Originally published in the Dec. 2015 issue of Building Dialogue.
There has been a lot of discussion about Public-Private Partnerships (P3s) recently in Colorado, and for good reason. Colorado leaders have positioned the state to be a leader in this delivery model and is on its way to proving that that this approach can be a viable choice for vertical buildings (social infrastructure), in addition to transportation projects. P3s have been proven to be highly successful in Canada, Australia and Europe and it is only a matter of time before we see this project approach become more prevalent in the U.S.
The most notable Colorado P3 project is the construction of additional lanes along U.S. 36. In order to allow for this project to move forward, the state passed legislation that cleared the way for funding to be applied, which is a barrier many other states can’t overcome. The statute allows for transportation projects, but if proven successful, legislation may be agreeable to expand the use of P3s to other kinds of infrastructure projects. Additionally, Colorado has moved on from the days of requiring hard bid delivery and is accustomed to design-build and CMAR delivery models. Finally, Colorado is a home-rule state, so, legislation is not necessarily required to be passed for projects to move forward, if the debt is properly structured.
P3s are often incorrectly categorized, which is evident by some recently released RFPs we have reviewed. If the project owner is a public entity, and that entity enlists a private entity (a developer perhaps) to help solve a challenge, then it is a public private partnership right? According to the Performance Based Building Coalition it is more than that. Think of it as design-build on steroids. The structure has an owner carrying an agreement with a concessionaire; this entity is at the center of the project and pulls together the design-build, financing and operations / maintenance team. P3 projects typically:
- Currently greater than $100 million in size
- Have the asset owned by the public entity for the entire project (the concessionaire is a service provider)
- Are based on a need (not want)
- Have the public entity partially funding the project
- Are income generating (parking garages, toll roads and dormitories)
- Have agreements that last for an average of 25 to 30 years before the asset is returned to the public entity.
In order to expand this delivery model there needs a local champion, enter Mike Cheroutes. Mike is the new Director of The Colorado Center for Infrastructure Investment (CC2i) and is leading the outreach and education for this delivery method. When I met with him I asked “What does P3 stand for?” He replied, “Persistence, Patience, and Prayer.” He is right as it will take time to get P3s as a viable alternative, especially the smaller scale projects, simply due to the fact that in a booming economy financing is not the challenge to getting projects completed, assuming voters will approve the project. Private sector financing simply can’t match the public sectors tax exempt status. According to Mike, “There has to be more of a reason than costs to make a P3 the preferred delivery method.” This statement was supported by the many presenters at the conference, who cited innovation, higher quality and speed to market.
At this moment, we are only seeing a handful of P3 projects, which is understandable as only ten states have passed legislation allowing them. The projects are often very large scale, which led me to ask Mike, where he thinks the vertical opportunities will present themselves. He responded, “DIA owns a lot of land, has the proper structure to do P3 projects and has recently finalized development hurdles with Adams County. I also anticipate the college campuses to be part of the P3 market.” Will true P3s become the standard delivery method? Time will tell as there are many advantages to P3 projects, many of which were not covered in this article. I anticipate that this model will be proven to be another tool in the chest; it may end up being a nail set, and not the screwdriver we use regularly.
~ Paul Wember, Owner’s Representative