The Pennsylvania Department of Transportation’s (PennDOT) proposed P3 to fix the state’s 4,700 bridges has marked a shift in the way public sponsors will approach P3s. The concept of bundling several small projects into one P3 project is just catching on as a cost-effective way to fund smaller infrastructure projects, according to P3 executives.

PennDOT’s project is the second bundled project this month. Roughly 2,500 miles away, the Los Angeles Metropolitan Transportation Authority (LA Metro) issued a RFQ at the beginning of this month for the Accelerated Regional Transportation Improvements (ARTI) P3 – a similar type of bundled project. The ARTI project is expected to cost roughly US$750 million and bundles the repairs of five roadways around the greater Los Angeles Metropolitan area.

The two bundled projects are the first of their kind in the US, said P3 executives, and represent an innovative and more cost-effective approach to tackling several smaller infrastructure projects at once.

Details of PennDOT’s project are still forming. In February, Brian Kendro, PennDOT’s director of policy and P3s, said that the estimated US$3 billion to US$4 billion cost to fix all of the state’s bridges is too expensive for the state to fund by itself.

He added at the time that the state would either engage in a P3 to repair the most expensive bridge and fund repairs to the rest of the bridges itself, or bundle the repairs of all of the bridges into a single P3 project. The project will not rely on toll revenue but rather, make availability-based payments to offset risk to the winning bidder.

Currently, sources are saying that the agency will issue a RFQ for the bundled option once the Pennsylvania state Legislature passes a new transportation funding plan in the coming weeks. One individual familiar with the project said that a total cost has not yet been determined, but expects a private vendor to quote a price that is “far cheaper than what we’d pay if we did this ourselves.”

The evolution of PennDOT’s project began last July, when state Governor Tom Corbett signed into law a bill that allows the state to engage in transportation P3s.

“Our bridges have always been a concern, because many of them are crumbling,” said the individual. “We studied the cost effectiveness of this project. Fixing the bridges individually would not be logistically possible because we’d end up hiring several different construction firms, plus it would cost the state roughly US$4 billion in money we don’t have to fix all of our bridges. Under a P3 procurement, we can simplify the project by engaging with a single vendor.”

A LA Metro spokesperson said that, similar to PennDOT, bundling the work would be cheaper and more efficient for the agency rather than repairing each roadway individually. The key to the project, said the spokesperson, is that one vendor would be responsible for the work; would be responsible for achieving project milestones, and could offer a cost “that is far more competitive than if we hired five different construction companies for each project.”

The bundled approach, however, does not come without complications. While US P3 executives are generally positive about the approach, they also caution that such projects would require complex risk management, as well as a streamlined delivery approach.

“LA Metro is a very interesting project,” said one financial advisor to P3 concessionaires. “The challenge with this is that, although all of the roads are in the greater Los Angeles area, there are five different road projects that each have their own risk profiles. In that regard, I imagine there will be a challenge in creating a single approach to entire project from an execution standpoint.”

Another P3 construction executive whose firm is responding to the LA Metro RFQ, agreed. “I think ARTI is a great project. The big challenge with this project – and I imagine with PennDOT’s project as well – is creating a streamlined approach in which the standards, milestones and requirements for each of the five road projects are similar or the same. This has to be done because the project would be very complicated if there were different milestone payments based on each project.”

The construction executive added that the bundled projects approach works best when each project is under US$100 million, and the projects must be similar in their requirements. He also said that public sponsors must be specific during contract negotiations about creating general project milestones.

"Projects such as ARTI would get complicated if, let's say, the requirements of four of the road projects are met and exceeded, but the fifth road project is delayed for unseen reasons. A uniform approach must be established for all of the projects."

One P3 attorney who is helping to advise PennDOT called the agency’s approach “bold and innovative. It is going to set the standard for US P3s for many years to come, because it solves the problem of smaller municipalities not having enough money to fund infrastructure projects. This isn’t going to end with the transportation space, either. I think you’re going to see this approach in the water utilities sector as well.”

All-in-all, LA Metro's and Pennsylvania's projects will set benchmarks for the rest P3 industry in the US and, perhaps, the rest of the world. One concession company executive even said that US municipalities will have no choice but to embrace the bundled approach, because there are too many small but crucial projects in the transport, water and even social sectors that, individually, would not justify P3 procurements nor compete for private sector dollars.