Public-Private Partnerships

A Public-Private Partnership (abbreviated PPP or P3) is an arrangement between a state government and private-sector investors where a private firm pays the up-front cost of building a highway. In exchange, the government awards the company the right to operate and maintain the highway, including collecting and retaining all toll revenues for a predetermined period of time. At the end of the contract term, two potential outcomes may occur:

Build-Operate-Transfer: This is the most common scenario. The toll road is built and operated by a private company for a specified period of time. When the term of operation expires, operation of the highway is transferred to the government. In turn, the government may assume operating responsibility for the highway, offer a new operating contract to the concessionaire, or solicit the highway's operations to a new concessionaire.

Build-Operate-Renew: The toll road is built and operated by the concessionaire. At the expiration of each lease period, the operating contract automatically renews, unless both the government and the concessionaire agree not to renew the operating agreement.

Advantages
Public-private partnerships are advantageous for two reasons. First, construction of the highway can be advanced by years (even decades) as private investors provide up-front money needed to build the road. As such, the facility does not have to compete against other highway projects and non-highway expenditures for state and federal funding, and its construction and operation is independent of state and federal budgetary processes. Second, the private firm assumes the financial risk of building the highway and potential losses on investment due to lower than projected toll revenues or increased construction and maintenance costs.

Disadvantages
One of the main disadvantages to P3 arrangements is the concessionaire is generally unrestricted in the setting of toll rates. Therefore, the concessionaire may drastically increase toll rates without formal announcement or public input. It is also important to remember that the goal of the concessionaire is to build and operate the highway in a profitable manner. Therefore, to cut costs and maximize profits, concessionairs may use lower-quality materials in construction and defer maintenance where possible.