DOT releases final P3 guidance

As the Infrastructure Investment and Jobs Act nears its five-year expiration date, the U.S. Department of Transportation has finally released final guidance of a provision that requires a detailed analysis when deciding whether to opt for a public-private partnership delivery for infrastructure projects.

The final guidance on the so-called value-for-money analysis carries some "repercussions" for private sector partners during the procurement and post-procurement process, said Roderick Devlin of Nixon Peabody LLP.

A VfM analysis is meant to compare the advantages and disadvantages of using a P3 versus conventional public delivery options for projects that are using federal support, including Transportation Infrastructure Finance and Innovation Act or Railroad Rehabilitation and Improvement Financing.

The IIJA requires a VfM analysis for a project using any delivery method where the project costs more than $750 million and is seeking federal credit assistance, generates revenue, and is located in a state that allows transportation P3s. It's also required for P3 transportation projects that cost more than $500 million and any type of P3 project seeking federal credit assistance.

The guidance will help the P3 industry develop one set of standards for the VFM analysis. The lack of standards has sometimes caught the attention of regulators. Dave Sanchez, director of the SEC's Office of Municipal Securities, in 2024 warned that the SEC has spotted "conflicts of interest in value-for-money analyses where the thumb is always on the scale to go for the P3 procurement process, even though there might not be accurate evaluation of all the financing options that the municipality has."

Baruch Feigenbaum, Reason Foundation's senior managing director of transportation policy, said the guidance codifies what many market participants were already doing.

"No big surprises here," said Feigenbaum. "The things they added are best practices that should have been going on all along," he said, while taking note of additional transparency and disclosure requirements.

"Now, if you're a public sponsor, it's going to be published and an official document ? so get your ducks in a row," he said. "They really want risk allocation to be clearly spelled out because in some [previous VfM analysis] they weren't," he added. "And any decisions that are made have to reflect what the VfM analysis actually says; there has to be a structured thought process for what you're doing."

While a VfM analysis is currently required before the procurement process, the final guidance also requires one after the procurement has been awarded ? assuming a P3 delivery model ? before signing the concession agreement, said Devlin, who wrote an alert on the topic. The second analysis will be done when the sponsor has more details on cost, funding, financing, and risks, he said.

"During the procurement process, things change and the assumptions that the [local department of transportation] made might not be the same," Devlin told The Bond Buyer. "So it makes sense to kick the tires again," he said.

But updating VfM analysis takes time, he warned. "If you extend the period between the award and the execution, you extend the risk of the variation in the financing costs" among other price changes, he said. "That's not to anyone's benefit."

Devlin also took note of the additional disclosure and transparency requirements, like independent audits before signing a concession agreement and publicly disclosing the key terms of the analysis and the concession agreement. That means private developers should expect more public scrutiny of pricing assumptions and timelines, Devlin said.