 

The AFP model is designed to deliver projects on time and on 

budget and in a manner that is consistent with the Government’s 

long-term infrastructure policy. To be clear, the core of this policy 

is protecting the public interest and maintaining control and ownership of public infrastructure. There are a number of ingredients 

for success in how we invest in public infrastructure with the private sector. 

First, risk transfer: Public payments during construction and 

long-term maintenance are conditional on performance. In the AFP 

model, the public sector establishes the described project outcomes 

and transfers design, construction, and life-cycle risk to the private 

sector. 

Second, value for money: Each of our AFP projects undergoes a 

rigorous third party value-for-money assessment to determine if 

the AFP model offers better value than traditional procurements. 

IO does not use alternative financing and procurement unless 

value for money is positive. Value for money has translated into 

over $3 billion in savings to Government. 

Third, standardized procurement processes and documents: Clients and bidders have come to understand our processes and rely 

on our template documents. Together, these shortened procurement 

timelines manage bidding costs, streamline schedules, and promote 

competitive tension between bidders. 

Fourth, transparency: IO makes every effort to ensure transparency and maintain accountability while balancing commercial 

confidentiality. A third party fairness monitor is part of every procurement to ensure the credibility of the process. As well, key documents like detailed project agreements and third party value-formoney reports are published online. 

Fifth, market updates: Publishing a market update at least once 

per her has increased both market capacity and competitiveness. 

This encourages market participants to partner and plan resources 

in order to bid for and deliver projects. There is over $18 billion 

9 

in our current pipeline of projects, which translates into over 

18,000 jobs. The bottom line is always about high-quality results. 

A third party study was done on our first 30 projects that 

reached substantial completion of construction; 29 of 30 projects 

were on budget, and 28 of 30 projects were delivered on time or 

within 3 months of the target date. The Government likes the certainty. 

In closing, much of what we do at Infrastructure Ontario is consistent with what is presented in the World Economic Forum’s 

2014 Blueprint for Infrastructure Investment. Other studies by the 

Conference Board of Canada or the Canadian Council for PublicPrivate Partnerships conclude that there are economic benefits 

from delivering projects using alternative financing and procurement. 

I hope that learning about Infrastructure Ontario and our ingredients for success contribute to your thinking about public-private 

partnerships in the United States. Thank you. 

Mr. DUNCAN. Well, thank you very much. 

Mr. George? 

Mr. GEORGE. Good morning, Mr. Chairman and members of the 

committee. On behalf of Fitch Ratings—— 

Mr. DUNCAN. You will have to get a little bit closer to that microphone, I think. Are we sure it is on? 

Mr. GEORGE. It was not on. 

Mr. DUNCAN. All right. Good. 

Mr. GEORGE. Good morning, Mr. Chairman and distinguished 

members of the committee. On behalf of Fitch Ratings, thank you 

for this opportunity to provide our views on the international experience with public-private partnerships. Fitch Ratings rates about 

550 transactions on almost every continent, so we have a very 

broad and objective view in this space. 

While PPPs have been a tool used by Governments to deliver 

needed public infrastructure for a long time, the track record has 

been mixed. Governments, at first in the developed world, but increasingly in the developing world, have embraced the concept, and 

while problems have occurred, they have chosen to make changes 

and continue to pursue PPPs. 

Although there have been issues, this is not necessarily an indictment on PPPs, but instead, a reflection of the fact that the complexity of the assets and services presents challenges in finding the 

right public policy balance that fits within a business, legal, and financial framework to bring best value to all parties, most importantly citizens. 

While one can view PPPs as a glass half full or a glass half 

empty, it is Fitch’s view that the former is the better perspective. 

They can provide public value, but need to be carefully crafted to 

address all stakeholder concerns. When they are viewed to have 

failed, the issue is often inappropriate transaction design and application. Responsibility for problems at PPPs can be assigned to 

both the public sector and the private sector. 

When issues of loss of control and too much profit arise, the responsibility lies squarely with the executive and legislative 

branches of the public sector that sets the rules. When issues arise 

from project cost overruns, delays in completion, or higher operVerDate Aug 31 2005 11:33 Aug 22, 2014 Jkt 000000 PO 00000 Frm 00141 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\P3\PRINT-~1\86925.TXT JEAN
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ating costs, the responsibility lies and is absorbed largely by the 

private sector. 

In my view, success demands competence on both sides. A wellstructured grantor team, public sector team, and a competent concessionaire are better positioned to respond and minimize the adverse effects to both parties. This is not always the case, and this 

unfortunately creates an asymmetrical risk. 

Grantors are exposed to Government or political risk from unanticipated and unplanned obligations, which results in concessionaire delays and costs that may be further exacerbated with the 

possibility of being only partially compensated or not compensated 

at all. 

While risks abound, PPP structures have proven to be resilient. 

One must keep in mind that most risks can be anticipated and 

mitigated. Many projects have been implemented in many jurisdictions. 

While the market continues to face new pitfalls, Governments 

and the market have learned from prior missteps. The issues that 

arise are not deal-breakers, as sensible minds often prevail with 

enough mutual benefit remaining for both parties to take the 

transaction to term. Learning from the mistakes of the past is a 

good way to begin avoiding new ones in the future. Let me briefly 

mention a few examples. 

Jarvis Concessions, a U.K. contractor, grew rapidly from a small 

contractor to Britain’s largest engineering and construction firm. 

Problems in construction ensued; however, despite the severe 

stress, the projects were completed and the impact on the public 

was largely from delays, not costs, as other contractors took over. 

407, the electronic toll road in the outskirts of Toronto, was 

awarded a tariff regime with no caps on toll rates. The 99-year concession came under considerable criticism a few years after the inception of the transaction. Toll rates have gone up considerably, 

and there is little recourse for the Province as legal challenges 

were largely fruitless. 

The city of Chicago’s concessions over the past decade for its Skyway Toll Bridge, municipal parking, and street parking were used 

to maximize upfront payments and subsidize city operational deficits with very liberal tariff regimes. These have come under considerable criticism. 

Here are some final thoughts. The challenge for Government is 

transferring risk while maintaining flexibility. However, value can 

be garnered through advance planning and meaningful public involvement. And yes, there are limits to PPPs. Some projects are too 

large or complex for private parties to absorb all the risk. 

Lastly, one must consider the likelihood that agreements may 

need to be renegotiated as time passes. The needs of the population 

and Government will evolve. So it should not come as a surprise 

that key terms may be subject to debate and renegotiation and possibly result in contract termination, with commensurate termination payments due from Governments for value received. 

Mr. Chairman, thank you for the opportunity to present my 

views. I am happy to respond to any questions. 

Mr. DUNCAN. Thank you very much, Mr. George. 

Dr. Siemiatycki? 

11 

Mr. SIEMIATYCKI. Thank you. It is an honor and a privilege. And 

I want to thank you for pronouncing my name so well. 

Mr. DUNCAN. I am not so sure. Thank you. 

[Laughter.] 

Mr. SIEMIATYCKI. You pronounced it the way I would pronounce 

it, too, so thank you very much. 

It is an honor and a privilege to be with you today to speak about 

public-private partnerships. I have been studying public-private 

partnerships in Canada and around the world for the past decade, 

and what I want to do today briefly is reflect on some of my experiences, some of the observations I have made on both the strengths 

and the weaknesses to reflect on what our colleagues have told us, 

and maybe give you some ideas of the issues that you should be 

concerned about as you proceed with developing your own publicprivate partnership approach. 

The first point to keep in mind is that public-private partnerships, at least in the Canadian model, are not a funding strategy. 

These are not for the most part bringing in new money to deliver 

infrastructure. This is a financing strategy. The private sector finances the infrastructure upfront, but most of these facilities do 

not have a user charge or a revenue stream that can directly repay 

the private money. 

The money for these projects is coming for the most part directly 

for the taxpayers and the general revenue stream. So to think that 

public-private partnerships are going to fund new infrastructure 

has not generally been the experience in Canada, and I think that 

is important to keep in mind. 

The second point is around which types of risks are being transferred. The Governments in Canada have primarily focused on construction risk, so that is the potential for costs to overrun and for 

projects to be delayed. Those are the main risks that are being 

transferred. 

Availability risk over long-term concessions has been another aspect that has been focused on. But again, we are not transferring 

demand risk or revenue risk, the likelihood that a project does not 

meet its expectations in terms of the revenues that come in for 

these facilities. So this again is another aspect of the Canadian 

model. 

I think the real strength of the Canadian model is in setting up 

institutions that have the skills to negotiate and structure deals 

alongside the private sector partners. We have very highly skilled 

organizations, Partnerships BC and Infrastructure Ontario being 

amongst them, who have in-house skills who are able to negotiate. 

And keep in mind that on the public sector side, it is imperative 

that you have these skills. The public-private partnerships in Canada have not been a way of getting Government out of delivering 

public infrastructure. 

