The IIJA - also known as the Bipartisan Infrastructure Bill - put forward £1.2trn-worth of infrastructure spending when President Biden signed it into law in November 2021, but the flow of money and proposed projects hasn’t been the tidal wave that a bullish P3 industry might have hoped for at the start of 2022.
“Funding associated with pre-existing programs was pretty swift, but where it involved new programs, it has been sluggish. It's, particularly in this inflationary environment. This pace may not be slow by Washington standards, but it is by investment standards,” says Jill Jamieson, chief executive of Illuminati Infrastructure, an advisory firm that works solely with the public sector.
While Jamieson does say that some good tools have been provided, particularly for transport projects, the money that does arrive is having a limited impact: “Generally the rollout has been okay, but the funding is just not enough. It’s being sprinkled across the country, so it’s not having a massive impact in terms of unsticking projects that were looking for funding.”
She’s not the only one lamenting the pace of the rollout so far.
“We have seen some slowness on the overall implementation,” says one ex-federal official. The Covid-19 pandemic has made the implementation “meaningfully harder. Those challenges were impactful, and we have to be understanding of that.”
Delivering a trillion dollar program is a mammoth task: “It is remarkably difficult [to implement a bill of this size],” the ex-official adds. “The intricacies of it are hard to over convey.”
As we emerge from the frying pan of Covid, the industry has landed in the multiple fires of inflation, supply chain and labor issues, not to mention the global geopolitical events such as the war in Ukraine that are fueling them.
Few on the eve of IIJA’s passing foresaw these challenges - which have turned IIJA from a stimulus package into a lifeline.
The simplicity of the bill as an inflation compensator is stark: “If inflation is going to take a project cost from 100 to 120, then the IIJA money could plug that hole,” says Andy Garbutt, US lead principal of infrastructure at KPMG.
But at the same time, the money is helping to unstick projects, including P3s, which were not viable before.
“The more sophisticated states that have already put P3 projects out there may be thinking ‘I’ve got a revenue project that doesn't quite stack up from an affordability perspective, but if I can get some money from IIJA - it now becomes workable’,” explains Garbutt.
Both keeping the current pipeline alive and creating new ones are critical features, but in order for either of these aims to succeed, authorities have to work their way around an increasingly complex world of grants and subsidies. But with infrastructure at the fore of almost every authority’s post-Covid plans, it’s a competitive environment
“The challenge a lot of authorities have is that with every state and all the big cities going for the money, they each need their own infrastructure ‘tsar’ to navigate all the programs and figure out what the best bang for their buck is,” Garbutt says, urging authorities to get advisors that can “navigate through the IIJA minefield. It takes time.”
While the present, as we all know, is proving tough to navigate for P3s, the impact of IIJA for the long term is evident.
“It’s a game changer,” says Yuval Cohen, global director in Jacobs’ capital & transactions advisory, whose firm has helped authorities write over 70 grant applications this year. “The real question is the implementation of the ideas.”
One of the major ideas that was put forward by the bill was the role of the private sector in the vision of the future: even $1.2trn is not enough to fix America’s infrastructure deficit (especially after inflation has eaten away at that number).
“How do states actually implement the projects, and that’s the key that must necessarily involve the private sector,” Cohen adds. “The question is whether it is beyond the normal role; we’re talking about more than that and having the public sector using the stimulus to curate implementation through the use of public-private partnerships, or investment partnerships.”
This backing of P3s has been seen across the country, and has come as something of an attitude change.
Receiving backing from the federal government with a chapter explicitly supporting P3s is a major boon to the industry - and is having a legitimizing effect as now a mainstream tool in the toolbag.
“Ten years ago, if you went to a conference, P3 was a controversial topic. But IIJA was an inflection point, normalizing P3. P3 was a centerpiece of IIJA, so there is no longer a need to debate its place in the delivery toolbox,” says Jamieson.
“P3 was in there; there’s no need to proselytize it, people are looking at it objectively. That’s changed in terms of the need to convince people,” she adds.
The proof here is in the pudding - and it’s already in the oven.
New authorities are searching for advisors, and new pipelines have started to emerge. To point to just a couple: Department of Transportations across the country are jousting for National Electric Vehicle Infrastructure (NEVI) funding, with many including P3s to leverage assets; the Build America Center is helping scores of debuting authorities to navigate the early stages of P3s and even major hotspots such as New York and Chicago are turning to the model.
“From a P3 standpoint, people need to be patient,” says Allan Marks, partner at Milbank. “It’s going to take time for steel to go up.”
He points to the recent changes to the TIFIA loan system as the area of the bill that will “make the most difference” to the P3 industry.
The recent raising of potential TIFIA project financing from 33% to 49% raises the viability of myriad projects across the US - but also the inclusion of transit oriented developments (TODs) into TIFIA’s remit effectively creates a whole new asset class. And with TODs being favored by USDOT as a ground for P3s, this could be a huge area of expansion.
“That's a big deal,” Marks says, pointing to scores of cities around the US that need housing in densely populated areas. “The ability to bundle urban transit projects with urban TODs and have TIFIA is a big deal. That can move the needle.”
In response to these optimistic P3 pictures, the private sector is clearly seeing an opportunity, as reflected by the Canadian and European firms all making moves into the market, including major names such as Invesis, EllisDon and numerous Spanish contractors.
In order for the flood of projects to come forward, various choke points will need to be unblocked.
Whether it’s increasing the number of professionals working in the industry to more systemic issues, there will be work needed to allow IIJA to reach its full potential.
"We put a lot more money into the system, the machine is adjusting to that - and at the same time we have regulatory requirements that limit the speed in which he industry can deliver," says Jim Ray, HNTB's corporate president of advisory.
He points to similarly developed countries such as Germany, the UK and Australia, which have much swifter regulatory procedures that do not consider stakeholder or environmental considerations any less.
Solving issues such as these strike right at the heart of the discussion around IIJA, the fundamental question of: how will IIJA deliver on its high expectations? Fortunately, IIJA contains a number of stream lining measures that could significantly expediate needed approvals once implemented.
"We have been talking about a significant infrastructure bill for years, there was a great deal of expectation, but the real test of success will be when we get to reauthorization, has this bill delivered on the goals?"
Drawing on his time as senior advisor in DOT, Ray calls for perspective when analyzing the bill as these things have some "ramp up time [and a] natural cadence.
"It's important to note it's a five year bill. The point here is to create a long-term sustainable pipeline."
In that vein, he suggests that judgement on the IIJA's success will only truly be able to be passed over the course of many years, "the same way we look back on Eisenhower's achievements" Ray reflects.
"The machinery is starting to move now; we're starting to see the money flow out," he continues. "Speaking as someone that has implemented a bill previously, there's a tremendous amount of work to be done, but it's happening."