When to Partner for Public Infrastructure?

Abstract

Problem, research strategy, and findings: Public agencies traditionally request bids and award contracts to private firms after infrastructure designs are complete (bid-build). They also increasingly partner with private firms, often by folding capital improvements into a contract to design and build (design-build). The latter involves much more than the mere transfer of design work to the private sector, such as time to completion; the merits or problems of design-build strategies can, thus, be difficult to isolate. This article presents a method for doing so. Together with the development of a theory of contracting, the comparative analysis of two very similar highway overpass projects, one design-build and the other bid-build, demonstrates how so-called transaction cost economics can clarify the details of partnership cost-effectiveness. Takeaway for practice: Transaction cost analysis disaggregates and evaluates the costs of completed projects, accounting for factors typically external to economic analysis. My approach reveals tradeoffs between variables of interest to planners, such as the pace of delivery, public participation, environmental compliance, and the transfer of risk of cost overrun to the private sector. Research support: This research was made possible by a grant from the University of California Transportation Center, shared with Professor David Dowall.

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