So what public-private partnerships, as you have heard already, 

are really about is value for money. And value for money, as Dr. 

Blain mentioned, is driven by innovation, is driven by performance 

contracts, and is driven by risk transfer. 

And if we really think about it, it is risk transfer, and primarily 

construction risk and certainty that projects are not going to balloon in costs, as has been the typical experience, and are not going 

12 

to be delayed for years and years, which has also been the typical 

experience. 

Let me highlight now some of the challenges that my research 

has found to give you a sense of what some of the issues are that 

are out there in the Canadian marketplace. 

The first is around the cost of public-private partnerships. This 

is not a cheap way to deliver infrastructure. Public-private partnerships have higher construction costs, they have higher financing 

costs, they have higher transaction costs, and they have a risk premium that the private sector will build into their bids if they are 

going to take on those risks. 

So the only way you justify these is by the risks and the value 

of transferring risk from the public to the private sector. That is 

coming directly from a study that I conducted looking at the Government documents that review these types of studies, that review 

these types of projects. 

Risk is the key driver. And the question then is how much are 

you willing to pay for that certainty? It is like buying an insurance 

premium. It is like buying a policy. And you have to know that the 

premium is worth what you are going to be getting to control that 

type of risk. So that is a major issue to keep in mind. 

We can think of some of the other issues that have come up 

around community engagement. There is a high level of confidentiality and commercial sensitivity in these deals that we have to be 

aware of; and how your publics, how your constituencies, stakeholders, engage in that project planning can be challenged if all of 

the information that you would need to make a decision is not in 

the public realm when it is needed. 

Innovation. What types of innovation? Are these for the public 

benefit? How is the public capturing the value of those innovations, 

both financially and socially? 

Loss of flexibility. You have contracts that can last anywhere 

from 25 to 50, 99 years. Things change over that period. You have 

the issue of lock-ins and the potential that you will not have the 

flexibility to make changes, whether it is to user fees, whether it 

is to changing the structure of your facility, whether it is to renovating, if you have a contract that locks you in and does not give 

you the flexibility to change that over time. 

Another issue is around the firms who are engaged in this. Public-private partnerships are large, bundled contracts, and there can 

be challenges about whether local firms are really able to engage 

in this at the high level to be able to deliver those projects. We 

have heard concerns about this. We are starting to try to do studies 

to really tease out whether that is an issue to be concerned about. 

And the last one I would mention is whether public-private partnerships are the only game in town. Public-private partnerships 

have the capacity to deliver value when they are appropriately 

structured and when they are used for the right types of assets at 

the right times. 

We want to be creating institutions and organizations that have 

the flexibility to, on the one hand, choose public-private partnerships when they are appropriate, and on the other hand say traditional build and traditional approaches would be the best approach 

for this type of project. 

13 

And so you really want to avoid creating institutions that have 

the incentive, that are only structured, to deliver public-private 

partnerships. You want to create situations where all of the different types of procurement models are open and are being evaluated at the time, and each of them can be chosen equally. 

So those are my comments. Thank you, Mr. Chair. 

Mr. DUNCAN. All right. Thank you very much. All if you have 

been very helpful. 

My practice is always to go last so I can get our Members involved in it before they have to leave, and I will go first to Mr. 

Barletta. 

Mr. BARLETTA. Thank you, Mr. Chairman. 

Dr. Blain and Dr. Morley, this morning Mr. Blain had discussed 

the benefits of infrastructure banks. It is my understanding that 

the Canadians are also considering the benefits of an infrastructure 

bank. 

Can you tell me what you see as the strengths and weaknesses 

of the banks? And additionally, how do we as policymakers prevent 

infrastructure banks from being bogged down in bureaucracy, making them unable to rapidly issue loans? 

Mr. BLAIN. The system in Canada is that the Federal Government support Provincial and local government projects through 

grants. And these are available under a variety of programs. 

All of the Canadian Provinces have very high credit ratings. British Columbia is AAA. They all have access to capital. So I do not 

see the need for an infrastructure bank because the idea of a public-private partnership is that you optimize the combination of the 

public contribution upfront, grants or otherwise, and the private 

sector capital, and therefore, there is no problem accessing capital. 

If there is a market breakdown of some kind, if you have no access to capital, then I can see the need for different kinds of infrastructure banks that would fund that. But in Canada, there is no 

need for such an organization, in my opinion. 

Mr. MORLEY. Thank you very much for the question. I think 

there are a range of tools that can be used to fund and finance infrastructure. As my colleague said, the Federal Government has 

initiated public-private partnerships. Canada is doing two things. 

One, it is investing in grants to public-private partnership projects 

in cooperation with other levels of Government. Secondly, it is investing in its own Federal projects using a P3 model. 

So they are helpful partners to us. But the Provinces have really 

taken a leadership role here. In the case of Infrastructure Ontario, 

we have definitely charged ahead with a strong program around alternative financing and procurement, and the key thing is that we 

have the expertise to translate the public interest into private sector terms. It levels the playing field in terms of the negotiations, 

the procurement processes, and the contracts that are put in place. 

That is very important. 

I would like to expand. Infrastructure Ontario is not only the 

lead agency for alternative financing and procurement. We also 

have a loan program, and that is for infrastructure projects largely 

for smaller communities that have smaller projects where they may 

not have the opportunity to participate in alternative financing and 

procurement. 

14 

And so I think we have to look at the suite of tools that are available to structure the best investments in public infrastructure 

projects. And for Infrastructure Ontario, we use both alternative financing and procurement as well as loans. 

Mr. BARLETTA. Thank you. To all, and maybe we can go backwards starting with Dr. S. One of my concerns is that public-private partnerships need to be structured in a way that allows local 

subcontracts to get a chance to participate in a project. 

Do any of you have best practices regarding the role of small 

businesses in these big P3 projects? 

Mr. SIEMIATYCKI. Thanks for the question. This is certainly an 

issue that has come up in the Canadian context in onto. There has 

been a lot of concern about which firms and whether they are local 

firms, how they become engaged. 

One of the things that can be done is you can write that into the 

bidding documents, that local firms have to be used at various 

stages and at various scales of the enterprise and of the concession 

team. The challenge is that as you write those in, the concessionaire will price that. 

So they will price that into their board, and especially if there 

is additional risk, if you have smaller consortiums and smaller 

firms that may not be as skilled, that will end up being in the price 

of the project. So the issue of local contractors is really one that 

is finding that balance between getting those folks involved, making sure that the bundles are not too big, that local firms or even 

regional firms can participate in them. 

We are seeing projects now where the bundle of services in there can be upwards of $1 billion, $2 billion, $3 billion. Many of these 

projects are simply too large for the small and medium-sized firms 

to be engaged in, and even in some cases, some Canadian firms. 

And we are seeing many international firms coming in. So this is 

becoming the terrain in which debates around public-private partnerships and who is engaged in them are taking place. 

I should just add, there needs to be ongoing research on this. 

This issue has bubbled up recently, and there is still a need for research to really understand who is working on these jobs, how local 

are they, and what really is defined as local. 

Many international firms are now setting up offices in Ontario. 

So do you consider that local? There are all sorts of different dimensions. And also tracking which workers are engaged—are they 

international workers or are they local as well? So this issue of the 

workforce is one that I think now comes before and needs more research to really get a handle on. 

Mr. BARLETTA. Thank you. My time is up. Maybe I will come 

back in a second round. 

Mr. DUNCAN. All right. Thank you very much. 

Mr. Capuano? 

Mr. CAPUANO. Mr. Chairman, I think I am going to follow your 

lead and pass on to my colleagues. 

Mr. DUNCAN. All right. 

Mr. DeFazio? 

Mr. DEFAZIO. Thank you, Mr. Chairman. 

So the Federal Government provides funding, and then the Provinces—and then we have the study which shows that we are asVerDate Aug 31 2005 11:33 Aug 22, 2014 Jkt 000000 PO 00000 Frm 00146 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\P3\PRINT-~1\86925.TXT JEAN
15 

suming a huge risk premium, which means you must have some 

history of really bad contracting in Canada where the public totally 

failed, through design-build contracts, to deliver contracts on time. 

Is that the case? What problem are you solving here? 

Our problem is we do not have the money, and we do not have 

the guts to raise the money. Our problem is not necessarily contracting. It is in certain cases, like procurement of IT; we can look 

at that with the recent rollout of the ACA. Or we can look at the 

Pentagon. We can look at the FAA. We have got lots of bad contracting. 

But how are you improving on a good design-build contract, 

which has penalties if something is not delivered on time, incentives if it is delivered ahead of time, and you have got an innovative design and innovative delivery, and it would be apparently 

substantially cheaper, from the analysis we have from Dr.—and I 

did not get the pronunciation—Siemiatycki? OK. 

