How Infrastructure Public-Private Partnership Projects Change over Project Development Phases
Andrew South1, Kent Eriksson2, and Raymond Levitt1
Project Management Journal
Vol. 49(4) 62–80
© 2018 Project Management Institute, Inc.
This research adds to work on the development of infrastructure public–private partnership projects (P3s), which is a rapidly growing mode of infrastructure service delivery. Infrastructure P3 projects typically have a long life cycle, but little is understood about the nature of the changes that such a project goes through over the phases of its life cycle. This article contributes to project research as it studies the changes that an infrastructure P3 project goes through over its life cycle and suggests how those changes can be governed over the life cycle of the project.
The research is empirically informed from an in-depth case study of a highway transportation P3 in California over a 20-year period. This research shows that the developmental phases of P3s differ by dramatic changes in the composition of stakeholder networks and the use of institutional logic. First, employing social network analysis (SNA), we map the network of stakeholders in the P3 case and show how the stakeholder network changes over four phases. Second, we identify how different stakeholders use formal and informal institutional logic in their interactions, and demonstrate that the dominant institutional logic employed in the P3 changes from informal to formal over the P3's life cycle. We further show how this change in the P3's dominant institutional logic corresponds to the dynamism in the stakeholder network. We propose that infrastructure P3s should be analyzed and governed as the dynamic arrangements they are—constellations of stakeholders that change individually and undergo change collectively over a long life cycle of different phases.
public–private partnership (P3), infrastructure, project, network
Globally there is a substantial deficit in infrastructure, and public–private partnerships (P3s) are increasingly considered and utilized for the provisioning of infrastructure projects around the world. As argued by scholars over the last decade, however, there is still much to understand about the governance of these arrangements and the antecedents to various performance outcomes at different levels (Brinkerhoff & Brinkerhoff, 2011; Carpintero & Petersen, 2015; Hodge & Greve, 2007; Osei-Kyei & Chan, 2015). This is not surprising, as P3 projects generally have long life cycles (often 25 to 50 years) and there is only a small portion of modern P3s that have completed such terms. Surprising is the large number of P3s that continue to be developed, and the number of national and subnational governmental bodies that have or are establishing special P3 units and enabling legal frameworks for P3s, given a contested spectrum of perceived mixed results and unexpected outcomes (e.g., early terminations and renegotiations of previous P3s; Klein, 2015). We suggest that the continued international interest in P3s for infrastructure provisioning is in need of a more empirically grounded understanding of P3s toward the effective life-cycle governance of these projects.
The organization and governance of large infrastructure projects are complex in themselves (Aerts, Dooms, & Haezendonck, 2017; Brady & Davies, 2014), but the organization of an infrastructure P3 adds another level of complexity (Grimsey & Lewis, 2002; Teo & Bridge, 2017), as P3s engage a network of stakeholders from different sectors of society, including public, private, and civic (De Schepper, Dooms, & Haezendonck, 2014; El-Gohary, Osman, & El-Diraby, 2006; Mitchell, Agle, & Wood, 1997). The “public” domain of public–private partnerships refers to governmental bodies and authorities and publicly owned companies that typically sponsor the P3 on behalf of the public interest (noting that these organizations may also at times include private-sector consultants). The “private” domain refers to private-sector organizations involved in proposing on, bidding for, and contracting to provide a range of professional services related to the development, finance, and operation of the P3. A third, and less often explicitly addressed, civic sector refers to the general public, including users of the infrastructure (who often pay user fees of some sort), special interest groups, and affected municipal governments (Kivleniece & Quelin, 2012; Skocpol & Fiorina, 2004). In this article, we define stakeholders as organizations and/or collective action groups that interact with each other as a result of the P3. Stakeholders from these sectors have different objectives and motivations, different repertories of action, and often different value systems. Stakeholders have differing perceptions of socioeconomic value and the impact of P3s, and infrastructure in general. Even physical constraints of the P3 environment are evaluated and mediated by and through stakeholders. Therefore, it is the issue of who—which stakeholders and their interactions that are of interest in this research.
Identifying when each stakeholder is active in a P3 is also important. Infrastructure P3s are developed and operated over long periods of time that can be divided into distinct phases by key milestones with specific activities in each phase. In each phase, there are different stakeholders present or absent in varying degrees. We differentiate between the following four phases:
- Phase one, identification: This phase stretches from initial ideas and project conception to a published request for proposals (RFPs).
- Phase two, procurement: This phase is triggered by the issuance of an RFP by the P3 sponsor, continuing through evaluation of proposals and negotiations to contract award and financial close.
- Phase three, design/construction: Beginning at financial close, this phase includes design and construction, ending with commissioning of the infrastructure asset.
- Phase four, operate/maintain: This is generally the longest phase, which begins with operational ramp-up and continues through its defined concession term. It may include scheduled upgrades and repairs as well as secondary transactions, where the concession agreement and its operations are sold.
Scholars and practitioners have written about the importance of well-executed “front-end” strategy and planning for the success of large infrastructure (Artto, Lehtonen, & Saranen, 2001; De Schepper, Haezendonck, & Dooms, 2015; Edkins, Geraldi, Morris, & Smith, 2013; Miller & Lessard, 2000). However, it is interesting that key stakeholders in the latter phases of development, especially the longest and final phase of the P3 (operate/maintain phase), are seldom present in the early identification phase. To the extent that organizational stakeholders from later phases are involved in the early phases, it is generally through the representation of different individuals and at varying levels of management in the stakeholder organization. These stakeholder changes and the P3 stakeholder network change over time and add to the complexity of P3s. We argue that the temporal nature of stakeholder interactions in P3s is an important component to P3 network behavior and performance, which represents a significant gap in the current literature on P3s, and therefore a critical component of this research.
