America’s infrastructure has significant room for improvement, with a current overall grade of “C-”.1 While this is the first time in more than 30 years that America’s overall infrastructure grade has risen above the “D” range, these consistently poor grades (Exhibit 1) can be largely attributed to insufficient spending on new construction, maintenance, and expansion over the past 40 years. The Progressive Policy Institute states that the U.S. currently “spends just 2% of GDP on infrastructure investment. By contrast, that number is about 5% in Europe and 9-12% in China.”2 The need for increased investment in infrastructure has created a greater demand for alternative delivery projects, which, among other benefits, can attract the private financing needed to advance projects while deferring government spending.
The use of alternative delivery methods demands close alignment and collaboration among a wide range of participants that typically have varying risk appetites. As projects and the environment for delivering them have become more complex, the uncertainty and inequity of risk allocation during procurement, at bid and contract execution, and during project delivery has become a contentious matter between public and private entities. Recent trends have shown that the positive benefits of entering alternative delivery contracts are being diluted by the public and private sectors’ perception on and ability to appropriately allocate risk. (See “How Different Delivery Structures Transfer Project Risk” and Exhibits 2-4.)
This article considers recent attitudes and resulting trends of the public and private sector toward risk allocation in alternative delivery procurements. It also highlights three themes that should always be present when procuring an alternative delivery project and can have considerable downstream impacts on the performance of a project, which are referred to as the Three Ts: teaming, technology, and transparency.
Alternative Delivery Procurement Trends in U.S. Infrastructure
The value of alternative delivery approaches varies for public and private stakeholders but typically promises greater flexibility in financing, cost and schedule efficiencies, and greater risk mitigation opportunities. For the industry, creating an environment to achieve the value of an alternative delivery approach is a means to address the spending and performance gaps previously stated.
The onus for creating this environment, one where risk is optimally allocated among stakeholders, is not the sole responsibility of either the private or public sector. Optimal risk allocation does not mean a perfect balance of risks, but rather allocating risks to the party most appropriate to mitigate and manage the risk.
While the focus of this article is not to analyze risks that the alternative delivery structure faces, the following provides some context as to what these risks may look like: