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Benefits and Risks of Public-Private Partnerships

It's no wonder project delivery methods are a highly charged conversation among construction professionals. Personal experiences, the contracting environments you’ve worked or practiced in, what methods your project clients are allowed to utilize, which methods have been successful in your professional history – all of these factors and more play into which methods appear to have more or less merit.

Project pressures call for more delivery from concept to use, delivering more “value” for a fair price and providing the best long-term solution for the resources expended. Regardless of which industry vertical, the traditional design-bid-build model has become outmoded. In its place, a return to the "master builder" concept is rapidly emerging in several forms, including Design/Build, IPD, IPDish, and P3.

Defining Public-Private Partnerships

We’d like to focus on public-private partnerships, or P3. A public-private partnership is a contractual partnership between a public agency and a private sector entity. This innovative project delivery method transfers risk to those parties that best understand and manage risk: financiers, developers, construction contractors, operators, suppliers, and service providers. The resulting comprehensive team operates to implement the client’s goals and objectives for the good of the project.

Public infrastructure projects are particularly well-suited to this arrangement. Often public funds via legislation, bonds, and public debt financing are not available in a reasonable time frame, despite failing infrastructure making the project urgent. Current examples include adding traffic capacity to an overused corridor, replacing a critical road bridge, and constructing a public entity office building with a long-term lease-back arrangement.

One of the intriguing aspects of the P3 contract arrangement is the wide variety of efforts that can be moved forward utilizing this methodology. Our financial, legal, and legislative systems are prepared to perform under these conditions.

A large hurdle has been educating people that this method is available to achieve the same goal. Using a P3 has huge benefits for all involved – the user, in most cases a wide spectrum of taxpayers, the public agency involved, the private firms involved, and the construction industry.

Advantages and Risks of Public-Private Partnerships 

Advantages of a Public-Private Partnership
  • Comprehensive problem solving: having a comprehensive team from the beginning to end allows engineers and contractors to collaborate from the beginning to resolve project issues. This collaboration can provide better infrastructure solutions. This can be referred to as early supplier involvement (ESI).
  • Funding: projects that would otherwise not have funding can be completed using long-term payments that don't require an increase in taxes. 
  • Faster completion: due to overlapping design and construction, projects can be started while design is still ongoing. In addition, issues that may have bogged down other projects can more easily be resolved with the comprehensive team approach.
  • Reallocating funds: government funds can be used elsewhere in the community.
Risks in a Public-Private Partnership
  • Development phase: Environmental policies, geological conditions, permitting, political will, and financing can influence how successful the project start is.
  • Construction scope changes: Market conditions, labor agreements, and cost growth can change the scope of project. Additionally, community impact and schedule slippage can impact the public's interest.
  • Operational concerns: Impact concerns from lower-than-expected usage can result in a decrease of available revenue. 

Choosing a Public-Private Partnership

Overall, many factors must be considered when deciding the best delivery method for a project, including: project type, client needs, project size, complexity of the project, and schedule. 

The main benefit of a P3 is the transfer of risk (e.g., operating, maintenance, design, construction and rehabilitation costs, financing rates, and timing) from taxpayers to the private sector. By doing so, projects can be brought online with a high level of certainty for cost, schedule, quality, availability, and service.

In conclusion, as you’ve read a list of benefits or aspects of P3 contracts that you may not have been aware of, recall that these are public agency and private entity partnerships. They generally come with long-term obligations to one another for the benefit of the public. These agreements are not to be undertaken lightly, as the obligations carry out over time for the benefit of all. However, in the correct circumstances, utilizing the P3 contract may be the only viable way to accomplish the goal.

Whether or not a public-private partnership is the right choice for your construction project, early manufacturer involvement gives you access to a wide range of solutions and unmatched material and process expertise. Learn how we can help keep projects on schedule, on budget and replace the anxiety of value engineering with visionary excellence.

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