Research & Innovation
2022 Research Projects
VfM Assessment General Principles (“Blue Book”)
Under the Infrastructure Investment and Jobs Act (IIJA), procuring agencies are required to conduct formal Value for Money (VfM) assessments for large projects if the agency intends to deliver the project under a public-private partnership (P3), including for projects that are to be financed using the RRIF or TIFIA federal loan programs. As there is no uniformly accepted standard for what a VfM assessment should contain, the Team proposes to develop a “VfM Assessment Guidance Note” that would provide users concrete guidance on what needs to be included in a VfM assessment or a “Blue Book.”The direct objectives of the Blue Book for VfM Assessment are twofold:
- Provide guidance to procuring agencies that are legally required under the IIJA to conduct a VfM assessment.
- Provide guidance to Federal and State staff that may be required to review VfM assessments submitted under the IIJA requirements.
By providing guidance to public agencies and facilitating their review by Federal and State staff, this effort will encourage the enforcement of the IIJA requirements, which should stimulate agencies in considering different financing and delivery methods.
A Tool for Estimating Expected Rate of Return on Private Financing
The Bipartisan Infrastructure Law (BIL) mandates that the USDOT develops guidance on expected rate of return (ROR) on private financing. The expected rate of return on private financing is a critical parameter for performing a value for money analysis when evaluating the viability of P3. Typically, P3 consortia finance their projects with both debt and equity. Debt is sourced from a variety of markets, including banks, public bond markets, and private placement markets, with pricing (i.e., interest rates) based on 1) comparable transactions, the data of which may or may not be available publicly, and 2) broadly available indices. For equity pricing, or ROR, there is less transparency since these are usually determined by private equity funds or developers who do not disclose them. Therefore, estimates of ROR are not widely available and deserve in-depth study. To provide guidance to the USDOT, it is therefore crucial to establish a solid methodology and reliable data sources for estimating acceptable equity ROR. Furthermore, better understanding the pricing of P3 debt is also important to fully understand the typical cost of capital in a P3.
Estimating and Identifying Local Matching Funds for new BIL Grants
Federal funds matching requirements for the building of major infrastructure assets, as well as budgetary constraints due to state regulations, are always a challenge for state transportation agencies to fully utilize available federal grants and innovative financing programs. Being a once-in-a-generation investment opportunity, the BIL creates many new funding programs that also require states to match federal dollars. It is also critical to preserve limited state funds over years to ensure the best interest to states in order to optimize the timing and quantity of capital projects. There exists opportunities to enhance the objectiveness and clarity of methods for predicting the capital projects and maintenance funding needs as well as availability of state funds so that federal grants can become fully accessible. As a result, a model for evaluating alternative methodologies for highway financing needs and evaluating their efficacy can be beneficial to agencies. Using such a model, agencies will be able to develop more reliable estimates of their funding sources and timing based on engineering data. There is a need to do this not only for the traditional highway assets but also for new assets that are anticipated in the emerging era of automated, connected and electric transportation.
The direct objectives of the model are: (a) develop a framework for assessing state funding sources using different methods, (b) develop an Excel-spreadsheet/tool demonstrating the framework. By developing the tool, the model can provide guidance to public agencies for making appropriate use of the financial resources and it can help link state funding sources for federal grant matching with a goal of maximizing federal funds access.
Guide for Risk Allocation and Sharing in P3 Agreements: Phase 1
The Infrastructure Investment and Jobs Act (IIJA) requires procuring agencies to evaluate key terms, major compensation events and risk allocation during planning and development of a public-private partnership (P3) project. Over roughly the last 15 years, a number of state agencies in the US have planned and implemented P3 agreements that include various practices for risk allocation and sharing. Some of these practices have become market precedents while others have remained tailored to project characteristics or local conditions. While existing literature or reports describe some of these risk allocation and sharing practices, a comprehensive state of practice report is not available.
The objective of this project is to develop a guide for public transportation agencies about risk allocation and sharing in P3 projects that characterizes the current state of practice. A thorough but succinct state of practice report would capture strategies that have been implemented across multiple jurisdictions as well as those that are designed for a specific project’s context.