Increased private sector involvement in financing mass transit projects could help stave off cost overruns, deliver projects on schedule, share the risks associated with the project, and improve the quality of the transit service, the Federal Transit Administration said in a report issued this week. “In recent years, transit agencies have increasingly turned to [public-private partnerships, or P3s,] in order to procure new or expanded transit services,” according to the report, which was required under a provision in transportation legislation enacted in 2005. “Agencies use [P3] delivery approaches to obtain time savings, costs savings, and more innovative, higher quality projects with reduced risks.” State and local government interest in private sector financing has risen as traditional sources of transportation funding — typically federal, state, and local gas taxes — have not kept pace with needs.The report looked at a handful of P3 models, including one in which a single team of private companies is responsible for designing and building the project, financing some of its cost, as well as operating and maintaining the facility over a number of years.Under this so-called DBFOM contract, it is in the financial interest of the private partners to deliver a “higher quality plan and project because [they] are responsible for the performance of the facility and for maintaining the project, in its complete and fully operational state, for a specified period of time after construction” the report said.Another advantage of the DBFOM model is that it places the risk of cost overruns on the private team, the FTA said.The Bay Area Rapid Transit District in San Francisco is considering using this model for its proposed Oakland airport connector, one of several projects mentioned in the report. The project consists of a 3.2-mile extension from the BART Coliseum Station to the Oakland International Airport.BART is currently exploring a bid for the project from a consortium that includes Merrill Lynch & Co., Babcock & Brown, Flatiron Construction Corp., Bombardier, and Parsons Transportation Group.Details of the bid are not public, but BART is offering a 35-year lease on the connector and will pay the winning team $168 million in so-called “availability payments” over that time as long as the project maintains certain service levels. The connector would be the first transit project in the nation to use availability payments. “It is still in evaluation and we hope to go forward to award some time this year,” Olga Perez, a BART procurement official, said yesterday.Jeffrey A. Parker, founder and president of transportation finance consultant Jeffrey A. Parker & Associates Inc., said that he expects more transit agencies to explore P3s in the future. “I think [P3s] hold tremendous promise for the transit industry,” said Parker, whose firm advised BART on the connector project. “The risk-transfer aspects are extremely attractive. The opportunity that we see here is to better manage the capital cost, and get a longer-term handle on the operating costs and also to get more control over operations and performance.”Parker said that transit P3s are common internationally and that as more projects that get done in the U.S., the more that other states and localities and the financial market will see P3s as a viable funding option. “There are probably some … transitional projects that are going to be needed to get the right mix of risk sharing,” Parker said. “It is not necessarily going to be a smooth process, but I think it is well worth the learning curve.”
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