Appendix E Selected Definitions

Availability payment.

A concession, or shadow toll, paid by the government to a private contractor for providing a specified number of roadway lanes for a specific time period.

Build-own-operate.

A private contractor constructs and operates a facility while retaining ownership. The private sector is under no obligation to the government to purchase the facility or take title.

Concession benefits.

Rights to receive revenues and other benefits (often from tolling) for a fixed time period.

Design-bid-build.

The traditional project delivery method in which design and construction are sequential steps in the project development process.

Design-build-contract.

An agreement that provides for design and construction of improvements by a contractor or private developer. The term encompasses design-buildmaintain, design-build-operate, design-build-finance, and other contracts that include services in addition to design and construction. Franchise and concession agreements are included in the term if they provide for the franchisee or concessionaire to develop the project that is the subject of the agreement.

Developer financing.

A type of financing in which a private party finances the construction or expansion of a public facility in exchange for the right to build residential housing, commercial stores, and/or industrial facilities on the site. This type of financing often takes the form of capacity credits, impact fees, or exactions.

Innovative contracting.

Innovative contracting practices meant to improve the efficiency and quality of roadway construction, maintenance, or operation. Examples of innovative contracting include lane rental, the use of warranties, design-build, design-build-operate, and design-build-finance-operate-maintain.

Innovative finance.

Innovative methods of financing construction, maintenance, or operation of transportation facilities. The term covers a broad variety of nontraditional financing, including the use of private funds or the use of public funds in a new way.

Internal rate of return (IRR) method.

The discount rate that, when applied to net revenues of a project, sets them equal to the initial investment. The preferred option is that with the IRR greatest in excess of a specified rate of return.

Life cycle costs.

The costs of a project over its entire life, from project inception to the end of a transportation facility's design life.

Net present value (NPV) method.

Revenues of a project are estimated, net of outgoings, and then are discounted and compared with the initial investment. The preferred option is that with the highest positive net present value.

Oversight.

The act of ensuring that the Federal-Aid Highway Program is delivered in a manner consistent with laws, regulations, and policies.

Public-private partnership (PPP).

A contractual agreement formed between public and private sector partners that allows more private sector participation than is traditional. The agreements usually involve a government agency contracting with a private company to renovate, construct, operate, maintain, and/or manage a facility or system. While the public sector usually retains ownership in the facility or system, the private party will be given additional decision rights in determining how the project or task will be completed. The term public-private partnership defines an expansive set of relationships from relatively simple contracts to development agreements that can be very complicated and technical (e.g., design-build-finance-operate-maintain). In the context of this report, the term public-private-partnership is used for any scenario under which the private sector would be more of a partner than it is under the traditional method of procurement. Further, the broad definition used for public-private partnerships includes many elements applied fairly regularly on appropriate projects.

Shadow toll.

Per-vehicle amount paid to a facility operator by a third party, such as a sponsoring governmental entity. Shadow tolls are not paid by facility users. Shadow toll amounts paid to a facility operator vary by contract and are typically based on the type of vehicle and distance traveled.

Toll credits.

Credits earned when a State, toll authority, or private entity funds a capital highway investment with toll revenues from existing facilities. States may increase the use of available eligible Federal funding on a project up to the normal State/local matching amount and debit the sum of the toll credits earned by that same amount.

Tolling.

The process of collecting revenue whereby road users are charged a fee per roadway use. Tolls may be collected on a flat-fee, time, or distance basis and may vary by type of vehicle.

Warranty.

When used in public-private partnerships for the construction of roads, a clause that guarantees that the roadway will meet a certain level of quality or repairs will be made at the private contractor's expense. Two types of warranties are used in highway construction: (1) materials and workmanship and (2) performance. Under the first type, the contractor is responsible only for defects caused by poor materials and workmanship. Under the latter, the contractor is responsible for the product meeting certain agreed-on performance thresholds, regardless of whether materials and workmanship met State standards.