Archive for December, 2015

P3s: Trending in America

Wednesday, December 16th, 2015

Cottage industries are springing up around one of the hottest topics in the infrastructure business – public-private partnerships. Also known as P3s and PPPs, this project delivery method is quickly gaining steam in the United States after rapidly consuming much of the market overseas and in Canada.

During my three years with the legendary engineering company Fay, Spofford & Thorndike, we invested a lot of time, money and effort into ensuring that we didn’t let this trend pass us by. In fact, FST’s acquisition by Stantec in October was driven partly – maybe largely – by the need to have sufficient resources to capitalize on P3 opportunities.

One of FST’s recent signature projects – the study of a third crossing over the Cape Cod Canal – has been discussed as a possible P3. Other projects in FST’s wheelhouse, such as the reconstruction of sections of Route 3 South going to the Cape, are also on the Massachusetts Department of Transportation’s short list of potential P3s.

Our research and insight came from a variety of sources. We were long-time subscribers to the UK-based P3 Bulletin, which delivers daily news item electronically and a monthly hard copy magazine. I personally attended the P3 Hub South Conference in Richmond, Virginia, in 2014 and the National Council for Public-Private Partnerships (NCPPP) Federal P3 Summit in Washington, D.C, in February 2015.  In July, FST’s Director of Transportation Bill Reed and I attended the P3 Connect Conference at the Westin Copley Hotel in Boston, which was also sponsored by the NCPPP. (For those who think P3s are a new phenomenon, consider that the NCPPP is celebrating its 30th year in existence.)

This investment gained us a far greater understanding of the potential, and more importantly, the reality of P3s in America. Like many trending issues, people can become intrigued with P3s before they fully understand all that they entail.

If there is anything we have learned from keeping abreast of P3 news and attending these events it’s that P3s can be an outstanding way to ensure that a needed project is financed, designed and built cost-effectively, in a reasonable time and with a high level of quality. However, as with every so-called alternative delivery method, only certain projects lend themselves to the P3 approach.

Here are some other thoughts about the state of P3s in the United States as we move toward 2016.

P3s introduce parties that engineers are not used to dealing with, even on design-build and other alternative delivery methods. The attendee list at a P3 conference is very different from most of the ones we attend in the AEC industry. It’s a far more mixed bag of companies and professions. You’ll find a much higher representation of the financial and legal professions than you would at an ACEC or APWA conference. Understanding the motivation and role of these non-traditional members of the project team is crucial for engineering firms interested in getting into the P3 game.

P3s are not only for transportation infrastructure projects. The perception that all P3s are massive highway and bridge projects ignores the fact that most P3s occurring in the United States in 2015 are vertical projects such as military barracks, dormitories, government buildings and water or wastewater facilities. One of the most innovative P3 projects currently underway is a stormwater management project for Prince George’s County in Maryland.

P3s in transportation are not all about toll roads and bridges. Another misperception is that all transportation P3s are funded by user fees (i.e., tolls).  Now, government agencies rely more on “availability payments” from traditional funding sources such as grants, loans and tax revenue to compensate the private-sector financial partner.

For example, the Port of Miami Tunnel Project, one of the country’s highest-profile P3s, uses availability payments. According to the official project site, under the concession agreement, Florida DOT will make milestone payments to the concessionaire during the construction period, upon the achievement of contractual milestones. Once the construction is complete, the department will then make availability payments to the concessionaire.  The state is paying half of the $668.5-million cost, with Dade County and the City of Miami splitting the other half. These payments will be contingent upon actual lane availability and service quality. The tunnel will be returned to FDOT at the end of the contract in October 2044.

While we still have a long way to go before P3s are as common here as they are in many other countries, state legislatures continue to pass laws that remove barriers to P3s. Interest among international companies in the U.S. P3 market is growing, to the point where Moody’s Investor Services has said that the U.S. is poised to become the largest market for P3 projects in in the world.

Why wouldn’t we? The new federal highway funding legislation passed this month is a step toward stability in that it allows state DOTs to do more and better long-term planning. However, the $305 billion in the five-year bill – about $225 billion reportedly for highways – still comes up short of all the needs. Also, the highway trust fund grows more obsolete by the day as a way to pay for transportation infrastructure improvements. Agencies at all levels will increasingly include the P3 option as they seek solutions to transportation infrastructure challenges.

Social P3s are also primed for growth. Vanessa M. Leiby, executive director of the Water and Wastewater Equipment Manufacturers Association, wrote in the March 2015 issue of Water & Wastes Digest, “The extent to which the federal government has begun encouraging and facilitating such ventures is notable. It appears P3s will play a large role in the future of water and wastewater infrastructure funding.”

As it is with many recent developments in our industry – be it technology-driven advancement such as Building Information Modeling or the latest in project financing or project delivery – P3s are outside the comfort zone of most traditional engineering companies. At FST, we chose to accept and embrace these changes with the goal of succeeding where others may have failed to even try. – Jerry Guerra, December 16, 2015