Network at the Largest P3 Conference in the Country
Every year, senior development professionals and governments working in the public and private sector come together for an educational three-day conference to discuss complex issues surrounding public-private partnerships (P3s). Next year’s Public-Private Conference & Expo (P3C), one of the largest gatherings of development professionals in the country, takes place on March 7-9 at the Sheraton Hotel in Dallas. The agenda at this year’s conference features several talks about infrastructure related development and P3s.
One of the most anticipated sessions at P3C will be led by William Eliopoulos, partner and co-chair, Construction Law Group, Rutan & Tucker. He recently sat down with some leaders in the industry to discuss the latest collaborations and innovations in the world of public-private partnerships. Cohosted and co-moderated by Eliopolis and Steve Nichols, managing partner and co-chair, Construction Law Group, Rutan & Tucker, the panel included Phil Blanchard, partner, Construction Law Group, Rutan & Tucker; Sam Barend Sr., V.P., development director, AECOM Capital; Geoffrey Stricker, managing director, Edgemoor; Frank Baltz, senior vice president and chief legal officer, Clark Construction Group, LLC; and Michael Marasco, chief executive officer, Plenary Concessions, Plenary Group.
Q: There has been a lot of buzz around P3’s in the United States in the past several years. How does the reality of their use match that buzz?
Barend: The reality has surpassed the buzz. More than $6 billion worth of P3 projects were awarded in 2014 and another $19 billion will likely be awarded and begin procurement in 2015. But for the P3 delivery approach, many of these projects would never have moved forward in our lifetime.
Q: You are at the forefront of lobbying efforts for new federal legislation to help expand the use of P3s by the federal government. What new legislation is needed and how are the lobbying efforts going?
Barend: The utilization of P3s for U.S. public buildings has been extremely limited because unlike transportation projects, public buildings are not eligible for tax-exempt facility bonds or TIFIA-like financing. Since 2008, exempt facility bonds have facilitated $16 billion in transportation P3 projects in this country. And every U.S. P3 transportation project that has been undertaken has utilized either TIFIA or exempt facility bonds or a combination of both. In order to advance public-building P3s for our states and cities, Congress must create financing tools similar to what exists for the transportation sector. The Performance Based Building Coalition is pushing for new financing tools to be enabled in the upcoming transportation reauthorization bill.
Q: Plenary Group and Edgemoor are leaders in P3 development in the United States and together are leading the development of the Long Beach Civic Center Project—one of the first American Social Infrastructure P3 projects— what can you tell us about that project?
Marasco and Stricker: Our companies teamed with Clark Construction and Johnson Controls (Plenary Edgemoor Civic Partners PECP) to design, build, operate, finance and maintain the new city hall, new main library and revitalized Lincoln Park for the City of Long Beach for a 40-year period following construction completion. As part of the same deal, PECP will also develop a new headquarters for the Port of Long Beach on land made available by the city.
Q: Geoffrey Stricker, your company recently landed a P3 project for the University of Kansas—are there traits of colleges and universities that can make P3 a particularly appealing delivery method?
Stricker: Today, colleges and universities are looking for ways to differentiate themselves in an effort to attract the best and brightest students and faculty. These institutions have found that providing new, state-of-the-art housing, dining and science/technology facilities are key to this strategy. For example, at the University of Kansas, Edgemoor was hired to develop, finance, build and operate 285,000 square feet of academic science facilities, a 26,500 square foot student union, 1,200 beds for student housing and 1,900 parking spaces. These assets types are attractive for P3 projects as they have revenue streams to pay the financing and operating costs and do not create significant financial burdens on the college or university.
Q: You used to be with the agency in British Columbia that recommends whether the government should let certain projects use P3 or another delivery method. What advice would you give to a public agency considering whether to use P3 for a new public facility?
Marasco: Do your homework! P3 projects are very complex transactions that require a significant amount of due diligence on behalf of the public sector. My advice would be to hire the most experienced advisors available, follow market-proven best practices for procurement and documentation, and learn from others who have been there before you.
Q: You are Chief Legal Counsel to a large construction company that works on both P3 projects and other types of commercial construction projects. The construction market seems to be heating up; is that affecting contractors’ appetites to bid on P3 projects?
Baltz: Project selection requires a detailed analysis of risk and opportunity. As P3 projects require construction companies to take on design and non-traditional real estate development risk and often require a substantial monetary investment, we are much more selective when evaluating P3 opportunities.
Q: Does California have laws in place that are adequate to allow agencies to utilize P3 to build their projects?
Eliopoulos and Blanchard: California has P3-enabling statutes in place that allow public agencies to build P3 projects. However, new statutes are necessary to allow for the broader use of the P3 delivery method by our public agencies. California’s current general P3-enabling statute for its building infra- structure projects, Government Code 5956, for example, requires that the new facility be fee-generating. However, many public agencies are interested in building new facilities that are not fee-generating using P3. “Availability” model P3 projects do not require that funding for the project be generated by the new facility itself, but rather may be funded by the agency’s general fund or other long-term sources. For this reason, several California public agencies who want to undertake P3 projects have obtained their own special P3 enabling legislation (e.g., CalTrans, California Judicial Council courthouses the City and Port of Long Beach Civic Center and Regents of the University of California). Streets and Highway Code Section 143, which enables CalTrans and other select regional transportation agencies to utilize P3, sunsets in January of 2017. Efforts are underway to pass legislation to extend the statute’s effectiveness beyond that date.
Q: P3 seems to include some of the elements of the design-build delivery method. How are they similar, and is design-build also gaining in popularity for public infrastructure?
Nichols: P3 projects typically employ the design-build-finance-operations-maintenance (“DBFOM”) model for the new facility or other infrastructure. The design-build portion of that is an important part of the program. By combining the design and build phases and putting them under one tent—that of the private developer and design-builder—P3, like design-build, tends to get projects completed faster than more traditional construction projects in which the design phase is completed before construction can start. For example, there are aspects of every project where you can begin putting shovels in the ground before electrical and mechanical systems are fully configured. Because of these advantages, design-build construction has steadily gained in popularity over the past 10 years. Statistics over the past several years show that for non- residential projects with a value greater than $10 million, the majority now use the design-build method of delivery. That is a dramatic shift from how things were before the past decade.
Events like P3C will highlight the challenges and advantages of the P3 concept. It's grown into a key conference for collaboration between public officials and private industry considering, developing, and operating P3s. For more information about P3s and the event, please visit the www.P3C2016.com