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June 22, 2009

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APTA RAIL CONFERENCE COVERAGE

Public-Private Partnerships: Challenges and Rewards
BY SUSAN R. PAISNER, Senior Managing Editor

What are the challenges? Who will take on the risks? These questions and more were covered in the Monday afternoon session, “Public-Private Partnerships,” moderated by Michael I. Schneider, InfraConsult.

Philip A. Pagano, executive director, Metra, compared the PPP project of Metra with Union Pacific Railroad (UP) to a heart patient undergoing surgery to clear his arteries, “because that’s what we are doing—unclogging a major artery so freight and passenger trains can operate much more effectively and efficiently.”

For the area’s commuters, the joint project will provide several major benefits, including improving commuter trains’ on-time performance by 10-15 percent; easing pressure on the crowded Burlington Northern Santa Fe line by attracting riders to the improved UP West line; and increasing such safety features at stations as better pedestrian gates, more inter-track fencing, and a new “another train” warning system.

Dennis Duffy, executive vice president/operations, Union Pacific Railroad, who explained the numerous challenges Metra and UP had faced, said that overcoming the challenges was well worth the effort: “This project is a great benefit to both [our organizations].”

Robert Tuccillo, associate administrator for budget and policy, FTA, discussed public transit’s state of good repair by detailing the “FTA P3 [Public Private Partnership] Report to Congress,” calling it “a reference tool.” It presented an array of information, including the different types of PPPs, benefits, risk allocation and risk sharing (“one of the toughest ones to understand”), and their legal implications (“what kind of bonding requirements do you need, what state laws are in place?”). He noted that some of the keys to success in completing PPPs were political leadership, legal and financial expertise available up front, and the transfer of key risks to the private sector.

Kathryn Pett, partner, Nossaman LLP, delved into challenges and obstacles in developing contractual agreements that shift risk, noting that PPPs are “a different way of procuring and delivering projects.” Because PPP delivery may run counter to public procurement policies, the public sector, said Pett, “should be ready to tailor the procurement process on a case-by-case basis.” Some of the obstacles she cited, which vary from state to state, include appropriations restrictions; qualifications-based selection laws—not based on fees alone; conflict of interest laws that bar architects and engineers from being both designer and contractor for the same project; and a requirement for contractors to identify major subcontractors from the start.

Rod Diridon, chair of APTA’s High Speed and Intercity Rail Committee, board member of the CA High Speed Rail Authority, and executive director, Mineta Transportation Institute, gave an overview of the high-speed rail program, noting the support of both President Obama and Gov. Schwarzenegger, and joking that he had decided to go along with the program rather than “buck the Terminator.” Diridon noted that the $34 billion effort is “the biggest construction project in the history of the nation.” When it is completed (somewhere between 2020 and 2030, “depending on the financing available”), it will be 790 miles long.

Following Diridon was Alene Tchourumoff, manager finance practice, InfraConsult, who provided some of the details prepared by her firm regarding the contracting process. She cited a study that asked such questions as: What type of risk would you be willing to take (“All firms would accept the risks within their realms, such as construction companies would take construction risks.”); How do you balance the level of risk that the private sector takes on with what you’re going to have to pay for it?; and Who is the most efficient holder of which risks? She closed by noting: “You must have an efficient and competitive procurement process and must ensure that your enabling legislation is in place.”

Roger Moliere, chief, real property management and development, LA Metro, discussed “Leveraging Local Dollars: LA Metro’s PPP Program is Underway.” This project could not be moving forward, he said, if the voters hadn’t passed a sales tax initiative last November. He cited the goals of the PPP: accelerating delivery, reducing costs through contracting and construction methods, developing projects integrated with existing transit/highway infrastructure, and allocating risk.

Schneider closed the session by stressing that “our collective objective is to build projects to provide public mobility, not to create PPPs.” Calling them “a means to an end,” he said that APTA’s task force on the subject had concluded that PPPs cannot substitute for public policy, oversight, or resources.

 


 

Michael I. Schneider moderates the June 15 session on public-private partnerships. Panelists are, right photo from left, Philip A. Pagano, Dennis Duffy, Robert Tuccillo, Kathryn Pett, Rod Diridon, Alene Tchourumoff, and Roger Moliere.
Photos by Brian Oh



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