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P3 projects provide new opportunities, challenges for contractors

public private partnerships, metal construction news, marcy marroIn recent years, public-private partnerships, also known as P3s or PPPs, have become more prevalent in the United States as federal, state and local governments look for alternative approaches to fund, finance and deliver public infrastructure projects.

According to the National Council for Public-Private Partnerships (NCPPP), a public-private partnership is a contractual agreement between a public agency (federal, state or local), and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility.

 

Benefits of P3s

According to Geoffrey Stricker, managing director at Edgemoor Infrastructure & Real Estate, Bethesda, Md., a wholly owned subsidiary of Bethesda-based Clark Construction Group LLC, P3s are a procurement approach that can be used across a variety of market sectors and geographies to a client's benefit. In addition to design and construction oversight, Edgemoor works with clients on everything from site identification, feasibility, entitlements, permits, arranging financing and overseeing the construction and delivery as well as long-term facility management. The company, which was founded in 2001, has developed or has under development approximately $2 billion in projects ranging from all levels of education, judicial, municipal and transportation. Currently, the company is working on an eight building master development plan at the University of Kansas in Lawrence, Kan.

Stricker says P3s stemmed from a recognition, mostly by public sector clients, that were tired of some of what went on during traditional design-bid-build delivery, and were interested in more of a turnkey solution. "We deliver turn-key solutions for facilities and in that role we provide a guaranteed price and a guaranteed schedule, so they shift the risk of cost and schedule onto the private sector, away from the public sector," he explains. "They can do that for long-term operations, and they can leverage the private sector, arranging and structuring financing, and in certain project cases, investing as well."

Jeffrey Sronkoski, principal/director of higher education at Chicago-based Legat Architects says the biggest advantage of P3 projects is the client's ability to fund a project when it might not otherwise be funded. And, as Stricker explains, P3s have given municipalities that have a need for public infrastructure, but given the long-term impacts of the recession, where state and local budgets in many cases haven't returned to levels where they were previously, another option to procure and deliver assets.

 

A Different Approach to Projects

Stricker says a P3 project is different than a traditional design-bid-build delivery, in that you are transferring the risk and responsibility for development activities including managing the architects, getting permits, identifying a site, securing entitlements, and managing the construction, to the private sector. "You're shifting the risk of the cost and the schedule to the private sector," he adds.

"One has to consider the missions, visions and value of the multiple partnering institutions, instead of just one, as we are interpreting their needs into design solutions," says Sronkoski. Legat Architects has been involved in a successful P3 project for one of its community college clients, where the college partnered with the local park district and a local private hospital to build a new athletic and wellness facility on the college's property.

Sronkoski notes that the primary needs of each were: for the college, to have a competition gymnasium for basketball and volleyball with locker rooms; the park district, to have a natatorium and locker rooms; and the hospital, to have a medically-based fitness and wellness center.

 

A Different Way of Thinking

One of the challenges of P3 projects is that they not only include design-build, but also long-term operations and maintenance (O&M). Therefore, the development contracts are a bit more complex and involved than regular projects, and Stricker says the procurement cycle could last as long as two years from request for quotation (RFQ) to award. "The development agreement contract you are ultimately signing is larger and more complex given the nuances of a P3 transaction," he explains. "Every project we've done, regardless of the building type is different. The contract's been different, the scope's been different, whether we have financing or not, O&M or not, etc. Because of all of these subtleties and complexities, it takes longer to get through to the point of starting construction."

Additionally, Stricker says the real benefit of a P3 to a public-sector client is changing the mindset from being the lowest cost on day one to what is the lowest life cycle cost. "Meaning," he explains, "over the course of 30 or 40 years as you're operating the building, what is the most efficient for that building not only from construction but also a long-term operations perspective. And that mindset of bring the O&M process and thought into the design is very different for most construction companies."

Once a project moves past the contract phrase and into design and construction, the owner is still in control in P3 projects. They provide input and make all owner-level decisions, while the day-to-day management and coordination of the development process is handled by the private sector.

Stricker says this allows the public sector to be more efficient with their people, staff and resources. "Typically what we find is that when there's a P3 project and we bring our resources to bear, the client can reduce the staffing it would otherwise typically put on a project and therefore can be more efficient in managing all of the other projects it has on its plate," he says.

 

Successful Project Elements

Stricker says that one of the things they've learned over the years is that all successful P3 projects have two key elements. "One is what we call a political champion," he says. "It's somebody who spearheads the project from a political perspective, and he or she is willing to move the project forward and try something new."

But besides a political champion, Stricker says every project needs a staff champion. "This is not a political person, but somebody who is doing the day-to-day work and is empowered to make decisions to move the project forward."

 

The Future of P3

Sronkoski believes P3 delivery will continue to grow as funding for public projects continues to be scarce. "No two P3 projects will be the same," he says. "Each project will have the ability to adjust the length of the term, as well as the five basic P3 components: design, construct, finance, operate and maintain."

And, Sronkoski adds, "The partners need to work together to ensure that their combined missions, visions and values are supported by the project."

 

To learn more about public-private partnerships, visit the National Council for Public-Private Partnerships (NCPPP) at www.ncppp.org. The Associated General Contractors of America (AGC) also has a variety of resources, starting at www.agc.org/public-private-partnerships-p3s-overview.