P3 Primer
An important talking point forYarema centers on the business model. Delivery of most publicly owned infrastructure in the United States, Yarema said, is based on a system that hasn’t changed in decades — pay for infrastructure with bonds and/or taxes with the owner breaking a project up into many scopes and awarding contracts to the lowest bidder. The result, for larger and more complicated projects, is owner retention of interface and other significant risks that can be the foundation for significant claims and change orders. With the overwhelming majority of infrastructure in the United States delivered under the standard model, the conventional thinking is, “If it ain’t broke, don’t fix it.” But with P3, there are many tools in the toolbox, and for owners there are opportunities to deliver increasingly complex projects by transferring to contractors project risks they can control better at commercially reasonable prices, all while cre- ating a defined schedule for long-term asset man- agement and life cycle costs — an expense that often exceeds a project’s initial capital outlay. With state and local governments across the country looking at pressing needs throughout the gamut of infrastructure — road, rail, water, and air — now is the time to consider additional delivery models. “Agencies should look at methods they may not have used before,” Yarema said. “Let’s not default to standard methods without analytically comparing them to modern business practices. Analytics now even drive how baseball players are positioned on defense. Why shouldn’t they drive how state and local governments deliver their most important capital investments?” For Yarema, the use of alternative delivery should at least be on the table every time an owner plans to spend significant taxpayer dol- lars on a complex public works project with the potential for private-sector innovation. Based on the outcome an owner wants, maybe a P3 is the right tool, maybe it isn’t. But at least put P3 in the conversation, Yarema said. While P3 has been around in the United States for about 30 years, the industry itself has yet to mature here. But at least one prominent infra- structure firm is expecting that to change.
P3 structures • Design-Bid-Build (DBB) — Design and construction of the facility are procured in two separate contracts. • Design-Build (DB) — Combination of two, usually separate services, into a single contract. • Design-Build-Finance (DBF) — One contract is awarded for design, construction, and full or partial financing of the facility. • Design-Build-Operate-Maintain (DBOF) —An integrated partnership that combines design and construction responsibilities of DB procurement with operations and maintenance. • Design-Build-Finance-Operate-Maintain (DBFOM) — Responsibilities for designing, building, financing, and operating are bundled together and transferred to private-sector partners, with concessions often extending for 30 to 50 years. P3 financing mechanisms • Private Activity Bonds — Tax exempt construction debt issued by state and local governments. • Transportation Infrastructure Finance and Innovation Act — Provides low-interest debt for regional and national projects. Centralized unit Agencies that have pursued a pipeline of P3 projects have found that implementation through a centralized P3 unit is helpful. Centralizing implementation of P3 project delivery within a statewide team with technical, financial, and legal expertise has been beneficial to the delivery of P3 projects. Enable P3 authority Legislation should largely place the control of policy development and contract negotiations in the hands of the designated P3 authority, whether within or outside the In general, if legislative approval is desired for P3 projects, it is more effective to require them as early in the development process as possible and ideally before the private sector becomes heavily engaged. Political champions Leading policy makers or elected officials who understand the benefits and costs of the project and can fully articulate them to the public. Political champions act as a rallying force, reaching out to influential parties and to the public to drum up support for a project. Public approval Allowing for robust public deliberation and participation through early agency approvals (separate from legislative approvals) and stakeholder input is a successful practice that not only reduces changes at a late stage but also increases transparency. Unsolicited proposals Allowing unsolicited proposals for new projects can trigger significant private-sector input. However, managing and responding to unsolicited proposals can lead to pitfalls, including proposal quality, constrained resources for adequate review, a lack of competition, and a lack of transparency, which could lead to allegations of abuse. Inserting an unsolicited proposal into a state’s project pipeline could lead to the perception that unsolicited proposals receive undue priority over established public projects. Continued on page 20 state’s department of transportation. Upfront legislative involvement
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csengineermag.com
january 2018
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