Measurement Matters : Improving Infrastructure P3 Comparative Evaluation

The need for major infrastructure renewal in the US is widely recognized. The amount of private-sector capital willing to invest in this renewal through innovative public-private partnerships (P3s) is at unprecedented levels. The latter is often talked about as an obvious way to address the former. Yet at every level of US government and across all infrastructure sectors progress in actually enacting P3s is frustratingly slow. Why?This short paper (written as a key-issues briefing memo for an upcoming P3 conference organized by the Cornell Program in Infrastructure Policy) proposes that the answer to this question is found in the inadequacy of current P3 measurement methodology with respect to the currently most relevant potential use of P3s in the US. The current standard P3 evaluation methodology, Value for Money (VfM), is primarily focused on measuring cost-efficiency, which was an important metric in the original, primarily European, application of the P3 approach. However, for most US state and local government cost-efficiency is not the most relevant factor in the infrastructure decision. Rather, the perception of increased funding risk in the post-2008 economic environment is currently preventing a higher level of needed public-sector infrastructure investment. Funding risk can be efficiently transferred to the private sector through P3 transactions. But since VfM does not measure the value of transferring funding risk adequately, it is difficult to make a compelling case for P3 transactions in the face of stakeholder skepticism and resistance.The paper proposes that P3 evaluation methodologies be improved to include (1) better measurement of public sector cost of capital in the VfM framework and (2) the addition of another analytical dimension focused on funding risk transfer, called ‘Value for Funding'. Federal infrastructure policy can support the development and adoption of improved P3 measurement methodologies