The Viability of Public Private Partnerships | Construction Executive

July 01, 2012

The Viability of P3s

by Joanna Masterson
Excerpt from the July 2102 cover story from Construction Executive Magazine

It's no secret the public sector has money problems. Some governments are on the verge of bankruptcy, and its expected to take another four or five years for most state and municipal budgets to return to 2007 levels. Pile on extensive infrastructure problems and governments are pretty much left with three options: continue postponing capital improvement projects, raise taxes or explore the possibility of a public-private partnership (P3).

"Yes, the process of P3s is more complicated, but they can allow you to get something built," says Rick Norment, executive director of the National Council for Public-Private Partnerships, Arlington, Va. For too long, maintenance has been deferred on schools, roads and other public facilities. When you do that for 20 years, you have a serious problem.

Market Growth

Localities seem to be getting the message, causing what Norment calls a legislative stampede in the past few years. Twenty-one states had P3 statutes on the books at the end of 2009; that number is now up to 32.

Virginia is a leader in P3 activity. The commonwealth passed the Public-Private Transportation Act nearly 20 years ago and followed it up with the Public-Private Education Act, which allows school systems to partner with private real estate development companies to finance state-of-the-art facilities by using publicly owned underutilized assets for commercial activities (e.g., building an apartment complex on city or county land). Virginia has built about 250 schools in the last decade using this model, and in 2002 the legislature amended the law to include infrastructure projects such as water facilities, prisons and hospitals.

Texas legislators cloned about 80 percent of Virginias language in its P3 transportation law, and passed another statute last fall clearing a P3 procurement process for social infrastructure projects. California and Florida also are active in the P3 market, and Indiana and Illinois are showing signs of expansion.

No state has done zero P3s, Norment says. Some have statutes in place, which makes it easier. But others, like Michigan, have no statute on the books and P3s are still being done by taking pieces out of existing procurement code and putting them together to make it work.

Though much of the industrys focus to date has been on large-scale, high-dollar P3s in the transportation sector, Norment reports the most sustained growth is expected for projects in the $40 million to $100 million range. In addition to infrastructure, effective construction markets for the P3 procurement process include military housing, courthouses and higher education. Water reclamation is another hot market, as municipalities struggle to deal with drought, population growth and noncompliant wastewater facilities.

Even something as simple as a parking lot could be a good candidate for a P3. They aren't expensive to build and are easy to operate and maintain, but many cities dont have the cash or expertise to implement new technologies, Norment says. For example, the private sector can offer solutions such as variable pricing based on time of day or customer notification (via text) of a pending meter expirationall of which can generate revenue for the locality.

Solutions-Oriented Proposals

Even with all these potential market opportunities, its important to view P3s as a viable option, not a cure-all for government budget crises.

"P3s aren't the right solution for every single problem. On a monthly basis, we talk to someone about a P3 and then decide another procurement model would be better based on the project details," says Jeff Boehm, vice president of Howard Shockey & Sons, Inc., Winchester, Va. "We weigh whether there's a solid public need for a project, and there has to be political will on the public side to sell P3 as the best model."

Howard Shockey & Sons, a 116-year-old general contractor with about 150 employees, has completed 10 P3 projects since learning about the procurement method at a seminar held by Associated Builders and Contractors Virginia Chapter in 2002. "With a solid foundation in design-build and joint ventures, and a division devoted to real estate development, the thought of being able to partner with an owner was right up our alley," Boehm says.

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