Capturing more investment value of public sector infrastructure and capital projects

A shift towards private sector approaches for public sector capital projects

In this new era of budget constraints and expanding needs, governments at all levels are considering private sector practices and funding in order to improve public sector services. This shift in approach, while challenging, also offers agencies the opportunity to improve resource allocation and to enhance operational efficiencies through new process tools and emerging technologies. Private finance and planning strategies, along with innovative tools, may expand the government’s capabilities to solve the nation's infrastructure problem, including rebuilding after recent natural disasters, refurbishing the backlog of crumbling assets, and building new infrastructure to keep pace with modern life.

Public sector, six essential questions

Use a planning framework to evaluate infrastructure proposals

Government leaders are often bombarded with project proposals. A comprehensive investment planning framework allows them to evaluate potential projects in a systematic way by asking the following questions:

  • Why and how are some projects more likely to attract investors?
  • Why are other projects not "bankable" but still critical?
  • How should you prioritize projects?
  • How will the project portfolio be optimized to maximize economic, social, and environmental benefits?

A planning framework helps ensure that each project is chosen based on its potential to optimize economic growth and quality of life throughout the states (including the often-neglected rural areas) — and contributing to the broader national infrastructure program.

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Adapt private sector processes/tools to manage public infrastructure projects

States and local governments are increasingly investing in processes and tools more commonly used in the private sector to increase public project efficiency and excellence. These processes and tools help:

Build trust through data

An integrated data platform provides visibility into the state or local agency’s overall vision, strategy and long-term development plan. It enables state officials to set priorities and execute efficiently. Over time, the right data also serves as evidence to show investors a track record of solid returns on investments, positive economic and social impact, and improved project execution capabilities.

But transparent data on capital projects can do more than help fund and execute projects. It can help create confidence among government officials, private sector investors and vendors, and the public that we—our communities, states, and country—really can address the infrastructure gap.

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Automate asset management

Many commercial asset managers are reliant on such systems for managing their assets and contracts—and there are very few reasons why this cannot be adapted to manage the multitude of US infrastructure assets. These systems not only catalog assets, but allows an asset owner to track concept, design, construction and maintenance. They also enable the government to pool assets together to drive down the overall cost of maintenance per asset, stretching valuable dollars even further, and ultimately helping drive greater investment.

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Manage risk allocations

As state and local governments explore alternative project finance and delivery methods, they will need to adapt their systems and processes—and make sure they control the risks as they change.

Take P3s, for example. A key part of negotiating P3s is to determine risks and assign responsibilities: Who is responsible for considering the impacts on the broader infrastructure program in the future? And who is planning for allocable and non-allocable risks to the entire program related to a specific project’s cost and schedule overruns or revenue shortfalls? These questions can be answered using sophisticated forecasting and monitoring tools that are commonly used in the private sector and which can be adapted for state and local purposes.

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Capitalize on growing private investor interest in public works

The American Society of Civil Engineers’ (ASCE) latest report card estimates a $2 trillion infrastructure funding gap over the next ten years. In addition to potential federal funding, our research indicates that there is abundant private capital available – at least for bankable projects.

Some of the more popular alternative finance options include:

  • Infrastructure funds. In addition to $64 billion in dry powder in unlisted global infrastructure funds for the North America region,* sovereign wealth funds (SWF's), pension funds and other non-traditional investors may bring the total to over $100 billion in private capital searching for infrastructure projects to invest in the US alone.
  • Public-private partnerships. P3s have been on the rise over the last several years as local governments seek to privatize infrastructure projects as a way to overcome budget shortfalls. These deals included transportation, power, waste and water, and social infrastructure projects, and more are expected.

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*Preqin, Preqin Global Infrastructure Report, Q1 2017, 2017

Public sector, six guidelines

Leverage emerging technology to help modernize public infrastructure build and maintenance

A number of breakthrough technologies are changing the way government agencies plan, build, operate, and maintain their infrastructure assets.

Smart cities

Smart cities combine digital connectivity with intelligent process in ways that are revolutionizing the way we design, create and use infrastructure, e.g.,

  • Pollution reduction. Smart poles deployed throughout the city will serve as aggregation points for sensors, cameras and digital display boards to collect environmental data such as areas subject to heavy pollution.
  • Urban mobility. Internet of things (IoT) devices will be used to collect traffic data and model traffic condition to improve traffic flow. The data will also be integrated with GPS to determine bus arrival times, and with sensors to spot available parking.
  • Intelligent waste management. Waste management companies will use sensors to track the amount of trash in garbage cans to determine optimal collection times. Garbage collection vehicles will also be equipped with GPS and RFID readers to get to the fullest trash cans fast.

Despite some cybersecurity risk issues, smart cities foster better performance across all building blocks of society and, in doing so, sets new standards for quality of life for the citizenry. 

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Drones

PwC analysis puts the global market for drone-powered solutions at over US$127bn, with capital projects and infrastructure accounting for the largest proportion claimed by an industry at US$45.52bn.

The public sector has already adopted drone technology, most notably to help with disaster relief (see “Spotlight” Drones to the rescue!”), but also to monitor the progress of capital projects, manage maintenance of existing infrastructure, conduct asset inventories, and handle tasks in hazardous areas.

Augmented and virtual reality

The use of augmented and virtual reality (AR/VR) technology can potentially increase efficiency while reducing costs for public sector capital projects.

For example, wearable technology such as smart glasses/lenses enables surveyors to visualize Geospatial data out in the field, the terrain’s underlying topography, and project plans and specifications while they work. Back at headquarters, VR lenses enable three-dimensional, real-time oversight of the surveyors.

The results? Fewer costly site visits, faster design work, and easier detection of conflicts and deviations from plans and schedules.

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Spotlight: Drones to the rescue

Drone technology is increasingly being used in disaster relief operations.

In the aftermath of a violent storm that ravaged Poland, drones were deployed to collect detailed data on the areas affected by the storm, using advanced imaging analytics and photogrammetry. The data was then used to create an exact model of the area to help assess the damage and to provide material for evaluating compensation.

Similarly, the US had its first drone-powered disaster survey (piloted by the not-for-profit American Red Cross) after Hurricane Harvey hit Texas and Louisiana.

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Darin Siders

Darin Siders

Partner, Capital Projects & Infrastructure, Tax Accounting, PwC US

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