Finally, we acknowledge a growing body of research illustrating the challenges in cooperation between stakeholders of the public, private, and civic sectors over the P3 life cycle (Bryson, 2004; Cheng, Ke, Lin, Yang, & Cai, 2016; Liu, Wang, & Wilkinson, 2016; Mahalingam & Levitt, 2007). An important factor in the cooperation problem is the difference in stakeholders’ institutional logic. Each type of stakeholder is rooted in different institutional environments with their respective unique institutional logic (Besharov & Smith, 2014; Saz-Carranza & Longo, 2012). Institutional logic is the belief system and associated practice of stakeholders (Scott, 2008), which are observable through their actions and interactions with others. We identify two kinds of institutional logic: the formal and the informal kind (North, 1991). More specifically, we consider formal institutional logic as relating to legal and regulative actions, and informal institutional logic as relating to norms and cultures. Thus, in addition to looking at when stakeholders are interacting with one another, how they interact (whether formally or informally) is also important.
In order to further our understanding of infrastructure P3s, the purpose of this research is to: develop a deeper understanding of stakeholder network change in an infrastructure P3 as evidenced through stakeholder interactions based on formal and informal institutional logic across four P3 development phases.
To investigate the who, when, and how of stakeholder interactions in P3s, this article describes an empirical study of an infrastructure P3 case through the four development phases. We find that, to a surprising extent, stakeholders enter and depart the stakeholder network over the P3 life cycle, including the network's “anchor-tenant.” We use the concept of anchor-tenant from Padgett and Powell (2012) to describe the primary or dominant stakeholder in the network during each phase. The anchor-tenant shapes the purpose and mode of interaction with the largest number of stakeholders and influences the interactions between others. A change in the anchor-tenant role across phases is the first major dynamic we identify. We also find that in phases where an anchor-tenant and its activities use a formal or informal institutional logic, other stakeholders tend to use a similar institutional logic. We identify these changes in the use of formal and informal institutional logic over the P3 phases. In the identification phase, informal institutional logic is dominant. In the design/construction and operate/maintain phases, formal institutional logic is dominant. We also find that the public, private, and civic stakeholder groups use formal and informal institutional logic differently. The public and private stakeholder groups rely primarily on formal institutional logic, whereas civic stakeholders use primarily informal institutional logic. These changes and differences in the dominant institutional logic used by the P3 stakeholder network is the second major dynamic we identify.
Our findings contribute to an increased understanding of P3s and toward improving P3 governance systems. The results show that infrastructure P3s change dramatically over their life cycle, suggesting a great need to consider them as dynamic arrangements. The implication of this finding is that coordination should be organized across phases for the effective management of diverse and dynamic stakeholder networks, specifically involving dominant later phase stakeholders at the earlier phases. Further, we suggest that an overarching governance framework for increased coordination over an infrastructure P3's life cycle will allow stakeholders from all phases of the P3 to interact with one another while bridging incompatible institutional logic.
The Literature and Points of Departure
Infrastructure P3 Governance
The interest in infrastructure P3s is motivated by an urgent need to improve infrastructure around the world, and that private sector participation in infrastructure development is attractive both to governments and private investors. In general, the P3 literature has focused on risk in P3s, the financial structuring of P3 deals, and the collaborative structure of public and private organizations (Grimsey & Lewis, 2002, 2005; Iossa & Martimort, 2015; Liu et al., 2016; Teo & Bridge, 2017). The primary focus of P3 research in construction and engineering management is the governance and management of contractual and relational ties between public, private, and civic stakeholders (Tang, Shen, & Cheng, 2010). It is against this background that we conceptualize P3s as stakeholder networks involving public, private, and civic stakeholders (Fassin, 2009). P3s are unusually challenging to coordinate in that they have multiple stakeholders (Chou & Pramudawardhani, 2015; Roloff, 2008) and because they go through phases that involve considerable change in the nature of the work to be done, hence changing levels of involvement from different stakeholders (Cheng et al., 2016; Kwak, Chih, & Ibbs, 2009). Because infrastructure P3s involve such distinct and dynamic stakeholder groups, we use stakeholder theory as a conceptual frame to understand their governance.
Stakeholder Theory and Infrastructure P3s
Stakeholder theory was developed as a perspective of strategic business management, in which a stable organization could evaluate and meet the challenges of its external environment as it “takes into account all of those groups and individuals that can affect, or are affected by, the accomplishment of [the firm's] organizational purpose” (Freeman, 1984, p. 46). Freeman illustrates this external environment as including organizations in the firm's supply chain, government regulators, policy makers, consumers, media, special interest groups, and so forth. This theory was a departure from traditional strategic management theory, which considered the shareholder as the dominant stakeholder of interest to the firm. Since Freeman's original work, the concept of stakeholders has been adopted from the domain of strategic management to areas including business ethics, corporate social responsibility (CSR), and environmental justice (Laplume, Sonpar, & Litz, 2008). These perspectives on stakeholder theory suggest a normative treatment of stakeholders and their “rights” as impacted by a firm's pursuit of its objectives. Given a diversity of stakeholders and their differing focal issues and organizational structures, stakeholder interactions can take many forms. Stakeholder theory is therefore applicable to many contexts, and can be based on different kinds of stakeholder involvement (Wolfe & Putler, 2002).
Most research using stakeholder theory has studied stakeholders within and between firms, and although very few studies have explicitly studied stakeholder involvement in infrastructure P3s (El-Gohary et al., 2006), the theory has been applied to similar study domains. These domains include project management (Aaltonen & Kujala, 2010; Gustavsson & Gohary, 2012; Newcombe, 2003), P3s (De Schepper et al., 2014; Fassin, 2009), and construction management (Kwak et al., 2009; Zheng, Le, Chan, Hu, & Li, 2016). Taken together, these studies provide support for the use of stakeholder theory as applied to infrastructure P3s. We use stakeholder theory as a conceptual frame for understanding the involvement of public, private, and civic sector actor groups in a P3. Public sector stakeholders of a P3 include the public sponsoring organization, related coordinating authorities, and regulators at various levels. Private sector stakeholders include the private developer organization(s), their consultants, building contractors and suppliers, financial institutions, and infrastructure asset operators. Civic sector stakeholders include the user public, nonprofit organizations impacted by the P3, special interest groups, and media organizations. These can be conceptualized as a network of different actors. We call these “stakeholder networks,” and note that they are distinct from business networks (Zolkiewski, Turnbull, Ulaga, & Eggert, 2006), because stakeholders purposefully seek to influence and get involved with the organization that they hold a stake in. A similarity with other network conceptualizations is that stakeholder networks are often complex networks of interrelated and heterogeneous stakeholders, and we see P3s as such a complex network.
