When to Partner for Public Infrastructure?

Abstract

Problem, research strategy, and findings: Public agencies traditionally request bids and award contracts to private firms after infrastructure designs are complete (bid-build). They also increasingly partner with private firms, often by folding capital improvements into a contract to design and build (design-build). The latter involves much more than the mere transfer of design work to the private sector, such as time to completion; the merits or problems of design-build strategies can, thus, be difficult to isolate. This article presents a method for doing so. Together with the development of a theory of contracting, the comparative analysis of two very similar highway overpass projects, one design-build and the other bid-build, demonstrates how so-called transaction cost economics can clarify the details of partnership cost-effectiveness.

Takeaway for practice: Transaction cost analysis disaggregates and evaluates the costs of completed projects, accounting for factors typically external to economic analysis. My approach reveals tradeoffs between variables of interest to planners, such as the pace of delivery, public participation, environmental compliance, and the transfer of risk of cost overrun to the private sector.

Research support: This research was made possible by a grant from the University of California Transportation Center, shared with Professor David Dowall.

Keywords:

• public–private partnership
• evaluation
• design-build
• infrastructure
• transaction cost

Notes

1. All quantities were generated by the DOT with the exception of the Thurston Way footprint, which was estimated by the author from dimensions provided in design drawings and FHWA reports and confirmed by the DOT.

2. Public labor costs were pulled from four databases. On the rare occasion when databases did not itemize personnel expenses by project, staff individually reviewed their records. Public costs do not include overhead or benefits. The price paid for land was not included, but the labor expenses involved were included. Private costs include all payments to private firms. Although there is a small chance that any firm on a given project will operate with a loss, firms are generally paid enough to cover cost plus a margin of profit. Not surprisingly, firms are reluctant to share this information.

3. Washington's DOT selected these two intersection projects for study given the requirement that neither suffers from defects or any other known quality problem. DOT personnel shared their opinion that both projects were of very good quality.