Valuing Public Sector Risk Exposure in Transportation Public-Private Partnerships (UTCM 08-41-01)

This report presents a methodological framework to evaluate public sector financial risk exposure when delivering transportation infrastructure through public-private partnership (PPP) agreements in the United States. The framework is based on U.S. and international best practices to quantify public sector risk exposure in infrastructure. Transportation agencies worldwide and across the U.S. are increasingly using PPPs as a mechanism to deliver much needed transportation infrastructure. The key premises behind the increased use of PPPs as project delivery mechanisms are the interdependent concepts of value for money (VfM) and the optimum allocation of project risks to the partner most capable to manage them. Internationally, countries with relatively longer experience in PPPs have devised different methodological approaches to measure and manage risk exposure, and a handful of other countries have developed more sophisticated and well-documented methodologies to value risk in the context of VfM. However, transportation agencies in the U.S. have not developed structured processes to measure risk exposure and to integrate the cost of risk bearing into the process of evaluating PPP projects. More specifically, U.S. transportation agencies—including agencies in Texas—currently lack a well-documented approach to consistently evaluate and account for public sector financial risk exposure in a PPP, and a methodology to incorporate the cost of risk bearing in the analysis of PPP projects.