The development of an infrastructure P3 involves the management of a network of stakeholders with potentially shifting perceptions and objectives. Developing a cooperative environment with stakeholders would reduce the number of conflicts and minimize opportunistic behavior, thus avoiding important delays and costs (e.g., lawsuits, political fights, social movements). Earlier work in the transaction cost economics (TCE) literature acknowledges the role of a collaborative environment in the success of contract performance (Freeman & McVea, 2006; Williamson, 1975), yet micro-economists have neglected the importance of individual stakeholders. Other stakeholder research echoes this apparent void, noting that the differences between stakeholders in stakeholder networks have been understudied (De Schepper et al., 2014; Wolfe & Putler, 2002). Given that P3s consist of fundamentally different public, private, and civic sector stakeholders, there is strong support for using stakeholder theory to understand the stakeholder networks of P3s.
Infrastructure P3 Stakeholder Networks and Institutional Theory
Institutional theorists analyze social structures, including procedures, rules, schemas, and routines that have become established as the guiding principles for moderating organizational and social behavior in the face of institutional forces. Institutional theory offers a theoretical foundation in addressing the “processes by which social structures, including both normative and behavioral systems, are established, become stable and undergo changes overtime” (Scott, 2008). Institutional theory posits that institutions and organizations interact in a structuration process leading to shared norms (DiMaggio & Powell, 1983; Meyer & Rowan, 1977; Scott, 2008). This is important in the case of P3s, because arrangements between public, private, and civic stakeholders are predicated on their differing institutional backgrounds, which naturally produce potentially conflicting schemas and situational definitions of and within P3s (Kivleniece & Quelin, 2012).
The application of institutional theory to infrastructure P3s is interesting because these projects transcend multiple institutional environments. The arrangements of P3s are often institutionally immature, meaning that many stakeholders may have little or no experience in P3s and that regulations and norms guiding actions may not be established. Even when stakeholders have P3 experience, the specificity of P3s suggest that the composition of regulator influences, a diverse stakeholder network, and other forces from the broader environmental context are likely to produce a considerably unique arrangement. Therefore, as stakeholders approach a specific P3 from their differing perspectives and experience (or lack thereof), they will likely rely on their existing institutionalized modes of interaction, regardless of whether it “fits” the situation or is compatible with other stakeholders from other perspectives. Thus, understanding the institutional environment of stakeholders is important to understanding how they act. In this research we specifically look at stakeholders’ institutional logic.
Institutional Logic Over Infrastructure P3s’ Development Phases
We have argued that infrastructure P3s are in multiple institutional environments because they are the products of multiple stakeholders with differing institutional frames. Additionally, infrastructure P3s are typically developed over several phases, involving different stakeholders to varying degrees. We use the term “stakeholder involvement” in this research. This concept is broadly defined, and we use it purposely because the field of P3 infrastructure research is still developing. According to an evolutionary realist perspective, theory building starts with broad concepts and progresses toward more well-defined concepts and relationships between concepts (Azevedo, 1997). The concept of “involvement” is used in other research areas to represent a commitment to influence in some respect, such as in business, corporate social responsibility, social economy (Reed & Reed, 2009), public administration (Vigoda, 2002), or organizational involvement (Zsidisin, Panelli, & Upton, 2000). Our definition of stakeholder involvement in a P3 is: the degree to which a stakeholder is central to the P3. Such a wide definition is motivated by the early stages of P3 research. As research progresses, we are confident that stakeholder involvement will be defined more clearly. Figure 1 illustrates conceptually how the involvement level of different types of stakeholders might vary between phases and identifies the potential discrete triggering events between phases.
Miller and Olleros argue that large engineering projects pass through numerous successive events that “shape” projects (2000). Other scholars of project management also suggest various phases of project development. P3s are a unique class of large engineering projects given their extended operations phases, which typically last 25 to 50 years and longer. We propose a decomposition of the P3 life cycle into four key phases (as depicted in Figure 1), delineated by discrete events common to most highway transportation P3s. This scheme was developed through a comparative analysis of 18 U.S. highway P3 cases at various stages of development, and further refined in a roundtable on P3 governance with senior executives and managers and state transportation officials involved with P3s for infrastructure development. The first phase involves the identification of an infrastructure asset for P3 delivery; the second is the procurement of the P3 concession; the third is the design and construction phase (which includes a large portion of the active finance activities); and the final phase is operations and maintenance (which historically has included asset monitoring, performance measures, benchmarking, secondary transactions, and so forth).
Figure 1 depicts a P3 public sponsor and a private developer involved early in the project, with the sponsor's level of involvement higher. As the P3 concept progresses through the identification phase, and becomes more probable, both become more involved; at this point, civic users may become involved (either purposefully or spontaneously). As a request for proposal (RFP) is published, private investors and private operators are generally engaged as teams to form and produce proposals. At the time of award, the sponsor is likely to be at its highest level of involvement and more involved than any other stakeholder. After the P3 concession is awarded, the developer increases its involvement in the P3 during the design/construct phase. Investors are also highly engaged in advance of financial close. The sponsor often begins to reduce its involvement in the project, while the operator dramatically increases participation in preparation for the operate/maintain phase. During this last phase, stakeholder involvement may stabilize; however, as is repeatedly the case in practice, the developers of P3s dramatically decrease their involvement and may seek to exit the arrangement.
Figure 1. Conceptual phases of infrastructure P3 projects, with fluctuating levels of stakeholder involvement.
The changes in stakeholder involvement over the phases are depicted here as gradual, with smooth curves indicating increases and decreases of involvement. However, there may be reason to consider some discrete events, such as the submittal of an RFP or the signing of an awarded concession agreement, which would produce a steeper increase in stakeholder involvement. Naturally, only a few of the key stakeholders in the P3 stakeholder network are discussed and depicted in Figure 1. Here we highlight that stakeholders’ involvement changes over time in an infrastructure P3; thus the composition of the stakeholder network also changes over the phases.
