Archive for May, 2009

P3s for the AEC Industry

Tuesday, May 12th, 2009

I’m working on a book on public-private partnerships for PSMJ. Here’s an excerpt from an article on the topic to appear in the PSMJ newsletter next issue:

California Governor Arnold Schwarzenegger is a proponent of P3s, having passed legislation that facilitates their use. In April 2009, Schwarzenegger announced a $32 million public-private partnership designed to reduce the health care worker shortage in the state. And in November 2008, he trumpeted a public-private partnership between the State of California and the Northern Sierra Partnership to fund environmental preservation while supporting economic growth. For the latter project, advocates raised $25 million in private funds.

These projects are notable for many reasons, not the least of which is the fact that they are a departure from the types of project that many people think of when P3s are mentioned – namely, toll roads or public works infrastructure.

The New York State Commission on Asset Maximization (NYSAM) (Albany, NY) wrote in December 2008, “Over the past decade, we have seen rapid advances in infrastructure, technology, and renewable energy development across the United Kingdom, Europe, Canada, and China due to innovative arrangements with the private sector that have helped deliver projects with greater speed, efficiency, and reduced costs. Alternative approaches have been used to deliver all forms of infrastructure, including non-revenue producing assets.”

P3 Opportunities and Risks

NYSAM was established by Governor David A. Paterson and charged with broadly examining whether asset maximization can benefit New York State, as well as whether any specific New York State assets are suitable candidates for public-private partnerships.

In its December preliminary report to the governor, NYSAM wrote, “A key goal of asset maximization involves the reallocation of risk from the public sector to the private sector. This shift incentivizes the private sector to pursue design, construction and management strategies that will increase efficiency. Additionally, it insures public entities from incurring additional unforeseen costs. At its most effective, it also protects public entities from incurring unforeseen and incremental costs.”

This shift of risk, which is a factor that makes P3s attractive to the public sector perhaps as much or more than for funding reasons, was the topic of a Design Professional Roundtable hosted by Donovan Hatem, LLP (Boston, MA). David Hatem, an attorney well-known for his expertise in A/E matters, predicts, “Interest in (P3) projects at the local, state and federal levels will continue and substantially increase in the next few years and continue strongly into the next decade.”

In his April 23 presentation, entitled “Public-Private Partnerships: Opportunities and Risks,” Hatem noted that private firms participating in P3s may find themselves on unfamiliar legal ground. “Risks not typically dealt with by private entities may be transferred to them in a P3. Some of this is not insurable risk.”

I’d be interested to hear your thoughts on P3s for the AEC industry. If you want to know more about the P3 book or the PSMJ newsletter, contact them at http://www.psmj.com/.
jag