A Growing Market in the US
Alternative Project Delivery (APD), also known as Public-Private Partnership (P3), is gaining traction in the US as an innovative solution for infrastructure delivery. Although APD activity currently represents only 2 - 3% of US infrastructure spend, project values are already significant. Looking forward, $5 - $8 billion in project value is predicted in the US market for the remainder of 2012 and 2013. APD provides a means to obtain upfront capital financing from the private sector and achieve cost efficiencies throughout the full lifecycle of an infrastructure asset, including design, construction, maintenance and operations. The APD model can serve as an efficient vehicle to finance public sector infrastructure projects and support the long-term delivery of public services.
To centralize and best align its APD expertise, Aon established Aon Infrastructure Solutions (AIS), a team dedicated to providing risk advisory services to APD market participants. In the report linked to below, AIS provides an overview of the APD model, and examines the state of the current APD market in the US and the challenges facing the market. We also examine the important role of debt financing in an APD project.
In an APD project, the private sector's approach to debt financing is an important factor in the bid decision. APD projects are financed primarily through debt (typically 70% - 90%) and the private sector's cost of capital is passed back to the public sector in the project bid. Therefore, unfavorable debt terms have the potential to negate the cost savings driven by the more efficient risk allocation of an APD project. Attaining favorable debt terms can prove challenging, but is critical to achieving a competitive bid. Aon has the ability to positively influence project risk profile, contractor risk profile and contractor supports through a combination of industry expertise, risk analysis and advisory, and deep knowledge of performance security and risk solutions.
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