Because multiple stakeholders from differing institutional environments are engaged in the P3 network, stakeholders presumably represent their institutional frame to varying degrees. Based on how stakeholder theory and institutional theory relate to infrastructure P3s, we argue that both are relevant and should be combined. Even though stakeholder and institutional theories have not been applied simultaneously to infrastructure P3s previously, we believe that the nature of the phenomenon of phase-based network dynamics can be explained by combining these theories. We therefore propose the use of stakeholder networks and institutional environments as a conceptual framework for the analysis of an infrastructure P3 case. Existing research is not well developed on P3 governance, particularly with respect to stakeholder engagement and management, so we use the framework to guide our analysis toward theory generation from our in-depth case-based observations.
Method and Data
To empirically understand the involvement of public, private, and civic stakeholders throughout the life cycle of the P3, we take an exploratory in-depth case study approach with the P3 known as California State Route 91 Express Lanes (SR91X). This retrospective case covers more than two decades, from identification of the potential P3 in the early 1990s, to its ongoing operations and maintenance phase.
Case study research is an appropriate way to explore specific issues within a “bounded system” (Creswell, 2006). Additionally, case study research allows for a rich understanding, including the uncovering of hidden, indirect, or otherwise nuanced elements and causal factors (Eisenhardt, 1989). Such a design is limited in its ability to generalize findings to other cases, but is well-suited to informing scholars of potential elements influencing the life-cycle governance of complex P3 arrangements.
In case study research, the selection of appropriate cases is central to the research design and its effectiveness (Eisenhardt & Graebner, 2007; Flyvbjerg, 2011; Yin, 2013). The SR91X case was selected because it satisfied two important criteria. The primary consideration was selection of a case where the broader environment could encompass a maximal number of potential internal and external forces. This was important, as we wished to search widely for elements that may be found to influence the P3 governance structure. During the time of this case in the 1990s, U.S. public and private sectors were inexperienced with modern P3s. Particularly in the case of early U.S. P3s, there was little in the way of a national or state level “P3-development road map” for public agencies or private developers to follow. This was important because we wanted to explore the “raw” aspects of P3s and their emerging fields, with their ensuing unexpected obstacles and unintended consequences. SR91X was the first modern highway infrastructure P3 in the United States (since the 1950s).
The highway transportation sector was also purposefully selected. In order to understand the dynamics of perceptions and reactions as a P3 moves across development phases, it was necessary for a case to have sufficient recordable data in each phase. The U.S. highway transportation sector contains several P3s that have transitioned into their operations phase. Other infrastructure sectors, such as public service buildings (e.g., hospitals, civil government buildings, and schools) are only now seeing assets begin their operational life in the United States. Additionally, highway transportation P3s generally garner wide publicity, producing a potentially large number of recorded observations accessible through secondary data sources. This is due to the highly visible nature of the P3s, which are often located in densely populated areas; affect large geographic areas in terms of land disturbed; assets are normally situated in high traffic areas where stakeholders are directly and consciously aware of the P3 (particularly during lengthy and disruptive construction timelines). Once operational, high volumes of user-stakeholders interact directly with the P3—meaning that they actually use (drive on) the asset, versus telecommunications, water, and wastewater P3s in which user-stakeholders experience and must pay for a service provided by a P3 asset, but do not interact with or even see the asset itself. Finally, a highway transportation P3 often incorporates multinational teams for development and frequently introduces new technologies, which often represent additional types of stakeholders and other institutional factors potentially influencing the broader environment of P3 development.
The second case selection criterion was the availability of primary and secondary data sources. SR91X was preliminarily analyzed along with several other peer cases, and was well documented by media, government, and academic organizations. As a result, multiple secondary data outlets provided significant coverage for archival analysis. Additionally, primary data sources with direct experience in multiple phases of the P3 were also available and willing to be interviewed for this research.
SR91X is a California highway transportation asset, which includes 10 miles of four tolled lanes (two in each direction) along the heavily traveled East-West corridor of State Route 91 between Riverside County and Orange County. The State Route 91 express lanes were constructed in the highway median between the existing non-tolled “general purpose” (or “free”) lanes, separated by plastic pylons. The express lanes are tolled using an account-based system of payment, where registered user vehicles are recorded using automatic photo capture of license plates and/or in-vehicle transponders at non-stop electronic toll gantries. The free-flow aspect of the system allows traffic to maintain highway speeds. A variable congestion-pricing scheme is used for establishing toll rates, and historical travel data are used to determine graduated peak times and rates for lane usage. These published rates are updated on a quarterly basis. The SR91X asset was developed on land controlled by the California Department of Transportation (Caltrans), the state agency responsible for highway, bridge, and rail transportation planning, construction, and maintenance. Caltrans, the sponsoring agency, entered a franchise agreement (a concession agreement) in 1993 with the California Private Transportation Company (CPTC). CPTC is a special purpose vehicle (SPV), a temporary organization owned by a consortium of corporate owners for the purpose of designing, building, financing, operating, and maintaining the asset. The concession agreement contractually allowed CPTC to collect tolls to recover their investment and earn a profit subject to the agreement's terms and conditions.
In 1980, State Route 91 had an average of 91,000 vehicle trips per day and was becoming one of the busiest stretches of highway in the country. As real estate prices in Riverside County were significantly lower than neighboring Orange County, and Orange County had thriving employment centers, individuals continued to move east to Riverside County for the lower costs of home ownership while maintaining employment in Orange County. The topography of the region illustrates the geographic challenge of building additional capacity anywhere beside the Santa Anna Valley, a single valley connecting these adjacent portions of Orange and Riverside Counties. State Route 91 was an effectual “land bridge.” As a result, the growing populations in Riverside County and the surrounding Inland Empire increased transportation pressure on State Route 91. By 1989, traffic on State Route 91 had more than doubled, with over 188,000 average vehicle trips per day.
During the time that State Route 91 was experiencing extreme traffic growth, California continued to experience constricted funding sources for transportation and increasing highway construction costs, two factors increasingly present in the 1970s and 1980s. In 1982, California increased the state gasoline tax from US$0.07 to US$0.09 per gallon, the primary funding mechanism for state highway construction, but this amount failed to match inflation, let alone the growing demands for highway infrastructure. Then, in June of 1988, a vote for the Governor's state bond initiative to help close the highway-funding gap failed.
