Photo Courtesy of CDOT

Plenary Roads places one of several replacement bridges in a P3 project along the U.S. 36 corridor between Boulder and Denver.

Photo Courtesy of RTD

Crews install a section of pipeline along 48th Avenue as part of the Eagle P3 commuter rail project in Denver.

Across the country, the gap between public infrastructure needs and the ability to pay for them is growing larger. Public-private partnerships help fill the gap, enabling public entities to utilize private funding for big infrastructure projects.

But P3s have their drawbacks, and they can create new risks for the contractors who work on these projects, especially those firms that engage in long-term operations and maintenance work as part of the P3 agreement.

One example is ITR Concession Co. LLC, private operator of the 157-mile Indiana Toll Road (ITR), which filed for bankruptcy protection in September. In 2006, private investors paid $3.8 billion to operate the road for 75 years, but the toll road struggled with heavy debt and lower-than-expected traffic. While the two-part restructuring reportedly will not affect the operator's 283 employees or operation and maintenance of the road, the case illustrates the financial risks of P3s.

ITR is not an isolated case. A number of other P3 private operators, also known as concessionaires, have filed for bankruptcy in recent years. "As with any business, not all projects are successful," says Matt Girard, president of the P3 division of the American Road and Transportation Builders Association. "Bankruptcy can and does happen in some projects. These situations reinforce the need for investors and contractors involved in toll-risk P3s to do their homework better and approach these project risks more conservatively. If you take on traffic-revenue risk, then price it accordingly."

Girard is also the chief operating officer of Plenary Concessions, the concessionaire of the 18-mile segment of highway U.S. 36 between Denver and Boulder. In 2013, Plenary Roads was awarded a 50-year contract with the Colorado Dept. of Transportation. The company agreed to deliver $20 million in equity and another $154 million in financing for reconstruction of U.S. 36, including adding two new express toll lanes, then maintain the new toll lanes and the four existing lanes for the term.

Risk is shared. CDOT pays Plenary Roads milestone payments during the project, and Plenary pays off the balance of construction debt with 50 years of toll revenue from express lanes. As part of the arrangement, Plenary Roads will also assume operations and maintenance responsibilities for the existing Interstate 25 express lanes in Denver, also in exchange for toll revenue.

"A lot of risk can be avoided with knowledge," Girard adds. "We looked at traffic studies and years of data for the existing I-25 express lanes, and came up with what we believe are realistic projections for the toll revenue and for the operations and maintenance costs for both I-25 north and U.S. 36."

The Devil Is in the Details

All projects, whether undertaken using conventional procurement methods or a P3 approach, have risks, says Brian Middleton, project director for the Regional Transportation District's FasTracks Eagle P3 commuter rail project in Denver— the first transit P3 project in the country. RTD's contract calls for annual payments over 28 years to private consortium Denver Transit Partners, led by Fluor Enterprises and Macquarie Capital Group. Commuter rail lines are set to be designed, built and open to the public by 2016.

"The devil is in the details of the contract," Middleton says. "It is really no different than any other construction project. Contractors need to look at what needs to be done, and use their experience and expertise to determine the risks and what contingencies they need."

For untolled P3 projects or those for which revenues are not expected to cover the debt-service costs, the private entity is paid via availability payments. Such payments compensate the concessionaire for its role in designing, constructing, operating and maintaining the facility for a set period. While the revenue risk in this scenario is retained by the public entity and income is more predictable, there is still no guarantee that the private-sector contractor will get paid. Payments owed to the concessionaire are subject to legislative appropriations and changes in laws.