With the passage of the $1 trillion Infrastructure Investment and Jobs Act, it’s a perfect moment fora new book, Dancing with Giants: A Lawyer and Banker Share Their Passion for Infrastructure Finance. Coauthored by a lawyer-banker team, Mitchell Silk and Seth Tan, the book was published on December 6 by Raab & Co.
Infrastructure projects are super-sized. The “giants” refer to massive projects, markets, risk mitigation approaches, and players that make up infrastructure construction today. This easy-to-read volume enables us to reflect on what works and what doesn’t work.
Mitch Silk, former Assistant Secretary for International Markets at the U.S. Department of the Treasury (and, full disclosure, my former colleague when I was Acting Assistant Secretary for Economic Policy), and Seth Tan, former head of Infrastructure Asia in Singapore, author every other chapter, alternating between the legal and financial problems of developing market standards that allocate risk equitably in order to promote private capital solutions.
Dancing With Giants is a fascinating narrative of wisdom accumulated from the authors’ experiences in Asia, Latin America, and the United States. Although China’s public-private approach to attracting investments in infrastructure presents different challenges from those in America, the lessons learned—particularly from getting risk allocation or project implementation wrong—provide a valuable roadmap.
The relevance of this short book to today’s infrastructure push cannot be overstated. Engineers design the projects, but projects will only be successful when key revenue and cost agreements allocate risks between private companies and Federal, state, and local governments based on who is in the best position to control that risk.
Silk and Tan describe lessons from the past as “timeless and paramount,” and these apply to the large projects that States will be putting into place with new funding from the $1 trillion. Examples include clear and expedited paths to project permitting, better preparation, governments working with the private sector, and setting up incentives for long-lasting environmental standards and commercial structures.
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Energy and infrastructure projects, they write, need long lead times to determine the project concept, perform early development studies, create and engineer; construct and commission the project, and fund the project.
As one illustration of the importance of the details of commissioning infrastructure projects, consider two projects in the United States in neighboring Virginia and Maryland. These are not discussed in the book, but could well be. Virginia has been far more successful in bringing large infrastructure projects to completion on time and without cost overruns than Maryland.
Virginia’s Office of Public-Private Partnerships, with a small and committed staff of professionals in law, finance, project development, environment, engineering, construction, and maintenance and operations, is a model of collaboration across disciplines. Tony Kinn, the director of the Office, reports directly to the Virginia Secretary of Transportation and coordinates with Virginia’s seven transportation agencies.
The Express Lanes on Interstate 66 above the Beltway in Northern Virginia is an example of a multimodal successful project, with planned tolled express lane plus free lanes, as well as parking.
Setting this up took three years. It needed coordination with locals, including different interest groups to discuss parking and bus stops. The Virginia Department of Transportation brought everyone together. The road will be open to traffic in 2022. It is on schedule and on budget.
In contrast, across the Potomac River from Virginia, in Maryland, another public-private partnership, the $5.6 billion Purple Line, a planned 16-mile light rail line intended to link different parts of Maryland’s suburbs, has been dogged by problems since its start.
Construction began in August 2017, but work on the line ceased in September 2020, with the consortium intending to terminate its contract due to mounting delays and leaving the project incomplete without a general contractor. The unfinished rail line, piles of gravel, bridges to nowhere are there for everyone to see.
What was the difference? Equitable risk allocation, as Silk and Tan point out, is crucial to success or failure. In Virginia, the private partner, I-66 Express Mobility Partners, paid the state $500 million and borrowed $1.5 billion. In contrast, Maryland was paying Purple Line Transit Constructors, and the company only put in 5 percent.
Hence, due to the structure of the project, when Purple Line Transit Constructors threatened to walk off the project, Maryland had no recourse. The State will have to pay at least an additional $300 million to complete the project. A new contractor, Maryland Transit Solutions, will start work in Spring 2022. The contract was poorly designed and Maryland had not done enough to protect itself.
Silk learned a cardinal principle of successful infrastructure investment early on in his career— pigs get fat and hogs go to market. He told me in an email, “If a developer tries to get too rich a deal and doesn’t follow accepted market standards, his project will be doomed for failure.” This basic rule applies equally to power plant development in rural China as it does to passenger rail lines in suburban Maryland.
In 2022 States will get a fixed share of funds for highway programs, airports, and bridges in the Infrastructure Investment and Jobs Act, and they will be able to apply for grants for other funds. To make sure these projects are successful, they need to keep in mind lessons from Dancing with Giants.