Mr. SIEMIATYCKI. Siemiatycki. 

Mr. DEFAZIO. She has a challenged name, too, so I think you are 

related. 

[Laughter.] 

Mr. DEFAZIO. Could someone answer that? One of you guys answer that first. What is here? 

Mr. BLAIN. I have been in this business since 2002, and I have 

been looking since 2002 to find some statement of evidence about 

the performance of traditional procurement. You will not find it; at 

least, I have not been able to find it. I do not—— 

Mr. DEFAZIO. But how is this different than a design-build, 

where a design-build—— 

Mr. BLAIN. I am just saying that you cannot point to a lot of evidence, in British Columbia or elsewhere in Canada or anywhere 

else in the world, where traditional procurement is really evaluated 

in terms of what were the cost overruns? Were they on time? Et 

cetera. So we do not have that as—— 

Mr. DEFAZIO. Well, then, how did you come up with the 49 percent? You are paying substantially more, but you do not have a 

body of evidence that the previous system did not work. 

Mr. BLAIN. We do a line-by-line analysis of the project, and we 

look at all the consequences. If this project is 2 months late, what 

would the consequences of that be? What would the cost implications of that be? 

Mr. DEFAZIO. But in a design-build, you can say the consequences of being 2 months late is $500,000 a day. 

Mr. BLAIN. Yes. Design-build has better results than traditional 

procurement, DBB procurement. 

Mr. DEFAZIO. Right. 

Mr. BLAIN. And DBFM, design-build-finance-maintain, is just another step along the spectrum. But there are benefits, exactly as 

you allude to, from doing design-building contracts in comparison 

to DBB contracting. 

Mr. DEFAZIO. Right. 

Mr. BLAIN. So it is just one is even better to lock it in on a 30- 

year basis. 

Mr. DEFAZIO. Yes, but what I am struggling with here is we had, 

you know, a PPP panel a few weeks ago where we were mostly 

16 

talking about water. You know, I said, OK, what percent of America’s, the United States of America’s infrastructure problems could 

you optimistically resolve because they are dependent upon a cash 

flow. 

We are not going to toll every bridge in America. We are not 

going to toll all of our interstate system. You are not introducing 

in most places new tolling because you are getting the money from 

the Federal Government. 

So what you are saying is you are using a more efficient construction method. So, I guess that is the bottom line here, a more 

efficient and innovative—yes, Mr. Morley. 

Mr. MORLEY. If I could add, there are a number of things that 

we feel are very beneficial with the alternative financing procurement approach. First off, there is much more rigorous budgeting at 

the front end of the project. So when we engage with a public sector client, there is an extreme amount of due diligence around the 

budgeting. 

We see a benefit in—— 

Mr. DEFAZIO. Right, but we are now back to contracting. 

Mr. MORLEY. Right. 

Mr. DEFAZIO. So would you say that if you had a good designbuild contract that you were delivering more value here to justify 

the much higher cost, up to 49 percent? 

Mr. MORLEY. So if I can take you through a little bit more—— 

Mr. DEFAZIO. No. I do not have time. You are going to have to 

distill. 

Mr. MORLEY. I think the other thing that is really important 

here, and you will see it in the third party study that we did on 

our first 30 projects, if that there is much more control over scope 

changes during projects, and we have—— 

Mr. DEFAZIO. Right. Now, we are back to crappy Government 

contracting practices. OK. We have got that. But I am just trying 

to say, you know, if we have a good design-build, and sometimes 

my Department of Transportation in Oregon does a good job with 

design-build with penalties and incentives, and things work out 

great. Sometimes they have got a huge disaster ongoing in the 

Coastal Hills where they interfered and mandated a design that 

did not work. 

So we are really back to, you know, if we put it out to the private 

sector and say, ‘‘Get this done,’’ do you want to pay that much premium or just say, ‘‘Here it is. You bid on it. Get it done.’’ 

I do not quite get it. 

Thank you, Mr. Chairman. 

Mr. BLAIN. I have got an example for you that might help. We 

just concluded a 30-year power generating project. So that was 

done at the DBFM. So the concessionaire has to hang in and look 

after that asset and has to work for 30 years. 

If we just did a DB, he walks away when it is done and there 

is no warranty. 

Mr. DEFAZIO. Right. Well, you can have a design-build-operate, 

you know, maintain, too, I mean. 

Mr. BLAIN. Well, but that is a PPP. 

Mr. DEFAZIO. Right. 

Dr. SIEMIATYCKI. Can I add one note? 

17 

Not all of them are design-build-finance-operate-maintain. In my 

sample of 28 projects, 19 of them were build-finance, design-buildfinance, and so if we are hearing that most of those or all of those 

are built on time and on budget, that is a good sign that that initial part, the part of the project that public-private partnerships at 

least in Ontario are really focusing on is the construction risk, and 

you might not need the 30-year financing period where the cost of 

finance really goes up quite substantially. 

If the aim is to get that construction on time and on budget, you 

might be able to do it through either design-build or include some 

amount of private finance, keeping in mind that that money is all 

going to be or most of it is going to be paid back through direct 

Government sources anyway. 

Mr. DEFAZIO. Mr. Chairman, if you will indulge, one more. 

Dr. Blain, where did the money come from for the dam? 

Mr. BLAIN. It was financed 60 percent by the concessionaire and 

40 percent by grants from the utility. 

Mr. DEFAZIO. OK. Thank you. 

Thank you, Mr. Chairman. 

Mr. DUNCAN. Thank you very much. 

Mr. Rice. 

Mr. RICE. To continue along the same line of questions, and I 

will give this out there to all of you, to get involved in this, a private company is going to want to make a profit. Otherwise they are 

not going to get involved in it. So what level of profit do they look 

for, number one, and, number two, is that offset by efficiencies that 

the private company brings to the table? 

Because if it is not, it has got to cost more. So that is my question. What level of profit do private companies look for, and two, 

is it offset by efficiencies? 

I will start with you, Dr. Blain. 

Mr. BLAIN. Most projects, the private capital tends to be highly 

levered. So it is, say, 90 percent debt, 10 percent equity, and the 

equity portion, returns are in the order of 11, 12 percent over the 

length of the contract, in that order of magnitude. 

And the value for money analysis that we do compares the PPP 

with a traditional procurement, and we tend to average between 5 

and 10 percent net present cost benefit of the PPP over the traditional procurement that is estimated over the life of the contract, 

say, 30 years. 

Mr. RICE. So you are saying the profit cost is 11 percent and the 

efficiency is what did you say, 5 or 6 percent? So there is an additional 5 percent cost? 

Do I have that backwards? 

Mr. BLAIN. No, I think you have got it right. The return that the 

concessionaire expects when he enters into the contract, if everything goes well, he will earn 12 percent. If he does not perform, he 

will earn less than 12 percent. 

When we then estimate the value for money of that contract from 

the owner’s point of view, the Government, we compare the PPP to 

a traditional procurement. Take the present value of the whole lifetime contract expenditures, and in British Columbia, our analysis, 

we tend to average 5 to 10 percent savings. 

18 

Mr. RICE. OK. That 5 to 10 percent savings takes into account 

the profit of the private entity. 

Mr. BLAIN. Yes, yes. 

Mr. RICE. Do you agree with that, Mr. Morley? 

Mr. MORLEY. Yes. So when we start a project, there is a set 

budget that includes all costs, and we do financial analysis on that, 

and then through the procurement process, we do the value for 

money assessment at three different stages. 

We also tailor the value for money assessment to particular sectors and then to each specific project. So the rigor on the value for 

money is important. 

The rate of return for the private sector partners is part of that 

overall budget. 

Mr. RICE. What do you find that rate of return to typically be? 

Mr. MORLEY. I think my colleague has kind of given you a range 

that is probably the market trend, but the reality is including 

that—— 

Mr. RICE. So the market trend you think is 11 or 12 percent? 

Mr. MORLEY. We have definitely seen some that are lower than 

that. 

The other aspect that I think is important here is that through 

the competitive bidding process, we are increasing from having 5 

bidders on our projects to having 10 bidders on our projects. 

Mr. RICE. OK. So just to cut to the chase because I do not have 

a lot of time, even taking into account the 10 to 12 percent or sometimes lower profit that the private company makes, it still costs 

less doing it with a public-private partnership. 

Mr. MORLEY. Correct. 

Dr. SIEMIATYCKI. Can I add something? 

Mr. MORLEY. Our evidence is that value for money is positive 

even when you consider all costs. 

Mr. RICE. Mr. George, what level of profit does a private company require in your experience? 

Mr. GEORGE. For availability-based projects, I would say it is in 

the range of 10 to 12 percent because a lot of the risk is just mainly 

construction and operations. For demand-based projects, it is much 

higher because they take traffic risk. 

