LAS VEGAS-Construction contractors in the US are looking harder at public-private partnerships as a way to rebuild US infrastructure, according to a survey conducted here last week during Ernst & Young LLP’s 12th annual Construction CFO Conference. Most of the 30 contractors queried on the topic expressed “some” or “significant” interest in entering the PPP market. About one-third of the respondents expect their companies to participate in one or more PPPs in 2007.

Michael A. Lucki, E&Y’s director of construction industry services in the Americas tells that half of all toll roads now being built in the US are being paid for by private equity funds. “There are now several funds that just focus on infrastructure,” Lucki says. “I view this as the next REIT asset class.”

Respondents to the survey said they expect the PPP market to grow in coming years, and many said they plan to jump in now to take early advantage of opportunities, establish a position, gain experience and start generating new revenue streams, says Lucki, who analyzed the responses.

While there are many types of PPP structures, governments typically prefer a partnership with private investors, such as an investment bank or fund, to finance the construction, Lucki says. In addition, he says contractors are more frequently pursuing equity interests in the projects instead of the typical fee-based construction and management agreements. Of those interested in pursuing PPPs, most said they would focus on those related to rebuilding transportation infrastructure as opposed to other infrastructure, such as wastewater treatment.

Another one-third of respondents were less certain about the potential of PPPs. Despite many examples of PPPs for public infrastructure in Europe, Canada and Australia, a number of respondents expressed concern about entering what is a relatively new and relatively untested market in the US, according to Lucki. Of the contractors surveyed, only one contractor said it had “significant” experience in PPPs.

Their concern is concern about dealing with government bureaucracies, the complexity of PPP contracts, the capital required, and the insufficiency of government incentives to attract private investment in infrastructure, Lucki says. Part of the problem is the lack of established PPP models for building infrastructure in the US, due in part to the difficulty of adapting models from other countries.

Despite the reticence, contractors surveyed generally expected the PPP market to continue growing in the US. “The market will reach a tipping point, and then it will take off,” one contractor commented. “It’s only a question of when.”

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