In response to the general highway transportation congestion of the greater Los Angeles metropolitan area, the nonprofit Reason Foundation published Policy Study No. 111 “Private Tollways: Resolving Gridlock in Southern California” in May of 1988 (Poole, 1988). Borrowing from European, Asian, and Australian examples, the study suggested three innovations that could relieve traffic pressure: congestion pricing, private toll roads, and automatic electronic identification and toll collection. As the bond referendum failed, Robert Poole, Jr., director of the Reason Foundation, wrote an opinion editorial for the Los Angeles Times highlighting findings from the foundation's recent study. After the Los Angeles Times printed the piece, the Governor's Office of Planning and Research, the new top leadership at Caltrans, and leaders of other government and quasi-governmental organizations began discussing the possibility of private sector participation in the development of public infrastructure. Approximately one year later, California Assembly Bill 680 (AB 680) had passed and was signed into law with immediate effect. The key points of AB 680 stated that (California, 1989):
Figure 2. SR91X project timeline.
- California needed an efficient transportation system.
- Public sources of revenue had not kept pace with transportation needs.
- An important alternative was privately funded build-operate-transfer projects (a synonym to the conception of modern P3s) for infrastructure delivery.
- Private entities will have the right to charge tolls to recover investment and operations costs, which will include a reasonable profit.
- Caltrans should be permitted and encouraged to develop four demonstration projects—SR91X was the first of the four demonstration projects to be completed (one of only two projects that would be completed under this legislation).
This is a mixed-data empirical study, employing the collection of multiple qualitative types of data with a complementarity logic (Small, 2011). Primary data were gathered from in-depth and semistructured interviews of senior-level executives, managers, and directors involved at different phases of SR91X. Interview participants were sampled from a cross-section of stakeholders along the project timeline, occupying different positions and roles as employed by various organizations. Access was obtained through chain-sampling of SR91X participants. Interviews began with participants most closely connected to the development and management of SR91X in the early phases of project identification. A total of 12 one-hour interviews were conducted. Handwritten notes were taken during semistructured interviews and later typed for coding. Indepth interviews were recorded and transcribed verbatim by the researchers for coding.
Retrospective analysis can be difficult when asking respondents to think back on past experience. This research mitigated the problem of recall by focusing on critical events, events that materially shaped SR91X, which are the most easily recalled by respondents and verifiable with secondary data sources. In addition to understanding which events were perceived as critical, follow-up questions sought to inform our understanding of “why” respondents held these perceptions. This was necessary to connect perceptions and meaning to stakeholders’ actions following these events. P3s are comprised of a diverse network of stakeholders, each with differing interests that underpin their identities, objectives, and repertoires of action.
We consider this approach consistent with the “new archival” tradition of organization research: employing formal analytic methods; emphasizing organization processes, relations, and shared meanings; and an interest in the underlying logic that connect these elements (Ventresca & Mohr, 2005). Archival collection of over 120 publicly available media accounts, fact sheets, annual reports, government documents, academic papers, and other similar sources were collected and coded. These sources, coupled with interview materials, were coded to develop a project timeline for SR91X with 110 critical events over a 20-year period. The raw data for this study were this first order coding and construction of a critical event register from within the project timeline (Figure 2 illustrates the general timeline of SR91X).
Figure 3. Identification phase network.
Social Network Analysis
The case is analyzed using social network analysis (SNA; Rowley, 1997). SNA allows us to observe relationships between interacting stakeholders and theorize on the importance of those relationships (Knoke & Yang, 2008; Scott, 2000; Wasserman & Faust, 1994). The use of SNA is new to stakeholder research. The only application we know of is a study of natural resource utilization stakeholders, using SNA (Prell, Hubacek, & Reed, 2009; Zheng et al., 2016).
A second order coding of the critical event register produced a register of 62 stakeholders and 128 dyadic relationships in four phase-based networks. Each event represented a type of relationship (tie) between stakeholders, and ties were considered present for the P3 phase in which the coded event occurred. These sets of stakeholders and ties were used to construct four network graphs, one for each of the four phases of the P3 development cycle, using open source SNA software (Bastian, Heymann, & Jacomy, 2009). The network graphs are displayed in Figure 3.
SNA provides a considerable array of measures and network statistics that represent network properties as a whole. In the present research, we report on multiple properties from each of the four temporal phase-based stakeholder networks listed in Table 1. No. of Actors includes the number of actors present in each stakeholder network. No. of Ties includes the total number of event-derived ties (relationships) in each stakeholder network. Avg. Degree represents the average number of ties each actor has in the network. Network Dia. is the diameter or longest of all shortest paths connecting any two actors (stakeholders) of the network. Graph Density is a ratio of the actual number of ties between actors to the total possible number of ties. Avg. Path Length is the average number of ties it takes to connect any two actors.
To understand the institutional context influencing these stakeholders, the critical event register was coded again to evaluate whether event-based relationships between each set of connected stakeholders in each phase-based network reflected a formal or informal character. The manner of interaction between stakeholders, coupled with first-hand accounts, provided insights into the types of relationships between stakeholders based on their individual capital, logic, and repertoires of action (Henisz, Levitt, & Scott, 2012). Formal relationships were primarily contractual or economic transaction-based events. Informal relationships generally represented discourse and other interaction events. These formal and informal sets of relationships were used to derive subnetworks for each of the four P3 development phases. In Table 2, we report on the same network properties for the formal and informal sub-network of each phase-based stakeholder network.
SNA also provides for the calculation of individual actor properties within the network. For the purposes of the present research, measures of a stakeholder's centrality in a network are useful for understanding the power and influence of that stakeholder (Jackson, 2008). A specific measure of centrality— eigenvector centrality—calculates the number of connections an actor has, and then factors the relative importance of its neighbors (Bonacich, 1972, 2007). In Table 3, we report on the eigenvector centrality of each actor in the total stakeholder network and each of the two sub-networks for all four phases.
