Joseph M. Giglio, John H. Friar

(Northeastern University, USA)

 

 

Abstract: We investigate the emerging use of availability payments as a method for reimbursing private sector delivery teams for the costs of designing, constructing, financing, operating and maintaining major highway, bridge and tunnel facilities delivered through Public-Private Partnerships (PPPs) in the US. We compare traditional and innovative approaches to infrastructure finance, contrasting the structure of availability payment-based PPPs to other forms of public-private partnerships and providing a comprehensive profile of 12 availability payment projects that are currently proposed, under construction or completed. The paper presents the perspectives of a panel of infrastructure finance experts regarding availability payment-based PPPs, and discusses the potential of availability payments for posing moral hazards to public sponsors. We find that the advantages of availability payments are dependent on fully transparent PPP contracting and execution. There must be mechanisms in place to continuously hold the various members of the PPP project team accountable for their performance under the contract. Such safeguards are essential to compensate for the diminished level of general public involvement in authorizing these projects and the potential for abuse due to a lack of prudent oversight.

 

 

Key words: availability payments; public-private partnerships; construction financing; moral hazard

 

JEL code: R42