I take a slight—— 

Mr. RICE. Say that again. 

Mr. GEORGE. For demand-based projects, so, you know, a road 

like the Beltway managed lane project or the Chicago Skyway, et 

cetera, the risk is greater. 

Mr. RICE. So it is contingent on demand? 

Mr. GEORGE. And there is demand risk that—— 

Mr. RICE. They are taking more risk. So what profit are they 

looking to make there? 

Mr. GEORGE. It is higher. It is probably in the high teens. 

Mr. RICE. High teens? 

Mr. GEORGE. Yeah. 

Mr. RICE. OK. And then taking that profit into account, is it still 

cheaper, all things considered, in the long run for the Government 

to do it through a public-private partnership or not? 

Mr. GEORGE. I think you can tell from this conversation it’s difficult to tell, but let me offer you a different perspective. We have 

19 

projects today that are run by Government that are not maintained. Rather than maintain them and spend less because we do 

not have the money, we actually rebuild them because we did not 

do the maintenance. 

The cost associated with that has not been factored into any of 

these conversations. The thought I would offer is that we have public sector entities, DOTs. Some do a very good job. Some do not do 

as good a job. We have public authorities, same thing. We have 

PPPs. We have some of the same issues. 

What it does is it puts them in competition with each other. You 

think about entities like Florida that are doing PPPs. They are 

doing the traditional delivery, and they are doing PPPs. They now 

have discipline that has been established in the PPP that they can 

now infuse in the DOT. 

Mr. RICE. OK. I am sorry I have to cut you off. 

Finally, you, sir, I am past my time. So can you give me a quick 

answer? 

Dr. SIEMIATYCKI. Very quickly. If you look at the value from our 

reports, and I have a quick summary of a few of them in my testimony, what you see is that the base costs are invariably higher for 

PPPs. That is, the cost of construction, the cost of operations, the 

cost of financing are invariably higher for the public-private partnership than traditional builds. 

You also see that transaction costs are typically higher for public-private partnerships, and you see that the financing costs are 

higher. 

So to say that this is a cheaper way of delivering in the structure 

is not accurate. It is after the risk. It is that you are controlling 

the likelihood or the potential of cost overruns or of costs coming 

back to Government. That is where public-private partnerships potentially see their benefit. 

And I think that is really what we are debating, not whether 

they are cheaper or more expensive. The evidence produced by the 

Government shows they are more expensive to deliver, and they 

are more expensive to build. 

Mr. RICE. Thank you, sir. 

Mr. DUNCAN. All right. Thank you very much. 

Mr. Larsen is next on the Minority side. 

Mr. LARSEN. Thank you, Mr. Chairman. 

Dr. Blain, I have got a meeting with you this afternoon. So I will 

let you off the hook for a little bit, till the end of my 5 minutes 

perhaps. 

Dr. S., the last point you made, is it encapsulated by saying that 

just objectively it may cost more, but the project gets done? Is that 

the tradeoff that you are finding in the experience looking at the 

projects you have looked at? 

Dr. SIEMIATYCKI. So you are saying it costs more, but it gets 

done. Yes, and I think there is both a planning and a Government 

rationale for that, and also a political rationale. 

I went out and did interviews with politicians. They hate when 

projects go up in budget. You have to go back to your taxpayers 

and back to your constituents and ask for more money. So there 

is a certainty. There is a benefit to certainty for Government from 

a budgeting perspective. You know how much it is going to cost, 

20 

even if it is a bit more upfront or even quite a bit more upfront. 

You know, how much that is going to cost. 

But there is also a political benefit to public-private partnerships, and that has been one of the motivations for using these as 

well. 

Mr. BLAIN. I have to add just one comment, if you do not mind. 

Mr. LARSEN. Did I not tell you that you have a meeting at 3 

o’clock with me? 

Mr. BLAIN. I know, I know. 

Mr. LARSEN. So I control the time. So I get to ask questions. 

So, Mr. Morley, are you planning in infrastructure in Ontario 

that certain projects are better for PPP and other kinds are not? 

Mr. MORLEY. So we have done the assessment of our first 30 

projects, and they range across sectors, hospitals, courthouses, detention centers. And we found that those are extremely effective. 

They take on different models. Some are design-build-finance-maintain, and some are design-build-finance. We found them to be very 

effective. 

In the rare cases where they have been late, the majority of that 

risk and the responsibility and the cost associated with that has 

been the responsibility of the private sector. So that is good news 

for the public sector. 

The other thing is that there is confidence in the case of designbuild-finance-maintain project, where the asset will be maintained 

over the life, over 30 years, and that is important because it encapsulates life-cycle costs. 

In those cases of hospitals, to address the question about local 

partnership, in fact, many of the employees maintain their employment with the hospital and have long-term employment in that 

contract. We also do a significant amount of work to engage local 

companies, and so we find that there are definitely benefits to 

using the AFP model. 

Mr. LARSEN. Yes. Mr. George, could you comment on that from 

Fitch’s rating experience? 

Mr. GEORGE. Sure. 

Mr. LARSEN. Are there certain kinds of projects that work better 

than not? 

Mr. GEORGE. Yes. I think the key is that you are able to define 

scope and that you have an objective way in which you can measure performance. 

Mr. LARSEN. Does that apply whether it is a hospital or a road? 

Mr. GEORGE. It does. What we are talking about is infrastructure, which is easier to assess, but if you are looking at providing 

qualitative services like, you know, in a prison or like security services and, you know, clothing and things like that, it becomes much 

more qualitative, and then there is more area of disputes between 

parties, and that is when it could break down. 

Mr. LARSEN. Yes, OK. Dr. Blain. 

Mr. BLAIN. I just wanted to add a comment about the cost of construction. We typically assume 5 to 10 percent savings comparing 

the construction cost between a DBB and a design-build, just from 

the integration of the design with the building and the efficiencies 

of the private sector. 

21 

So I would disagree with Matti a little bit on that one because 

our empirical evidence is that it is cheaper, and also the long-term 

maintenance tends to be cheaper than if the public sector does it. 

Mr. LARSEN. But that is comparing just DB to—— 

Mr. BLAIN. Just the construction side, yes. 

Mr. LARSEN. Just the construction side. 

Mr. BLAIN. Yes. 

Mr. LARSEN. OK. All right. In British Columbia thought, Dr. 

Blain, you ran off a list of hospitals. 

Mr. BLAIN. Yes. 

Mr. LARSEN. And then I read online that you are trying to build 

a jail in the Okanagan. 

Mr. BLAIN. Correctional facility. 

Mr. LARSEN. Correctional facility. So you are trying to build this 

jail in the Okanagan. 

[Laughter.] 

Mr. LARSEN. And there is delay and there is a delay in any financing for it. Are there some issues that you are finding in British 

Columbia, or it is easier to do a certain kind of project versus a different kind of project? 

Mr. BLAIN. There are no issues that I can think of where we 

have not attracted the financing. So I am not sure what you are 

referring to there. 

But typically, the kind of project that lends itself best to a PPP 

is a big project with lots of risk. The more risk is in it, the more 

engineering challenges, the scope for innovation, those are where 

you get the benefits and, therefore, those are the kinds of projects. 

As the projects get smaller, there is a lot of overhead in doing 

a PPP, and the benefits are more difficult to achieve. The bigger 

the project, the hairier it is, the more the scope to get the benefits. 

Mr. LARSEN. Just finally, does that not support Dr. S.’s point 

about a lot of success is being able to transfer risk? 

Mr. BLAIN. Yes. Transfer risk and innovation, yes. 

Mr. LARSEN. Thank you. 

Thank you, Mr. Chairman. 

Mr. DUNCAN. Thank you very much. 

Mr. Perry. 

Mr. PERRY. Thank you, Mr. Chairman. Thank you, gentlemen. 

I guess I will start with Dr. Blain, and I will see you a little bit 

later as well, but I am wondering anything the than the profit that 

has been talked about here a little bit that drives the cost higher 

for the P3? I think you kind of went through it a little bit, but I 

just want to codify it and repeat it if necessary, as many times for 

us to get it. 

Anything other than the profit? 

Mr. BLAIN. There is more upfront planning, to be sure, much 

more thoughtfulness goes in, much more rigor. So the budget to get 

a PPP ready to go to the market is higher than if Government does 

a traditional procurement, and I think it is money really well 

spent, but it is more expensive. 

Mr. PERRY. So then when you do the upfront planning because 

that saves money down the line on the construction, et cetera, or 

maybe just the plain long-term operation of the concession, if it is 

one, are there any other efficiencies? 

22 

Because once you do the design of the thing and the financing, 

the construction, whether it is the Government or whether it is the 

private sector, is that generally the same or are there significant 

differences that we need to know about? 

Mr. BLAIN. For each particular risk that you are transferring to 

the private sector, some of the risk the concessionaire will just 

build that into their return on equity, which is higher than the 

Government’s borrowing cost. Other risk they will actually price 

into their bid. 