Results and Discussion
In this section, we discuss the stakeholder membership dynamics of the network as they progress through the P3 development phases, or P3 life cycle. Then we discuss the formal and inform sub-networks in each phase, and illustrate how the P3's dominant mode of interaction switches from informal to formal. Using SNA we constructed a total of 12 networks. In each of the four phases, we mapped the total network, the formal sub-network, and the informal sub-networks. The graphic representations of the total network for each of the four phases are displayed in Figures 3 to 6. We use an undirected network with all relationship weights equal; that is, ties between each dyadic pair of stakeholders were coded as present (represented by a line between the two) or absent (no line). In each network, the individual nodes represent a stakeholder. The size of the node is determined by the stakeholder's eigenvector centrality as reported in Table 3. Actors were coded by sector and are depicted by the following scheme: public stakeholders 5 circles, private stakeholders 5 squares, and civic stakeholders 5 triangles.
Total Network Changes Over the Phases
In the identification phase of the P3 we see the dominant position of Caltrans, the P3's public sponsor. A number of peripheral stakeholders are engaged, although this graph's density (see Table 1) is at its lowest in the P3 life cycle. This is not surprising, as the P3 arrangement is new to the group of stakeholders, and network relationships are still forming. Immediately interesting is network size, the number of stakeholders in the total network. Rather than a gradual buildup of stakeholders over time, the number of stakeholders is quickly established and the total network size remains relatively similar over the phases. This identification phase network of the P3 contains more stakeholders than all but the final phase, and encompasses a relatively short portion of the P3 timeline.
Table 1. Network Properties of Four Phase-Based Networks.
Table 2. Network Properties of Formal and Informal Sub-Networks From Each Phase.
Table 3. Eigenvector Centrality Values for Each Stakeholder Present in Each Network of All Four P3 Development Phases.
As the P3 progresses to the procurement phase, Caltrans continues in its position as the network's anchor-tenant. Procurement includes requests for proposals, evaluation of proposals, and efforts of the successful private developer to reach financial close. Thus, we see a number of private stakeholders (bidders) connected to the public sponsor Caltrans, and then the team of stakeholders connected to CRSS, the winning private developer lead in the P3 deal. It is somewhat surprising that in this phase many of the stakeholders from the first phase (users, interested civic groups, regulators, nonprofits, and so forth) are no longer active. This phase contains the smallest number of actors in the P3 life cycle. Additionally, the network is somewhat polarized, with only one stakeholder—the purpose formed special purpose vehicle (SPV) CPTC—connected directly to both the public and private “sides” of the network.
Figure 4. Procurement phase network.
In the design/construct phase of the P3, we see a change in the anchor-tenant position of the network. The public sponsor quickly loses centrality in the network, and the private developer becomes more central. This also is not surprising, as the efforts of private stakeholders occupy most of the P3 activities during this phase. It is interesting to note, however, that the public sponsors’ activities are generally channeled through the SPV's design/builder, and not directly to the SPV itself. This observation questions the continuity of the network. In this case, the network relationship (termed “partnership” in P3s) between Caltrans and CPTC is quickly strained and becomes oppositional soon after the design/construct phase. Also interesting in this network is the appearance of the P3's most vociferous opponent, as the only other stakeholder connected directly to the public sponsor.
The operate/maintain phase demonstrates the most connected view of the P3 network, with more ties and the highest density of the four phases. There is also the highest number of stakeholders engaged in the P3. At first this is surprising, because the P3 has been present for over a decade and has been normalized to some degree within the broader environment. However, further inspection into this specific case reveal that misaligned objectives between the P3's purpose and individual stakeholder's objectives and challenges in the fundamental P3 arrangement (stemming from its “liability of newness”) have brought into the P3 network a host of new stakeholders. One such misalignment is that of the long-term nature of a P3, designed to deliver a strong yet capped return on investment (ROI), and the objectives of key private members of the SPV. The primary SPV members were contractors and developers, who seek to make returns from de-risking construction projects. Once the P3 was operational, and the capital investment costs were captured from the design/construct phase, SPV members were less interested in holding the asset.
During this phase, OCTA, a regional transportation authority, becomes the secondary owner of the SPV. Only the asset operator, whose commercial objectives are closely aligned with those of the P3, remain a stakeholder in the network as original members of the P3 depart from the network.
Perhaps the most interesting membership dynamic within the P3 life cycle is the extent to which stakeholders enter and depart the network. This is readily observable by the dramatic shift in the anchor-tenant position and other highly central stakeholders across the P3 development phases. The phenomenon of dramatic network membership change is also highlighted by the fact that few stakeholders are present in all phases. Only 3 out of 62 stakeholders, less than 5%, are present during all four phases. Those stakeholders present in all phases are (1) the public sponsor Caltrans; (2) the SPV CPTC; and (3) Riverside County, a local government entity where the physical asset is located. The first two are both anchor-tenants at some point in the P3 life cycle. Additionally, 43 of the 62 stakeholders, 69%, are present in only one phase of the P3's development.
Informal and Formal Sub-Network Changes Over the Phases
The results presented in Table 3 divide the total network into sub-networks by each phase and then into the formal and informal networks. The results show that formal networks grow over phases in the number of ties, average degree of centrality, and graph density. The results for informal networks show decay over phases in the number of ties, average degree of centrality, and graph density. These sub-network graphs are provided with the total network graphs shown in Figure 7. The network growth and decay patterns are evident in this figure and illustrate that the formal network goes from being composed of fewer stakeholders that are less interconnected, to additional stakeholders that are more connected. The opposite pattern can be seen for informal networks, going from being more numerous and interconnected to sparse and incomplete. This raised an interesting question for the researchers: Why is it that there appears a necessarily dominant mode of interaction? While there were some instances of stakeholders interacting both formally and informally, it was much more prevalent that stakeholders would interact either in one mode or another.
Formal and Informal Institutional Logic in Stakeholder Networks
This research presents new empirical evidence for the extent to which infrastructure P3s change over phases of the development life cycle. We find that there is a switch in the institutional logic (as evidenced by the dominant mode of stakeholder interaction within each phase) from predominantly informal to predominantly formal across the four phases. Specifically, we find that in the identification phase stakeholder networks are based on an informal institutional logic. In the operate/maintain phase, however, the stakeholder network is based more on a formal institutional logic. The switch in dominant institutional logic is depicted in Figure 8, where it can be seen that the dominant institutional logic changes as the informal stakeholder sub-network decreases in density, and the formal stakeholder sub-network increases.
