RISK FRAMEWORK FOR PUBLIC PRIVATE PARTNERSHIPS IN HIGHWAY CONSTRUCTION

Abstract

Recent Public Private Partnerships (P3) in the United States represents a significant advancement in the level of participation of the private sector in the provision of road and highway assets. A number of states and local governments consider P3 as a mechanism to streamline project delivery, transfer risk, reduce costs and raise additional transportation revenues. P3 broaden the private sector?s participation beyond the design and construction phases to include the assumption of responsibility and risks for the financing, operations, and maintenance of project. In this paper, the author introduces a framework that identifies and organizes the broad range of risks associated with P3 arrangements for highway project delivery. The ?PEST? framework organizes risks into four categories: Political, Economic, Socio-Cultural and Technical which could help P3 projects in devising risk management strategies. P3 projects could benefit by these categorization in identifying, allocating, managing and thus minimizing overall project risks. The framework was developed by considering the risks associated with major P3 highway projects in the United States. Project documentation, case studies, and literature related to P3 highway projects (completed/on-going) were used to validate the framework. The categorization of the risk factors can help practitioners identify the parties involved (public or private) that assume the most risk based on different phases of highway construction and the type of risk involved within it. The PEST framework illustrates the distribution of risk by project types, phases of construction and risk dependencies. It gives greater ability to monitor and control common type of identified and classified risks. The PEST framework can encourage proactive thinking and help in clear visualization of risks involved in P3 projects enabling better decision making. Some analytical tools are discussed that could assist in risk analysis. The PEST framework is demonstrated within the influence diagram and state diagram. Representation of PEST with these diagrams could be useful for practitioners and decision makers to visualize in which phase most of the risk lies, its dependencies and the outcome of these risks. This could also help practitioners in planning risk mitigation and management strategies based on categories identified in this paper.