They will say, ‘‘If we are going to take that risk, we are going 

to add this much to the actual bid price.’’ And so that cost of that 

insurance, if you will, it is added on above what the traditional 

budget would have in it, but it is insurance. 

Mr. PERRY. Mr. Morley, can you talk to any of those risks and 

any differences that there might be? 

And I am looking in terms of maybe, you know, in America, in 

the State that I come from, we talk a lot about project labor agreements. We talk about the Federal wage requirements and some of 

those inefficiencies. 

Are you bound by all or any of that? Is it a first dollar situation 

or if it is a P3 where 50 percent of the funding comes from the private sector or 50 percent or more, is there anything that we need 

to know that we can include in our efficiencies or concerns here in 

that regard? 

Mr. MORLEY. Thank you very much. 

There is a range of things in the budgeting process, in the definition of outcomes and output specifications for a project, in the analysis of the risk matrices for a value for money where we drive into 

the details of each of the risks. And so the types of things that are 

really important: environmental risk; change in Government policy 

risk. There is significant due diligence with third party experts, 

technical advisors and financial advisors on projects. Those are all 

very important. 

We translate those risks that are in the value for money into our 

project agreement, and so that is the binding mechanism to ensure 

that the rights of the Government and the public interest are preserved, and that there are mechanisms, whether it is in construction or through the maintenance period, when we talk about performance based that the Government can exercise those rights to 

ensure that if the risk is not being transferred or addressed adequately or if the project is being delayed, that that risk remains 

with the private sector. 

So it provides more of a certainty and guarantee and confidence 

to the public sector. 

Mr. PERRY. So from my standpoint where I disagree with the one 

gentleman down the line here, it is not that we do not have the 

guts to do what needs to be done here. We are not getting the value 

for whatever the fee increase is or the policy change is that drives 

the increases or fares or whatever would be associated. There is not 

the value there. 

If the value were there, I think the people, the citizens would be 

much more apt to support it. As policymakers, how do we mitigate? 

And do you have a specific list, set of risks that—well, you already do. You already talked about them—but policies to address 

23 

those risks that are available where you come from that are not 

available here? 

Mr. MORLEY. Absolutely. So I was happy to see the Representative from Maryland here. Through our work with the National Governors Association, we are collaborating with different States, and 

we are taking them through our methodology in terms of budgeting; output specifications for projects; specific details of our value 

for money. 

We would invite you to come to Canada, to come to Ontario to 

work with us. We would be happy to transfer some of that knowledge to you because every project goes through this disciplined 

process, and that is what gives our board of directors confidence to 

approve it, and it is what gives the Government confidence to invest in it. 

Mr. PERRY. Thank you, Mr. Chairman. I will yield. 

Mr. DUNCAN. Thank you very much. 

Mr. Maloney. 

Mr. MALONEY. Well, thank you all for being here, and thank you 

for your testimony. 

I was curious about this issue, Dr. S., that you say in your testimony about the risk premium and how that factors into the colloquy you are having about whether the value for money analysis 

makes any sense. 

I mean, so my colleague’s questions, which I share, Congressman 

Rice’s concern about at the end of the day is this better or not, 

which of course was the subject of your study. 

Can you explain the risk premium factor? Because that sort of 

tilts the scale pretty significantly, does it not, sir? 

I mean, I understand your colleagues at the other end of the 

table would assert that the value for money analysis is better in 

every case, and yet your testimony seems to suggest it is not unless 

you add the risk premium, and then, of course, the size of that risk 

premium either makes it more or less expensive. 

So can you illuminate us on that subject a little bit? 

Dr. SIEMIATYCKI. Yes, I think you nailed it. I mean, we went out 

during this study to try to understand what underpins the value 

of public-private partnerships. We added up the cost of construction. We added up the transaction cost. We added up the cost of 

financing where it was available. 

And as the documents show, in each case those are less for traditional build than for public-private partnerships. It is only after 

you consider this issue of risk, and risk, I think we need to be really clear about what risk is. Risk is costs that will come back to 

Government if something happens. So it is the cost of cost overruns. It is the cost of change orders. If you have a long-term operating period, it is the cost of the facility not being available. 

Mr. MALONEY. Sure, and I am sure you do not deny that that 

risk is a real thing. 

Dr. SIEMIATYCKI. Very real. 

Mr. MALONEY. And neither would any of us. The question is 

what is the magnitude of that risk and how do you calculate it and 

is it being done properly. And what is your conclusion there? 

Dr. SIEMIATYCKI. So in my study we asked for the risk matrices 

and for all the documents behind that so we could check. It is 

24 

called a risk register where they will look at all of the projects that 

have been done in the past to try to see what actual risks happened in the past. 

We asked for that documentation and were not given it as academics. So I write that in the paper. We could not validate whether 

the risk premium was appropriate or not. We know that traditional 

built projects have cost overruns that are quite large, but we are 

not sure if the average overrun or the average additional cost to 

Government would be 49 percent or less. 

There are some studies from the Auditor General that suggest 

that it might be less than that, but there are also experiences 

where there is more. So we could not find that evidence, and we 

wrote that in the paper. As academics—— 

Mr. MALONEY. And I saw that, but is it also fair to say that you 

also did not take into account the risk of doing nothing, right, or 

the cost associate with doing nothing? 

In other words, one of the things that we struggle with, right, 

and my colleague from Massachusetts who is not here today has 

expressed this several times, is there is a risk that things just do 

not get done, and there are costs associate with not doing them, 

and there are all sorts of ancillary and nonlinear economic activity 

that is lost because we just dither instead of doing something. 

That is not factored in, however, to that risk premium, right? 

There is no opportunity cost factored into. 

Dr. SIEMIATYCKI. No, and if you keep in mind the way that public-private partnerships are working in Canada, they are not replacing private money. This is not new money. So the project—— 

Mr. MALONEY. I want to talk about that, but yes. 

Dr. SIEMIATYCKI. If you take at their word that this is a study 

between the public-private partnership and the traditional, if their 

traditional looks better, they could have built the traditional. They 

have the skills. They could have gone out with the procurement. 

Mr. MALONEY. Right. 

Dr. SIEMIATYCKI. They have the money together. So our alternative—— 

Mr. MALONEY. That is the difference between Canada and the 

United States, yes. But it is, right? I mean we are often in the 

world of ‘‘if not this, nothing.’’ In other words, as you point out, this 

is not a substitute for traditional. This is not a solution to find new 

funding in Canada. Here it is very often, and so it is more relevant 

here, it seems to me. 

But in the remaining minute I have, I just wanted to give your 

colleagues an opportunity to talk about this risk premium issue. I 

take it you have a different view of this. 

Mr. BLAIN. Actually I do not really disagree. I just think that 

when you incorporate the risk premium, and we calculate it accurately the best we can, you end up with value for money and you 

end up with—— 

Mr. MALONEY. Who has custody of the information that Dr. S. 

has been unable to obtain? 

Mr. BLAIN. Well, he did not ask us for it, but—— 

Mr. MALONEY. So you would be happy to disclose that? 

Mr. BLAIN. No, we would not because—— 

[Laughter.] 

25 

Mr. BLAIN [continuing]. You know, when you give out the risk 

matrix to the bidders, you are revealing your personality. You are 

revealing your risk aversion. You are revealing how much you 

value every risk. 

Mr. MALONEY. Well, on a particular project, sure, but in the aggregate, and you could ‘‘anonymize’’ it across multiple projects. 

Sure, if you are in the context of a bid, I appreciate that, but in 

the context of 28 projects that are backward looking, and if everybody does it and it is anonymized, what is the harm? 

Mr. BLAIN. We have given out risk matrices that are sort of 

made nonspecific to a specific project, more like average type estimates. That is easy, but for a specific project, no, because it is commercially sensitive. 

Mr. MALONEY. Fair enough, but you would agree that we should 

have that information to get a true assessment of whether the risk 

premium makes any sense or not? 

Mr. BLAIN. I would give it to you. 

[Laughter.] 

Mr. MALONEY. Well, my time has expired. So we will leave it 

there. Thanks. 

Mr. DUNCAN. All right. Well, I am curious about this, Mr. Morley 

and Dr. Blain. Dr. Siemiatycki says that these projects, in his testimony, are 16 percent more than a comparable project would cost 

using conventional tendered contracts. This is mainly because private borrowers typically have higher financing costs than Governments. Transaction costs for lawyers, consultants, management 

costs and project monitoring also add 2.2 to 5 percent to the final 

cost, and the private concessionaire charges a premium on facility 

construction, so forth and so on. 

He says the main factor that is not really figured in is the risk 

or the advantage. Yet, Mr. Morley, you say in your testimony, the 

Ontario Government through infrastructure in Ontario is delivering over 80 projects using the AFP model valued at about $35 billion and with an estimated $3 billion in value for money savings. 