Figure 5. Design/construct phase network.
Figure 6. Operate/maintain phase network.
The networks have thus far been analyzed for public, private, and civic stakeholder groups taken together, in one stakeholder network. To further illustrate the consequences of the shift in institutional logic, we conducted separate analyses for the different stakeholder groups. Partitioning the P3 network into public, private, and civic stakeholder groups yields relatively small networks for each phase; hence there is a need for further research to confirm our findings. We take the empirical results of numbers of group ties per phase as indicative of what might be found.
As shown in Figure 9, public stakeholders use formal institutional logic most in the identification phase, followed by construction and operations, but least in procurement. Examples here include the sponsor's proposal to the voters, the submission of impact reports to other state and federal agencies. The public uses informal institutional logic most in the identification phase, followed by construction, procurement, and least in operations/maintenance. This is slightly perplexing, as the dominant mode of interaction for the total stakeholder network during the identification phase is informal. The anchor-tenant of the identification network, however, is the public sponsor, a public actor group that primarily interacts formally throughout all four phases. We take this as evidence for the messy business of “shaping” in the early phase of any large engineering project (Miller & Olleros, 2000).
The private stakeholder sub-network (see Figure 10) shows that formal institutional logic increases over phases, being almost nonexistent in the identification phase, increasing during procurement, peaking through construction, and then decreasing in operations. This is consistent with the case data that showed numerous private stakeholders engaging informally during the identification phase in an almost ad hoc basis. Potential firms in pursuit of P3 participation sought teaming opportunities, attended non-mandatory information meetings, and so forth; however, once a proposal was accepted, most relationships became formal—based on contractual obligations to participate in the finance, design, construction, and operation of the P3. After construction concluded, many private stakeholders then left the active stakeholder network, and in this case even the private anchor tenant sought exit. The number of informal relationships was maintained, but also naturally decreased as the project operations phase began and the surge of private stakeholders waned.
Figure 7. Formal and informal sub-networks with the total network of each P3 development phase.
Figure 8. Switch in dominant institutional logic of stakeholder networks.
Figure 9. Public actor group ties over P3 phases.
Empirical data illustrating the low number of civic stakeholder ties (evident in Figure 11) were interesting on two counts. First, that the level of engagement for civic stakeholders was relatively high early in the process. Project shaping concepts suggest that the early phases of the project development processes involve few stakeholders (Miller & Olleros, 2000), particularly low-power stakeholders, such as civic stakeholders, confirmed by their centrality measures. Second, that civic stakeholders have few formal ties throughout the entire P3 life cycle. This second fact may support what scholars of social movements have suggested as the reason why civic stakeholders face difficulties in mobilizing collective action (McAdam, 1999; McAdam et al., 2010). Civic stakeholders are low-power actors that lack compatible formal logic to engage in the P3 process as it becomes increasingly formalized.
Figure 10. Private actor group ties over P3 phases.
Figure 11. Civic actor group ties over P3 phases.
Figure 12. Formal network ties across P3 phases.
Comparing public, private, and civic stakeholder groups from this case, we begin to see how each stakeholder group engages differently with formal and informal institutional logic throughout the P3 development life cycle. Taken together, as shown in Figures 12 and 13, the collective decrease of informal interactions and increase in formal interactions over time is evident.
Figure 13. Informal network ties across P3 phases.
Conclusions and Considerations for P3 Governance
This research presents an analysis of the changing stakeholder network for a highway transportation P3 case. Using mixed data from an in-depth case study, we constructed a register of critical events over the P3 life cycle. From this event history, we built a register of stakeholders and time-based tables of dyadic relationships between stakeholders. Using SNA, we further analyzed the relationships between stakeholders toward our purpose of developing a deeper understanding of stakeholder network change. Through this process we found, that for this case, infrastructure P3s are much more dynamic than we expected. Across four phases of P3 development, we identified this dynamism through dramatic changes in the composition of stakeholder networks and the changing use of institutional logic. More specifically, that:
- The stakeholder network is quite fluid, with less than 5% of stakeholders remaining engaged throughout the development life cycle, and almost 69% participating actively in only one phase.
- The stakeholder network's anchor-tenant changes across phases.
- The dominant institutional logic for the stakeholder network also changes, switching from primarily informal to primarily formal across the P3's life cycle.
- Stakeholder groups (i.e., public, private, and civic sectors) use institutional logic differently over the P3 life cycle.
Results from a single exploratory case study are limited from producing broad implications, however we believe practitioners and policy makers can consider some useful ideas distilled from this research. We have noted that infrastructure P3 stakeholder networks change significantly over developmental phases, which presents a problem because any gap in the coordination and integration of stakeholders across phases opens the potential for shortsighted opportunistic behavior. And as stakeholders’ involvement in the P3 life cycle is generally not persistent, issues that do not surface until later in the project are likely borne and “paid for” by those in the later phases. Overly dynamic networks may encourage early phase actors to push the cost for potential challenges and risks to the later phases. The irony here is that the long-term coupling of stakeholders to asset performance is one of the very reasons P3s are championed. We suggest that there may be a need for governance structures that mitigate potential opportunistic behavior and encourage truly long-term participation in the P3.
As an example of how this might be done, P3s could be organized so that a private concessionaire will assume overall responsibility for the P3 from the procurement phase and be required to hold it through the operate/maintain phase. Public stakeholders (P3 sponsors) would prioritize infrastructure projects based on political and economic considerations, in the best interest of the civic stakeholders. Given that civic stakeholders primarily interact through informal logic, the public sponsor could include greater informal engagement programs to interact with civic stakeholders. Key private stakeholders who are awarded the P3 concession during procurement may legally be required to have an enduring role in the P3. This is likely to shift the predominant anchor tenant role from a developer to a long-term investor (or a developer with a longer financial stake in the asset), whose commercial interests are deemed more closely aligned with those of the P3's performance. Additionally, the public sponsor could take a more active role in the Design-Build-Finance (DBF) and early Operate-Maintain (OM) phases for construction coordination and engagement with civic stakeholders (many of whom do not consciously take notice of infrastructure development until it begins to affect their daily routines). Public sponsors typically avoid such roles, but are often drawn back in when challenges arise.
