Amid rising prices, supply chain disruptions and labor shortages, governments are increasingly eying so-called progressive development agreements, or PDAs, as a way to minimize uncertainties as they embark on complex infrastructure projects.
The move can reduce risks and costs and deliver a project faster, said Moody’s Investors Service analyst John Medina.
“Construction costs are very uncertain right now, and this is a way for the public sector to partner with the private entity to reduce construction costs or to try to make them more certain,” said Medina, who spoke after Moody’s US PPP/Project Finance Conference Thursday. “This is a newer thing we’re seeing pop up."
With a progressive development agreement, also known as a predevelopment agreement, the government brings a private partner on board early to help design a project, often while pursuing environmental reviews and approvals.
The early involvement can mean the government and private partner will share risk more than in a traditional model, where a government designs a project and then bids it out.
“You do get to a fixed price at a certain point, but it’s further away,” Medina said. “It’s ultimately focused on sharing risk to help reduce uncertainties for all parties," he said. "It’s about entering it with the mentality of, ‘We’re in this together,’ which is very different space from, ‘You gave me a number and I’m going to lawyer up’” if the cost escalates.
A PDA can also help a private partner price the project more accurately, he said.
In the US, one of the most high-profile uses of PDAs currently is by LA Metro, which is using it to figure out design and financing models for a $9.5 billion high-speed transit line connecting the San Fernando Valley and Los Angeles’ Westside. The agency earlier this year entered into two PDAs with two consortiums that are developing competing options.
“Under this unique project delivery approach, Metro aims to bring the expertise and creativity of the private sector to the table early, when critical design and engineering decisions can have the greatest impact on the project’s ultimate success,” the agency said in
The P3 sector in general is expected to expand under the $1.2 trillion Infrastructure Investment and Jobs Act, which broadens the use of P3s into many sectors, Moody’s analysts said during the conference.
Projects like the Army Corps of Engineer's
Despite the influx of federal infrastructure money in the IIJA, the credit impact is expected to be minimal because the money will be spread around so much, said Moody’s analyst Kurt Krummenacker.