What do you say to Dr. Siemiatycki? 

Mr. MORLEY. So he is a friend from Toronto, and we have definitely had lots of good dialogue with him, and in fact, to speak to 

value for money, based on 8 years of work, we are currently doing 

a refresh of our value for money because we have learned some 

things and will continue to improve that. 

The bottom line though is when a budget is set and we compare 

a traditional project with an alternative financing and procurement 

project, we have found positive value for money. We only get approval from our board of directors to proceed with the project when 

there is positive value for money. 

To give further credibility to our risk process, there are a number 

of steps that we take. There is an identification of the risks. There 

are workshops with the client group to ensure that we understand 

what the outcomes of the project should be and what risks that will 

result in and how do we transfer those risks appropriately. 

Our models have been done by external advisors and also validated by internal auditors within the Government, and so there is 

a significant amount of discipline about that. We are always going 

through continuous improvement. We are doing what we call a 

26 

VFM refresh at this point in time, and it allows us to tailor 

projects. 

Although we have a significant history in social infrastructure 

around hospitals, we also are growing our business around civil infrastructure, transit and highways. And so we have risk matrices 

and value for money assessments for each of those areas and for 

each specific project. 

If I could give you a few facts from our study of our 30 projects, 

and this gives a comparison of budgets that were set by the Government, and we have to live within that budget and the results 

that we have seen. 

So awarded contract amounts are 20 percent lower than the approved budgets. Awarded contract amounts are 5 percent lower 

than winning bids. Awarded contract amounts are 15.5 percent 

lower than average bids. And awarded contract amounts are 26 

percent lower than highest bids. 

And so the competitive tension that we are seeing after we do 

our due diligence within a set budget means that we are getting 

better value for money, and it is saving taxpayers money. 

Mr. DUNCAN. All right. Dr. Blain, what do you say about what 

Dr. Siemiatycki said? 

Mr. BLAIN. Well, I think I would say almost the same thing. The 

one thing I could add is that you have in Canada five Provinces 

that calculate value for money on all of their projects, and their 

methodologies in the different Provinces are a little bit different. 

We are not all the same, but we all end up with similar conclusions. We are all still doing PPPs and we all still are generating 

value for money. 

But there is no right answer to it, but they are all in the same 

ballpark. 

Mr. DUNCAN. I know that Canada has a national debt of only 

about a third of what we have per capita. How are most of these 

infrastructure projects financed? Is it more Federal? Is it State, 

local? What kind of combination? How does it compare to what we 

do here in the U.S.? 

Mr. BLAIN. Most capital projects are done at the Provincial level 

or local government level. The Province of British Columbia, if we 

do a project, it would typically be maybe half financed with private 

capital and half would be a grant from either the Province or the 

Federal Government or from local government. 

Mr. DUNCAN. Well, that is my question. Is your Federal Government, your national Government spending on infrastructure, is it 

comparable to the U.S.? 

Mr. BLAIN. Oh, I am not sure about that. 

Mr. DUNCAN. You do not know? 

Mr. BLAIN. No. Do you? 

Mr. MORLEY. I would say that, first off, the Provinces have been 

taking a lead in Canada on investing in infrastructure. I think that 

is a firm fact. I think relative to the U.S. we could do that assessment and provide that to you. 

Mr. DUNCAN. All right. 

Mr. MORLEY. If I could offer one additional question or comment. 

Mr. DUNCAN. Sure. 

27 

Mr. MORLEY. The benefit of AFP, while we focus largely on investments that the Provincial government is making in hospitals 

and courthouses and roads and transit systems, we are now seeing 

growing appetite from local governments, from municipalities, and 

so they have their own governance structure through municipal 

councils. They have to decide their policies. They have to decide 

how they are going to invest their dollars, and increasingly the 

large municipalities are coming to Infrastructure Ontario asking 

for our input, asking for our advice, and asking us to be their procurement advisor on large transit projects. 

And so I would say that is a further validation that this is a 

growing trend and a positive way of delivering large projects that 

have a significant amount of risk. 

Mr. DUNCAN. Dr. Siemiatycki, Dr. Blain says that when a private 

partner gets involved that there is much more analysis and study 

and expert financing and so forth paid to the project, and that 

leads to savings in the end. 

What do you say about that when the Government does it under 

traditional Government methods? 

Dr. SIEMIATYCKI. I think the key benefit that the public-private 

partnership model has brought forward is due diligence upfront, 

and the question that I would ask is: why are we not applying that 

to all of our projects? Why are we having agencies whose role is 

only to do that on PPP projects? 

In Canada, the vast majority of projects, even though the highprofile ones may be public-private partnerships, the vast majority 

are being done a traditional build projects. I think we could be applying many of the same learnings from these folks and from their 

agencies and organizations to traditional build projects. 

The question about risk is really at the core of this, and I think 

a question in that realm is: could we manage risks rather than 

transfer them if we have these skilled folks on the Government 

side of the table? 

If we have the experts who have private sector experience inhouse with Government, could we be applying models that managed those risks and used their expertise, used their due diligence 

so that we do not pay the very high cost of risk transfer that we 

are paying at the moment? 

Mr. DUNCAN. I need to go to Mr. Capuano, but just one more 

thing. Mr. George, you say in your testimony that the World Bank 

has identified almost 5,000 PPP projects since 1984, and there 

have been 700 in the United Kingdom since the mid-1990s. 

And you say here that Governments like Australia, Canada, 

Chile, Spain, France, Belgium, the Netherlands, Mexico and the 

United Kingdom have all embraced the concept. 

Are any developed nations moving in the opposite direction? You 

have stated these are all over the world. Is there any country that 

has gone into public-private partnerships and decided that they 

were not good deals and they are going in the opposite direction? 

Mr. GEORGE. I cannot think of one where somebody is moving 

completely in the opposite direction. These have been challenged 

even in Canada. In Ontario they were challenged, but they basically reformed the system and came up with a proposal that kept 

28 

PPP, as a core portion of PPPs in place, but they made changes to 

make the public happier with the process. 

The same thing is happening right now in the U.K. with the PFI 

initiative. It has happened where they have challenged that because they are having problems with some financings. 

I think the key here if you think project by project, you can be 

right on the value for money or wrong on the value for money or 

the risk premium. If you think programmatically, this adds a level 

of tension to the point that the professor made, that it actually 

makes sure that Government goes back. 

The same agencies that are doing PPPs are doing traditional procurement. Why are they doing them differently? If you can change 

that, I think you can make Government better, but I think keeping 

PPPs to keep that tension or that creative tension is probably a 

good idea. 

Mr. DUNCAN. Well, most countries have gone in the direction of 

PPPs because they just felt like they could not come up with 

enough money to do things the traditional way, yet Dr. Siemiatycki 

says that it provides no new money. 

Do you agree with that? 

Mr. GEORGE. I completely agree. It allows you to use your existing resources more efficiently. 

Mr. DUNCAN. OK. All right. Thank you. 

Mr. Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman. I want to thank the 

panel. 

I particularly want to thank my three Canadian friends. Boston 

has a long tradition of friendship with Canada, mostly the 

Maritimes, but I particularly want to thank the gentleman from 

Ontario for Bobby Orr. It was probably the greatest natural resource you ever sent us. 

[Laughter.] 

Mr. CAPUANO. And we will be forever grateful. 

I will tell you that I continue with my frustration in one aspect 

of this whole discussion that has been growing, and that is what 

is the definition of a P3. Honestly when I agreed to do this panel, 

I did not think of it as design-build. I think of design-build. I know 

it is now, but that is not what I thought P3s were. That is a separate category. 

So to a certain extent I want to take design-build off the table 

for the discussion because I look at it as different, and by the way, 

I always like to remind people how we get to so-called traditional 

financing. I do not know the history in Canada, but I do know in 

the United States, we got there over generations of corruption. 

Generations of corruption with politicians and builders and designers ended up in jail because they colluded to steal taxpayer dollars, 

and we ended up with a system that was convoluted for the pure 

intention of making it more difficult. And now we are trying to tone 

that back a little bit, and I think that is a fair thing. 

Absent the design-build, which I do agree that if it works well, 

on time and on budget is better with design-build. I think everybody accepts that as a fact. 

I will tell you that the other thing I am growing more and more 

frustrated with is the complete lack of transparency on numbers. 

29 

Every panel that has been here I have asked for statistics to show 

me because to me it is twofold. I actually do think we are here because we do not have the courage to provide the funding we need 

to provide. 

But at the same time, even if we had all of the money in the 

world to do it, I still want it used in the most efficient manner. So 

this does not mean that P3s should be off the table. It means, OK, 

funding is a reason. 