This is a dramatic shift from the U.S. model of construction company asset developers filling the anchor-tenant position during the procurement and DBF phases (a small percentage of time—a few years—considering that a P3 may last 30 to 50 years), then exiting during the early years of the OM phase for long-term investors and infrastructure managers to pick up (Verweij, 2015). Such was the case with the SR91X, an aspect of the P3 that caused significant turmoil for the sponsor, developer, and operator. A departure from the U.S. model would suggest that public authorities may need to support and encourage capacity building and a new institutional frame for long-term investors, and similarly require capacity building within public sponsoring agencies—no small task!
Another idea is developed from the finding that the stakeholder network's anchor-tenant changes across phases. In the present case, the public sponsor (Caltrans) initially filled the anchor-tenant role in the identification and procurement phases. Later, however, during the design/construct and operate/maintain phases, Caltrans had diminished in centrality and CRSS (initial developer) and CPTC (eventual SPV) became the most central stakeholders in the network, respectively. This result is interesting with respect to the anchor-tenant and their dominant institutional frame. One hypothesis may be that the anchor-tenant sets the dominant frame for the interactions between stakeholders in the network. In SR91X, that anchor-tenant is a public institution initially. As the network's anchor-tenant shifts, so might the dominant institutional logic; therefore, the mode of interaction between stakeholders would also likely change. Legitimacy seeking institutions in the P3 stakeholder network might well be shifting their frames to fit that of the new anchor-tenant, while reconciling their own. Here lies a potential issue. Some stakeholders may not be successful at such a reconciliation. For example, civic stakeholders in this case apparently had little or no formal institutional logic compatible with the anchor-tenant, and the civic sector diminished their involvement even while the P3 progressed toward operations. Thus, at the height of their observable interaction with the P3 (e.g., the user public utilizing the asset, driving on the new highway lanes and paying tolls), the only formal involvement was a transportation/transaction script between the individual users and the P3 operator, which came many years after project conception. Presumably the public sector stakeholders represent the civic sector stakeholders. Even so, we saw few instances of interaction between the groups, suggesting again that greater engagement with civic sector stakeholders by the public sponsor may be necessary.
Limitations and Future Research
The present research analyzes an infrastructure P3 case with regard to stakeholder networks and stakeholders’ institutional logic. The research is thus limited to the theoretical perspectives chosen and the case chosen. We do not make claims on the generality of our findings, but see the case as a rich source of ideas for future research. We limit our conclusions and theory development to infrastructure P3s. We believe, however, that the theoretical concepts we have highlighted can be useful for a wide range of projects, businesses, and governance arrangements that are similarly complex and dynamic with regard to multiple changing stakeholders and long time horizons.
Due to the long time horizon of an infrastructure P3, it has been practically difficult to study it longitudinally through continuous participant observation. We used a retrospective empirical study method, and such methods may result in important pieces of data that are missing. For instance, the indirect influence of stakeholders that are not captured in the stakeholder register may be important. Specific to this case is the fact that the P3 has received an extension of its tolling authority, meaning that its ongoing operations will continue. Interactions between stakeholders as a result of this event are therefore not captured in this study. Additionally, while the systematic approach to our mixed-data case study produced a significant number of key stakeholders in the process, there are potentially other stakeholders and relationships that we have not captured, which may alter or enrich our dataset.
Infrastructure P3 governance research should consider the differences between phases as potentially important organizational characteristics. Until now, most research has treated P3s as one phase or process, but the current research shows that an infrastructure P3 can differ dramatically from one phase to the next. Future research should investigate the extent to which differences between phases of P3s can be generalized to other cases, through other systematic studies of transportation, water, and social infrastructure projects. Studies on how such P3s are organized differently and any correlated changes in stakeholder networks would also be important. Additionally, stakeholder network studies of different long-lived and complex public–private arrangements (e.g., urban systems, shipping, state-owned enterprise) would be useful.
Finally, we cannot accurately describe the fine-grained social dynamics of stakeholder networks and dyadic relationships. Other research approaches could use deeper methods to add more understanding to the composition and dynamics of stakeholder networks and institutions; both qualitative and quantitative research would be useful.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
The author(s) received financial support for the research, authorship, and/or publication of this article: The authors received financial support from the National Science Foundation Grant #1334292, and from the Global Projects Center at Stanford University for the research, authorship, and/or publication of this article.
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Andrew South is an interdisciplinary doctoral candidate in Civil and Environmental Engineering at Stanford University, Stanford, California, USA. Andrew has 10 years of construction and business management experience across a broad range of sectors and in various countries, and holds a master's degree in construction management from Brigham Young University, Provo, Utah, USA. He is a Coleman F. Fung Interdisciplinary Graduate Fellow, and a lead researcher in the Global Project Center's 3-year P3 governance research project sponsored by the National Science Foundation. He can be contacted at email@example.com
Kent Eriksson received his PhD from Uppsala University, Sweden, and works at KTH, the Royal Institute of Technology in Stockholm, Sweden. Kent is conducting research on private–public partnership infrastructure projects and investor management of risk and uncertainty. Additionally, he cooperates with researchers at Abo Akademi, Turku, Finland, on infrastructure finance. He has been a member of the board of directors of the Swedish financial supervisory authority and the European Commissions’ financial services user group. He can be contacted at firstname.lastname@example.org
Raymond Levitt earned his BSCE at Witwatersrand University, Johannesburg, South Africa, and his MSCE and PhD at Stanford University, Stanford, California, USA. He served on the MIT CE faculty from 1975 to 1980 before moving to Stanford in 1980. He founded and serves as Academic Director of Stanford's Advanced Project Management Executive Program and The Collaboratory for Research on Global Projects. He was elected to the rank of Distinguished Member of ASCE in 2008. In 2009, Governor Arnold Schwarzenegger appointed Dr. Levitt as one of the initial commissioners for the State of California's Private Infrastructure Advisory Commission. He can be contacted at email@example.com
1 Stanford University, Stanford, CA, USA
2 KTH, Stockholm, Sweden and Abo Akademi, Turku, Finland
Kent Eriksson, KTH, Sweden and Abo Akademi, Turku, Finland.
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