Governments that are increasingly faced with funding gaps are pursuing partnerships with the private sector to finance infrastructure projects. They also take this approach in order to leverage the expertise and innovation of private developers and complete projects in time and on budget.
There are many examples of successful concessionary partnerships, but there are also examples of failed projects caused by the cumulative missteps of project partners.
Regrettably, project proponent naivety seems to prevail, especially regarding risk allocation, project management, poorly articulated outcomes, and accountability. Combined with poor public sector oversight of mega-project challenges, all this almost always leads to jeopardised project success.
Poster child for failure
The controversial Purple Line, a 36-year, $5.4bn, 16.2-mile light rail project in the Washington metropolitan area launched as a public-private partnership (PPP) by the Maryland Department of Transportation (MDOT) and the Maryland Transit Administration (MTA) has become the poster child for a failed project.
The project was conceived in the early 2000s to alleviate traffic congestion. It soon gained political traction after a preliminary environmental study. In 2013, the Maryland governor, Martin O'Malley, agreed to launch the project as a PPP. The Federal Transit Administration also supported the project financially as a “new-start” project.
However, environmental concerns resulted in a federal lawsuit challenging the project. After delays, new governor Larry Hogan agreed to the project moving forward if Montgomery and Prince George’s counties contributed to the overall cost of the project.
In March 2016, Purple Line Transit Partners (PLTP), consisting of Meridiam, Star America, as well as Fluor Enterprises, was announced as the preferred concessionaire. One month later PLTP was awarded the design, build, maintain and operate contract. Construction would be undertaken by a consortium called Purple Line Transit Constructors (PLTC) – a partnership of Fluor, Lane Contraction, and Taylor Brothers.
Concern was expressed about the award by outside parties. This included possible disproportionate risk assumption by the state and the acceptance of a low-bid selection of the concessionaire due to a focus on project cost.
At the same time, legal challenges requiring an additional environmental study were initiated. After an 11-month delay, the Court of Appeals allowed the project to proceed without the need for an additional environmental study.
In August 2017 construction on the project started. It induced interruptions to residents’ everyday activities immediately brought about protests and the project became mired in controversy. At the beginning of 2018, it was announced that the project completion would be delayed to 2023.
Soon, construction delays and $275m in project cost overruns became a major concern.
In April 2020, another legal challenge was dismissed. This did not prevent the plaintiffs from filing another notice of appeal in May, 2020. There were increasing concerns that the project was spiralling out of control. PLTP announced a project delay of 17 months and cost overruns in excess of $500m in April 2020.
The project was in a crisis and negotiations between the public authorities and the private sector were increasingly adversarial. Coronavirus concerns added another layer of impact to the teetering project timeline. It appeared that a favourable resolution of the dispute between parties was becoming improbable. In June, PLTC announced that they were considering exercising their contract option to terminate the PPP within 60 days unless agreement was reached resolving delays and escalating costs.
Serious concerns were raised by government officials about what would happen if PLTC walked off the project. In September, the project was dealt a critical blow when the Baltimore City Circuit Court ruled that PLTC could walk away from the project. By now the project was facing $750m in additional costs and two-and-a-half year delays. Both public and private sector partners blamed each other for the project’s situation.
PLTC has commenced with shutting down the project’s construction. The state of Maryland is faced with an unenviable scenario of taking over the project, paying for it, and finding a new concessionaire. In addition, PLTC’s decision has left PLTP in a precarious financial situation. This regrettable project collapse has received intensive local and national media coverage and will have reputational repercussions for all parties.
Limiting political interference in procurement decisions; addressing environmental concerns early; the adoption of better conflict resolution protocols; the acceptance of realities on the ground; the avoidance of court actions; and a more realistic allocation of project risks could have prevented the project meltdown.
Unfortunately, the saga continues with suits and counter-suits for millions of dollars being pursued. It is acknowledged that the project will enter a six-month limbo while decisions are made on how to resurrect this project which should never have been allowed to founder in such a spectacular public way.
David Baxter is an international development consultant at the International Sustainable Resilience Center of PPPs (ISRC) and a steering committee member of the World Association of PPP Units and Professionals (WAPPP).