And to be honest, let us be serious. That is why we are here, because we do not have the courage to do the funding mechanism, 

but nonetheless, we still should have this discussion. 

So on the efficiency stuff, it is hard to do efficiency without numbers. Mr. Siemiatycki, you are the first one that I have seen with 

actual numbers on it, and I have been told it is because Toronto 

or Ontario actually provides these numbers in a public way, yet nobody else does. 

Is my understanding correct? 

Dr. SIEMIATYCKI. Generally, yes. Partnerships BC provides some 

of these numbers. I work at the University of Toronto. So I am closer to the Ontario case, but Partnerships BC has some of these 

numbers. 

Keep in mind these are only the summary numbers, and I could 

not get the numbers behind those to really get at—— 

Mr. CAPUANO. I will tell you that as a Member of the United 

States Congress I am having the exact same problem, getting numbers, and I am a numbers guy. I mean, all of the philosophy in the 

world, it is great on the campaign trail, but when it comes to this 

kind of stuff, nobody is going to elect me or un-elect me because 

I embrace P3s. They are going to elect me or un-elect me if I want 

to use their money efficiently. 

And I cannot make that judgment without fair numbers, and I 

will tell you that the risk premium of 49 percent that you came up 

with, that is a number that you worked backwards to find. Am I 

correct on that? 

Mr. George, in your world, if someone were to say, ‘‘Forget everything else. What do you think the risk premium is on a non-designbuild P3?’’ would you put a 49 percent number if you just came up 

with it or would you put a lower number, a higher number? 

Mr. GEORGE. I would not know how to come up with a number. 

Mr. CAPUANO. So it is flexible. It is unknowable, and that is the 

thing that gets me. Depending on how you measure these things, 

and I guess, Mr. George, for you, when you came up with your 

numbers, some of the things I have found them not to include is 

the numbers I have seen do not include the cost of diverted traffic 

when you do a highway. How much does it cost when you move 

traffic from this road to that road and you do not maintain the new 

road that they are doing or you lose tolls? 

Did the cost of diverted traffic come up in your analysis? 

Mr. GEORGE. We do credit ratings. So we are not looking at those 

things. 

Mr. CAPUANO. I understand. 

Mr. GEORGE. But I would agree with you that we are not looking 

at the entire cost to the system. 

30 

Mr. CAPUANO. Fair enough. And, again, I do not know the Canadian tax system. In the United States, we do a real P3 and we 

move it off. There are massive tax benefits to the investors. They 

get to write it off, and it comes directly out of the Federal Treasury, not the State treasury. 

I do not know how Canada works. Does it work the same way 

in that, number one, investors get to write off, and if so, does that 

money come out of the Province treasury or does it come out of the 

Federal, the National Treasury? 

Mr. BLAIN. Most places that are doing PPPs, they will make an 

adjustment for tax transfers. It is called competitive neutrality, and 

we do make an adjustment for it. It is hard to estimate exactly because the money goes from investor to the Federal Government to 

the Provinces, and goes around in a circle, and you have to kind 

of calculate it. But we do. 

Mr. CAPUANO. But the money comes out of the National Treasury. The tax credit is applied to a national tax as opposed to a 

Province tax? 

Mr. BLAIN. We take into account all of the taxes. The Provincial 

tax, of course, stays in the Province. 

Mr. CAPUANO. I understand that. Again, I am trying to analogize 

with the United States. You get a credit everywhere, but the bulk 

of the money comes out of the net because our Federal taxes are 

higher than our State taxes or local taxes. 

Mr. BLAIN. Fair enough. 

Mr. CAPUANO. Is that the same case in Canada? I am asking because I do not know. 

Mr. BLAIN. They are about the same, yes. 

Mr. MORLEY. So I think a helpful study to look at may be the 

recent Canadian Council for a public-private partnerships analysis 

which looked at the economic benefits, and it actually calculated 

some of the Provincial or State and Federal tax revenues as a result of public-private partnerships. It also quantified income that 

is generated from these projects, and so—— 

Mr. CAPUANO. See, part of the problem I have is that when they 

do it, I do not mind doing it. It is fine. Tax credits are fair, but 

it is an unaccounted item directly out of the Federal Treasury that 

basically takes money out of the Federal Government, namely, the 

Highway Trust Fund or whoever else it comes from, and puts it 

into the hands of private companies that goes to a certain State 

that might find these things as opposed to allowing us, the U.S. 

Congress, making a national policy as to what we think is appropriate to do. 

I do not mind. I am a former mayor, and to be perfectly honest, 

if I can find a way to put my hand in the pocket of the Federal 

Government, I would have done it. So I do not blame anybody for 

doing it, but now I am on the Federal side, and I do not like people 

reaching in our pocket unless we know it and approve it, and I 

think that is what is happening at the moment. 

Mr. MORLEY. I think, if I could add—— 

Mr. CAPUANO. Of course. 

Mr. MORLEY [continuing]. I think your initial question is how do 

you define a public-private partnership. It is connected to the govVerDate Aug 31 2005 11:33 Aug 22, 2014 Jkt 000000 PO 00000 Frm 00162 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\P3\PRINT-~1\86925.TXT JEAN
31 

ernance and whether or not it is on book versus off book, and accordingly the tax treatment. 

And this is an area where I think there are probably a number 

of fairly material differences between Canada and the U.S. 

Mr. CAPUANO. Right, and obviously, I have been spending more 

and more of my time trying to figure out where these P3s work 

best and where they do not. I actually kind of accept the fact that 

they might work best on complex, unique situations like a water 

situation as opposed to a road, which does not take a whole lot of 

maintenance after the fact. It takes some maintenance. I get that. 

It is not the same kind of maintenance as a machine, a big, huge 

machine generating water, power or whatever it might be. 

So I kind of accept that, but I have got to tell you I am getting 

more and more skeptical because of the lack of information, and I 

understand exactly what you said, Mr. Blain, about the need to 

keep these numbers private. I get that, but it makes my job almost 

impossible when everybody is saying that, to actually make a legitimate judgment. 

It forces me back into my philosophical corner, which I am trying 

to get out of, and I would like everyone to get out of because let 

us be serious. I mean, we can pound our chest all day, like I said. 

I am not going to get elected or un-elected on the basis of this 

issue. I am just trying to find out what is right and, if so, what 

is right in what category, and without numbers I cannot do it. I 

mean, I cannot do it honestly. I am back in my philosophy corner, 

and really we do that enough around here, and I am trying to find 

a way to not do that. 

Mr. BLAIN. If I could just make one point on that. What we did, 

and I do not know if you have the ability to do it here, is that the 

auditor to the Province of British Columbia, which is a Government 

auditor, audited our analysis. So our politicians got some comfort 

from the fact that the analysis was audited by—— 

Mr. CAPUANO. Well, I appreciate that, but that still does not tell 

me what the auditors have taken into account. And, again, it does 

not necessarily work there, but it has worked clearly in Chicago 

and Illinois and Indiana. How many cars were taken off the Indiana toll road and put onto separate roads? 

No one will tell me. I am not even sure they have asked, and 

what was the cost of maintaining those roads? And how much are 

they paying in tolls before; how much are they paying in tolls now? 

No one will tell us. 

And to be perfectly honest, when people play hide-the-pea on me, 

I kind of walk away and think, ‘‘OK. Hide the pea all you want. 

I am not playing.’’ 

I know what works, and I am willing to take these risks, particularly in design-build, and I am willing to do this, but if people are 

not going to share detailed information with me to make my own 

analysis, including audits, but I want to see the Government’s 

audit; I want to see Fitch’s audit; I want to see independent auditors; I want to see neutral auditors, and balance them all together. 

That is how you make policy. 

And I am not capable of doing that with the whole P3 concept 

now because everybody is sitting here with numbers. I understand 

32 

why, but obviously I am getting a little frustrated and way over my 

time. 

I apologize to the chairman and appreciate his indulgence. 

Mr. DUNCAN. All right. Mr. Barletta. 

Mr. BARLETTA. Thank you. 

Dr. Blain, you mentioned that in Canada, the project is accounted for on the Government’s books. One of the problems that 

we face, particularly in regards to using P3s for social infrastructure is the upfront scoring issues here. How does Canada account 

for performance-based infrastructure projects? 

Mr. BLAIN. It basically would be the present value of the payments over 30 years. So if we assume that the owner, the Government, is going to make full payments, like there is a performing 

contract and we are going to make full payments over 30 years, the 

present value of that becomes the liability of the Province. 

Mr. BARLETTA. Mr. Morley? 

Mr. MORLEY. So there are a number of things that we do, as I 

mentioned in my testimony. Three is a long-term infrastructure 

policy that is in place. That translates to the Provincial fiscal 

framework, and currently there is a piece of legislation before our 

legislature which would reinforce the idea of 10-year long-term infrastructure planning with automatic renewals every 5 years, and 

that is a way to ensure that we are planning the policy, assessing 

the evidence and planning the fiscal impacts accordingly. 

