Will public-private partnerships (P3s) take hold in the U.S. construction market?
For years now, I’ve seen various news reports on the topic of public-private partnerships (P3s), most of which have focused on the transportation sector. Some have touted the success stories from countries like Canada, while others have reported on the failures in the U.K. But the real question I keep asking myself is: Could this type of contractual agreement between a public agency (federal, state, or city) and a private sector entity really gain traction in the U.S. building sector? Call me an optimist, but I think it can. I believe this method can be a viable option for a number of different types of projects, if it involves the right mix of partners.
In recent years, P3s have been used for construction of new higher education facilities (housing, student centers, etc.) in Virginia and New York. Developers in Rhode Island have repurposed an existing city building into a school library, student center, and housing area. Another example comes from the Kansas City area, in which the GSA entered into a P3 lease agreement for a new campus to house the National Nuclear Security Administration’s Kansas City manufacturing operations.
Proponents note these types of projects offer many of the same benefits as design-build projects. I agree with them. If you leverage your existing relationships with strong and reputable general contractors, then you too can improve your market position and succeed. However, I’m not saying this delivery method is going to become the most popular option in the market. It’s important to note that these projects do come with major risks.
P3s can be complex and involve dozens of stakeholders. The project scope and cost on a P3 project may not be defined until very late in the negotiation process — and those negotiations can be long and complex. In addition, a lack of standardization and consistency across the country is also creating delays and inefficiencies on P3 projects.
If you’re a subcontractor, there are also concerns on the payment protection front. A general contractor could try and shift financial penalties down to you if things go south. According to the American Subcontractors Association (ASA), payment assurance on a P3 project may not be protected like it is on a typical federal government project via the Miller Act Bond. The ASA also notes that mechanic’s lien laws used in private construction generally don’t apply to construction on public land. In other words, if you’re going to try this project delivery method, review those contract documents carefully.
Whether P3s take hold in the public building sector or not is yet to be seen. But I urge you to take the time to learn all you can about them. A great starting point would be to go to the FMI Corp. website (www.fminet.com) and download a copy of a report the firm issued in late January, “Public-Private Partnerships: What You Need to Know.” The report does a nice job of outlining the pros and cons of this model, and offers up a list of best practices to follow as a P3 participant.