I recently helped facilitate a roundtable discussion at the 2017 P3 Federal Conference, held in Washington, D.C., in late November. My co-presenters, Shant Boyajian, an attorney with Nossaman LLP, and Antony Lawrence, managing director of the National Bank of Canada, and I introduced the work of the Performance Based Building Coalition (PBBC). The PBBC, which advocates for “Better Buildings Faster,” is an organization that supports the use of public-private partnerships (PPPs or P3s) as an economical tool for delivery of turnkey design-build-finance-maintain model (DBFM) projects, including projects in the vertical construction market.
The Potential to Save Money and Accelerate Delivery for Vertical Construction Projects
While the P3 approach using the DBFM model has been successful in completing many projects in the transportation and heavy civil infrastructure market around the country, it is still limited as a delivery method for vertical construction. Many states, however, have recently enacted or are considering legislation to permit the use of DBFM P3s in vertical construction. According to the PBBC, P3 projects have facilitated $20 billion in innovative transportation projects and created thousands of U.S. jobs over the past six years. This approach has generated billions in savings, while significantly accelerating the delivery of important projects. However, the use of P3s to deliver public buildings has been limited because, unlike the transportation sector, public buildings are not eligible for exempt facility bonds. As a result, public building P3 projects are inhibited from combining tax exempt financing with private financing, resulting in an increased cost of financing that often leads to postponing the construction of much-needed facilities.
The PBBC and many industry experts recognize that a performance-based P3 method would be advantageous for many types of social infrastructure projects, including jails, courthouses, emergency management centers, schools, libraries, and hospitals. Owners, including state agencies and municipalities, would benefit by turning to a one-stop team to oversee design, construction, financing, operation, and building maintenance. The performance-based approach addresses the entire life cycle of a building, with leases that typically span 25 years or more. The approach minimizes owner risk and streamlines the need for hands-on owner oversight of multi-year capital projects and long-term operations that may require expertise in a variety of professional areas.
Delivering Value for Money with Better Building Performance
During our roundtable session, discussion focused on evaluating projects and determining which might be the right fit for a P3 approach. The PBBC emphasizes “value for money” over the life cycle of an asset. The first step in evaluating the suitability of a project for P3 delivery is a business case analysis, in which value for money will ultimately guide the determination. The analysis examines the size, complexity, and use of the project; compares the costs of design-build versus design-bid-build delivery; and assesses long-term maintenance requirements.
The P3 delivery method, with a built-in financing component, can be a significant solution for institutions and agencies who have had to delay capital projects due to funding shortfalls. Over time, owners are also likely to see assets perform better, as systems will be regularly maintained to meet performance criteria.
To address the need for tax-exempt financing, PBBC actively supports the passage of HR5361 and S3177, “The Public Building Renewal Act of 2016,” a bill that would spur private investment in public building infrastructure. Learn more about this critical piece of legislation, and the advantages of P3 delivery versus traditional approaches, at the PBBC website.
