Fortress Real Developments

P3s figure in high-performance public buildings

Tuesday, January 19, 2016

Canadian governments’ standardized approach to public-private partnerships (P3s) is considered a model to emulate in the United States, where strategists are examining ways to boost that country’s stock of high-performance public buildings. The National Institute of Building Sciences (NIBS) and the Royal Institution of Chartered Surveyors (RICS) plan to release a joint report on P3 potential later this spring in an effort to encourage American policy-makers to move beyond the current limited use of P3s largely to build roads and other transportation infrastructure.

As part of the research and consultation process, private developers, government officials, academics and industry consultants gathered in Washington, D.C. last fall to discuss opportunities and obstacles. A recently released summary of participants’ input outlined the anticipated public benefits of a design-build-finance-operate-maintain (DBFOM) model, in which private contractors would have a financial interest in delivering an energy-efficient, durable and adaptable building.

“Instead of focusing on the most efficient way to deliver a completed structure, the private partner has a strong incentive to optimize the project by balancing construction with O&M, and is more likely to add to initial design and construction in order to produce O&M savings over the life of the structure,” the NIBS/RICS report maintains.

Discussion highlighted the risk management advantages for the public partner through the ability to specify various performance outcomes — such as the timing of elevator service or the building condition at the end of the contract period — and exact penalty for non-delivery. Public sector building occupiers can also budget for predictable contracted operating costs, typically negotiated to cover use of space and amortization of design and construction costs.

On the flipside, prospective issuers of P3 requests for proposals (RFPs) may encounter monetization challenges, bidder inexperience and/or public distrust. A road is a service in itself, while buildings are the instrument for providing services, making it more complicated to calculate and allocate costs to various users. “Charging a toll for the use of a road is acceptable, but charging for access to a courthouse would not be,” the NIBS/RICs report reiterates.

P3 supporters call for more education to counter the perception that taxpayers’ money is being improperly channelled to private business. “When presenting a P3 model, it is important to emphasize any efficiencies the public sector will gain by pairing with the private sector,” the report advises.

Discussion participants also called for fewer P3 models — pointing to a somewhat overwhelming scenario for private sector bidders if every state implemented its own unique requirements — and commend Canada’s national P3 template that provinces and municipalities can adopt and adjust as needed. This is likely to be a component of the pending report and guidance document, which will include case studies of successful P3 projects from around the world.

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