KVIG Informative

Many of the roads, rail lines, and venues people use every day are built under contracts that split the work between a government agency and a private company. How that split is written decides who carries the risk and who collects the money.

The Federal Highway Administration defines a public-private partnership, usually shortened to P3, as a long-term contract between a public agency and a private entity in which the private side takes on added project risk. In its fullest form, the private partner designs, builds, finances, operates, and maintains the facility, a model the agency abbreviates as DBFOM.

Traditional procurement works differently. A public agency pays for a public design with public financing, private contractors build it, and the finished facility returns to the agency to run and maintain. A P3 moves some or all of the design, financing, operation, and maintenance to the private partner, and FHWA says each deal spells out exactly which risks the private side assumes and which stay with the public.

Three Ways the Private Partner Gets Paid FHWA identifies three common payment mechanisms. In a toll concession, the private partner collects tolls from drivers in exchange for taking on the project. In a shadow toll arrangement, the public agency pays the partner a fee for each vehicle that uses the road, so drivers pay nothing at the point of use. In an availability payment arrangement, the agency makes regular payments based on whether the facility is open and performing at an agreed standard, with deductions when it falls short. The choice matters because it assigns demand risk. Toll revenue rises and falls with traffic. Availability payments do not.

In FHWA’s framing, a concession is essentially a long-term lease of a public facility to a private operator. Every concession has three basic elements set by the public agency, sometimes in negotiation with the private partner: a goal, a compensation structure, and a term. Terms can stretch across decades, which is why the contract details carry more weight than the word “partnership” does.

Why Governments Choose Them FHWA’s training materials list several reasons agencies turn to P3s: conserving public borrowing capacity, drawing in private capital, transferring risk, and encouraging private-sector innovation. The same materials are direct about the cost of entry. Running a P3 program takes legal, financial, technical, and managerial skills that many transportation agencies have to build or buy, and FHWA calls protecting the public interest while doing so a major challenge. Federal policy also now allows state transportation departments to apply federal-aid highway funds toward availability payments to P3 partners, which ties public money directly to the private partner’s revenue.

What Nevada Law Allows Nevada Revised Statutes 338.1587 lets a public body enter a P3 to plan, finance, design, construct, improve, maintain, operate, or acquire the rights-of-way for a transportation facility. The statute lists the permitted forms: predevelopment agreements, design-build contracts with or without financing, maintenance, or operation, construction-manager-at-risk contracts, operation and maintenance agreements, and concessions, including toll concessions and availability payment concessions. A separate 2017 bill, Senate Bill 448, set out when and how a public body may procure a P3 in counties with 700,000 or more residents, which at the time meant only Clark County.

The same structure shows up well beyond highways, in stadiums, rail lines, and parking systems. The questions to ask of any of them are the ones FHWA’s definitions point to: who designs and builds, who finances, who operates, who gets paid and how, and for how long. The rest of this series follows those questions through the valuation math, the investors, and two Las Vegas examples.