Mr. BARLETTA. If I could go back to finish my very first question, 

how do you structure these projects to see that the local subs can 

have an opportunity to participate in the bigger deals? 

Mr. BLAIN. We do not go that far because our experience has 

been that the local contractors all get involved anyway. There is so 

much subcontracting literally hundreds of subcontracts from a very 

large concession agreement that there is lots of business that is 

given out locally. 

The one thing that we do require is that when the major concessionaires are responding to the Request for Qualifications that they 

have to show us that they understand the local market, that they 

understand British Columbia and what is here, and so we do evaluate them on that. 

And then the next step is once we start a process, we have major 

business sessions where everybody comes and meets each other 

and they talk to each other and they, you know, speed dating and 

everything. 

Mr. BARLETTA. Mr. Morley? 

Mr. MORLEY. I can add to that. There are a number of things 

that we are doing to try to encourage partnerships. First and foremost, we feel that we are a partnership organization, and so the 

first thing is on some projects the partnerships happen naturally 

where if they are in different parts of the Province, a project lead 

will automatically engage more local contractors. 

At the same time we have had some larger projects that are concentrated in urban centers, particularly urban transit projects, 

where through our RFQ and RFP processes, we have given the opportunity or created an incentive for the bidders to actually engage 

with local providers who will have local knowledge, local experience, and that we feel translates into better projects. 

33 

Another aspect is that there are obviously important skill trades 

that are involved in all of these projects. Building that capacity is 

critical, and so involving apprentices in projects is increasingly important to us so that we have the labor force. 

And lastly, there are often job fairs that will translate into local 

jobs for local companies. 

Mr. BARLETTA. Dr. Siemiatycki? 

Dr. SIEMIATYCKI. The local industry—I will speak only for Ontario—the local industry has been concerned about the place of 

public-private partnerships and what it is doing to local firms and 

local jobs. Over the summer they started making noises in the 

media about bundling and projects becoming too large for many of 

these firms to become involved in. 

We heard it also from the Architects Association in Ontario. All 

of these concerns about the scale of the projects getting bigger. So 

no one is saying do not build infrastructure. These are industries 

that make a living off infrastructure, but they are saying they are 

feeling concerns about whether they are able to access these types 

of concessions. 

So it does not mean these issues are not resolvable, but again, 

the data is not there to really evaluate and step back and say, ‘‘Is 

this actually happening? To what extent are you being excluded? 

How much of change is there between traditional and PPP?’’ 

We are not able to get that data to really create those assessments. That is the type of work that I have been trying to carry 

out as an academic, to provide evidence that can then be used to 

set policy and come up with solutions if there really is a problem. 

Mr. BARLETTA. Mr. George? 

Mr. GEORGE. I think the issue you have is that there is a need, 

with these large projects, there is a need for a large credit worthy 

counterparty to wrap the risk. That, by definition, rules out some 

of these smaller subcontractors. 

Now, they can play at the level underneath the contractor. So 

that is an issue, but what I think you can look at is smaller 

projects where they can, in fact, play. But those are not best suited 

for PPPs. The question is if one can create a Center for Excellence 

which actually can help these smaller projects be developed with 

some of the same discipline of a PPP, but be done without necessarily the private sector involvement, you know, the way it is 

done on a PPP so that you can get the best of both worlds. 

Mr. BARLETTA. Thank you. 

Thank you, Mr. Chairman. 

Mr. DUNCAN. Thank you. 

Mr. DeFazio. 

Mr. DEFAZIO. Thank you, Mr. Chairman. 

Mr. Chairman, I would just like to put in the record because I 

was raising the issue of revenues and there are some who think 

somehow this is a free lunch program, and I will get to that in a 

moment, but the Federal gas tax in Canada is 40 cents a gallon, 

imperial gallon. So what is that, 37 cents here? 

The total tax in Vancouver, BC, is $1.55 a gallon; Victoria, $1.33 

a gallon. So you know, that is part of the issue here. They are making an effort to maintain and build their transportation infrastrucVerDate Aug 31 2005 11:33 Aug 22, 2014 Jkt 000000 PO 00000 Frm 00165 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\P3\PRINT-~1\86925.TXT JEAN
34 

ture. Their taxes are phenomenally higher than ours in the U.S. 

are. Ours have not been adjusted since 1993 at 18.4 cents. 

So, Dr. Blain, you mentioned that these are best used for green 

fields, and then you talked about a half public, half private example. Does that apply to surface transportation without a toll? 

And if so, how does that private half get repaid? 

Mr. BLAIN. It could be applied to an availability type of transportation project, yes. 

Mr. DEFAZIO. So the Government would pay the private person 

back on an annual basis. So essentially you are booting it out into 

the future with some sort of a revenue stream. You are paying back 

their half plus 11 percent. 

Mr. BLAIN. And the Government would put in their half just as 

an upfront grant or perhaps it could go in at the end of construction. It can go in at some point. 

Mr. DEFAZIO. Right, but again, these are green fields. We are not 

talking about maintenance-repair kind of things here. 

Mr. BLAIN. The Green Field Project includes a construction, the 

design—— 

Mr. DEFAZIO. No, I am talking about we have a totally deteriorated 20th-century infrastructure in this country. 

Mr. BLAIN. Right. 

Mr. DEFAZIO. We have, you know, over a trillion dollars of deferred maintenance. That is not really what we are talking about 

here. 

Mr. BLAIN. Not what we have done, no. 

Mr. DEFAZIO. No. OK. And then, here is an example for Ontario. 

We just built a new courthouse in Eugene, Oregon. It came in on 

budget, $89 million, a little bit extravagant, in my opinion, but 

anyway, hey. You built a courthouse for $351 million that could have been 

built for $255 million. What is the risk in building a courthouse if 

you have a good contractor and you have a good design and you 

come in on budget? 

You paid 37 percent more. That would have meant here in America if we adopted this model and we imputed some risk that did 

not exist because we had a contract that came in on time, on budget; we would have paid another 40 million bucks for it. 

Mr. MORLEY. So I think we could definitely talk about specific examples. I think in general—— 

Mr. DEFAZIO. No, but let us talk about the courthouse. What is 

the huge risk that we are shifting that needed to be shifted to pay 

a huge premium? 

Mr. MORLEY. So I would probably not agree with it that you have 

a huge premium. I think a number of things that we have done 

around our courthouse projects have been quite positive. We actually—— 

Mr. DEFAZIO. Oh, ours is winning international awards. It is 

very positive. The point is we had a design. In this case it was not 

design-build. We bid it out competitively to the private sector. We 

got a good price. They came in and they met the contract. So we 

did not add in some huge risk premium. Why would we want to 

add in a risk premium for something as simple as building a courthouse? 

35 

Mr. MORLEY. Well, I would say congratulations. That is an excellent project. 

What we have found is that there has been concerns in doing 

these projects, particularly because we have also been consolidating 

courthouses from different regional areas to create more efficiencies, to save on life-cycle costs over the lifetime of the—— 

Mr. DEFAZIO. Right. Well, thank you. 

But the bottom line is, and I just go back to Dr. Siemiatycki. I 

mean, what do you think about the courthouse example? I am just 

trying to understand why I would want to do that, why I would 

want to impute risk and pay more to someone to do it that way. 

Dr. SIEMIATYCKI. I think that is an ideal example of if you can 

manage risk, it is a lot cheaper than transferring it, and it does 

not mean that every example and every experience will be as good 

as yours, and we know that projects do often go over budget. 

Mr. DEFAZIO. Right. 

Dr. SIEMIATYCKI. But if you have the skills to manage them and 

you use the best contracting approaches, you will be getting cheaper infrastructure. Public-private partnerships are not a cheap way 

to deliver infrastructure, and so what I have been advocating is 

come up with better ways to manage those risks. Use ways that do 

not require expensive private financing, expensive transaction 

costs, expensive risk premiums built into those agreements. 

And if you look at my paper, the Auditor General of Ontario for 

an earlier hospital program commented that they thought 13 percent risk premium was too high. They said that the Peterborough 

Regional Health Centre, a hospital built under traditional procurement approach during the same period, was built for about 5 percent of the total contract value. 

So it is the same issue that you are raising, that if we can get 

that for lower cost and we can actually deliver what we say, there 

is savings to be had there. Public-private partnerships are not 

cheap. They give you certainty, but you pay for it. 

Mr. DEFAZIO. Thank you. 

Thank you, Mr. Chairman. 

Mr. BARLETTA [presiding]. Thank you. Any more questions? 

First I would like to thank all of the panel today. It was very interesting, and we appreciate your time and your insight. 

With that the meeting is adjourned. 

[Whereupon, at 11:43 a.m., the panel was adjourned.] 

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