Policy Study

Availability Payment or Revenue-Risk Public-Private Partnership Concessions? Pros and Cons for Highway Infrastructure

While revenue-risk concessions are more advantageous and transfer more risk, a U.S. role for highway availability payment concession remains.

Over the past two decades, the U.S. highway sector has seen the introduction and use of a new method of procurement: the long-term public-private partnership. Under this approach, the relevant government agency seeks competitive proposals from teams that will design, build, finance, operate, and maintain (DBFOM) a bridge, highway, or tunnel project, for terms ranging from 30 to 70 years. The detailed long-term agreement that covers each project is called a concession, following terminology in Europe, where the concept originated in the 1960s. Today the concession approach is widely used in Europe, Latin America, Asia, and Australia, though it is still the exception rather than the rule in the United States.

U.S. highway concession projects began with toll revenues as the funding source that permits long-term financing at the outset of a project. Within the past decade, a second type of concession has emerged in the highway sector: availability-payment concessions. In these cases, the usual funding source is the government’s commitment of annual payments to the winning team over the life of the long-term agreement, subject to the project continuing to meet various performance requirements (i.e., to be available for use, in good shape). In recent years, AP concessions have slightly outnumbered toll-financed concessions in the U.S. highway sector, for several reasons. Construction companies generally prefer AP concessions, and some state DOTs see only limited opportunities to use tolling for new or reconstructed highway infrastructure.

The two types of highway concession—which we term revenue-risk (RR) concessions and availability payment (AP) concessions—have similarities and differences that may not be well understood. Both offer several advantages over traditional procurement methods such as design-bid-build (DBB) and design-build (DB). These include (1) strong incentives to minimize not the initial construction cost but instead the life-cycle cost of the project, (2) competing design approaches that may result in greater value-for-money, and (3) guaranteed maintenance for the entire term of the long-term agreement. Those are important benefits that produce more bang for the buck in large highway projects.

There are also important differences, and these are less well understood. First, projects funded by a new stream of toll revenues help address the widely acknowledged gap between static or declining revenues from traditional per-gallon fuel taxes and the amount needed to improve the conditions and performance of the highway sector. Second, some AP concession projects do include tolls but those tolls are charged by and paid to the state. Hence, there is no customer-provider relationship between the highway users and the concession company in this type of structure—and that has important implications for (a) project selection, and (b) project design, in which the company seeks to attract as many users as possible to the project. In addition, AP concessions create new liabilities for governments in the form of long-term funding commitments to the project. As state treasurers and other financial officials become familiar with this point, a growing number of states are enacting limits on the amount of AP liabilities they are willing to accept.

This study explores these issues in depth, drawing on recent experiences with both revenue-risk and availability payment concession projects in the highway sector. It includes a discussion of where AP concessions can be a good fit for highway projects, as well as the limitations of this approach. The study is intended as a guide for policymakers interested in making wise use of DBFOM concessions of both types.


Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. Poole, an MIT-trained engineer, has advised the Ronald Reagan, the George H.W. Bush, the Clinton, and the George W. Bush administrations.

Surface Transportation

In the field of surface transportation, Poole has advised the Federal Highway Administration, the Federal Transit Administration, the White House Office of Policy Development, National Economic Council, Government Accountability Office, and state DOTs in numerous states.

Poole's 1988 policy paper proposing privately financed toll lanes to relieve congestion directly inspired California's landmark private tollway law (AB 680), which authorized four pilot toll projects including the successful 91 Express Lanes in Orange County. More than 20 other states and the federal government have since enacted similar public-private partnership legislation. In 1993, Poole oversaw a study that coined the term HOT (high-occupancy toll) Lanes, a term which has become widely accepted since.

California Gov. Pete Wilson appointed Poole to the California's Commission on Transportation Investment and he also served on the Caltrans Privatization Advisory Steering Committee, where he helped oversee the implementation of AB 680.

From 2003 to 2005, he was a member of the Transportation Research Board's special committee on the long-term viability of the fuel tax for highway finance. In 2008 he served as a member of the Texas Study Committee on Private Participation in Toll Roads, appointed by Gov. Rick Perry. In 2009, he was a member of an Expert Review Panel for Washington State DOT, advising on a $1.5 billion toll mega-project. In 2010, he was a member of the transportation transition team for Florida's Governor-elect Rick Scott. He is a member of two TRB standing committees: Congestion Pricing and Managed Lanes.


Poole is a member of the Government Accountability Office's National Aviation Studies Advisory Panel and he has testified before the House and Senate's aviation subcommittees on numerous occasions. Following the terrorist attacks of Sept. 11, 2001, Poole consulted the White House Domestic Policy Council and the leadership of the House Transportation & Infrastructure Committee.

He has also advised the Federal Aviation Administration, Office of the Secretary of Transportation, White House Office of Policy Development, National Performance Review, National Economic Council, and the National Civil Aviation Review Commission on aviation issues. Poole is a member of the Critical Infrastructure Council of the Los Angeles Economic Development Corporation and of the Air Traffic Control Association.

Poole was among the first to propose the commercialization of the U.S. air traffic control system, and his work in this field has helped shape proposals for a U.S. air traffic control corporation. A version of his corporation concept was implemented in Canada in 1996 and was more recently endorsed by several former top FAA administrators.

Poole's studies also launched a national debate on airport privatization in the United States. He advised both the FAA and local officials during the 1989-90 controversy over the proposed privatization of Albany (NY) Airport. His policy research on this issue helped inspire Congress' 1996 enactment of the Airport Privatization Pilot Program and the privatization of Indianapolis' airport management under Mayor Steve Goldsmith.

General Background

Robert Poole co-founded the Reason Foundation with Manny Klausner and Tibor Machan in 1978, and served as its president and CEO from then until the end of 2000. He was a member of the Bush-Cheney transition team in 2000. Over the years, he has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy.

Poole is credited as the first person to use the term "privatization" to refer to the contracting-out of public services and is the author of the first-ever book on privatization, Cutting Back City Hall, published by Universe Books in 1980. He is also editor of the books Instead of Regulation: Alternatives to Federal Regulatory Agencies (Lexington Books, 1981), Defending a Free Society (Lexington Books, 1984), and Unnatural Monopolies (Lexington Books, 1985). He also co-edited the book Free Minds & Free Markets: 25 Years of Reason (Pacific Research Institute, 1993).

Poole has written hundreds of articles, papers, and policy studies on privatization and transportation issues. His popular writings have appeared in national newspapers, including The New York Times, The Wall Street Journal, USA Today, Forbes, and numerous other publications. He has also been a guest on network television programs such as Good Morning America, NBC's Nightly News, ABC's World News Tonight, and the CBS Evening News. Poole writes a monthly column on transportation issues for Public Works Financing.

Poole earned his B.S. and M.S. in mechanical engineering at Massachusetts Institute of Technology (MIT) and did graduate work in operations research at New York University.