Build partnerships and projects will come

While 34 states in the US have passed public-private partnership (PPP; P3) enabling legislation to date, observers reckon many challenges must be overcome before P3 project delivery can serve as a full complement to state- and municipal-level public sector arsenals. There also remains work to be done in order to clear the way for multi-sector P3 access, they say, as there are only a few states where other-than-transportation P3s are authorised.

At an industry discussion during the last week of May, one soon-to-be former executive director of a state agency in a state with no existing P3-enabling legislation shared his personal insights into the challenges faced by governments related to legitimising the use of P3s for project delivery. This was particularly true of projects that employ design-build-finance-operate-maintain or related models requiring or based on availability payments. 

His account was based on experience earned while he was attempting to push through a state-level, P3-delivered social infrastructure project – an attempt that stalled when conflict among stakeholders proved unresolvable given the time constraints of the approval process.

In their approach, he and his fellow proponents felt that their state wasn't ready for generalised P3 legislation, so they chose to take the route of drafting project-specific laws that they tacked onto the state's annual budget in the hope of increasing the measure's likelihood of success.

This pathway offered the benefit of avoiding the tangles of the committee process, but that also meant the bill would move forward on an accelerated calendar and thus had to gain the approval of what the official called a “committee of the whole” in relatively short order. The bill was consequently presented by the division of the budget to a roundtable of interests including the leadership of both houses and their key staffers – about 40 individuals in total – leaving little time to educate them as to the real benefits of P3 project delivery. 

Through that process, the upsides and downsides of government process became clear to the official, and he came away with a few key actionable insights. 

He said that in order to get the ball moving in non-P3 states like his own, there was a need for “a real process to truly educate decision makers about what the [P3] model [is] and about what the model [is] not”, even before any specific deals were on the table.

“Proponents of the model needed to get better clarity around the accounting and reporting issues pertaining to the treatment of P3s and availability payments in particular in regard to the state's financial statements,” he said, then adding that perhaps most critically, “in order to achieve success, P3s are going to need champions of stature in the legislature. They need to be developed and so does their staff.” 

From the official's perspective, there were three specific “sidebar issues” which also played a part in the stalling of the bill – and as a result, of the project itself. 

“First is the implied power of organised labour and its impact on the consideration of innovative approaches,” he said. “Second, we did not anticipate that there would be local opposition to the project; after all, what municipality would object to a $500 million construction project in their backyard, being on state-owned property that was already off the tax rolls.”

Finally, he added, “we had not built alliances with groups outside of government-groups from business, or advocates for economic development, or groups focused on building local capacity or representatives of rapidly-growing minority- and women-focused organisations.”

This last point was one that was later elaborated upon in a discussion involving the official and several private-side players active in the infrastructure investment and development space. 

During the course of the conversation, one high-level investment advisor acknowledged a common failure to anticipate the need for public-side coalitions and local stakeholders support.

“We focus a lot on private and public partnerships and we think a lot about partnerships in the private sector. I don't think those of us in the private sector think enough about what has to happen on the public side to get a major project [going].”

Public-side consortia needed to be built up in much the same way that private partnerships are formed, discussion participants agreed. But in order to be effective, this coalition-building had to take place early enough in the process to allow objections to come to light before they become showstoppers. As a result, a legal consultant remarked, private-side players needed to educate key local influencers if they wanted to make inroads into untapped markets.

“There is very much a public sector partnership issue going on in the US that the private sector is not looking at necessarily,” the legal advisor said, adding that what was needed included “getting the engineers comfortable with the model, getting the finance people to understand that something other than a tax-exempt structure might work and getting the procurement people comfortable that a different approach to procurement might actually work.”

“So there's a whole lot of partnership going on behind the scenes,” he said, “and with new agencies getting into the P3 market, that's just a continuing cycle of education.”

Such a cycle of education may have helped ensure the success of the official's proposed social infrastructure project, which even now is being held up because – he said – local politicians were uneducated as to the real-world implications and details of the specific P3 delivery method being proposed. But even given the failure to achieve that single project, the official told Infrastructure Investor he was optimistic that within one or two legislative cycles, generalised P3-enabling legislation could be politically feasible in his jurisdiction as long as strong legislative champions emerge.

“To achieve the market share we hope to achieve […] we need partnerships with government, partnerships with organised labour [including] local labour, builders and developers, and partnerships with funders,” he said. 

“And most critically, looking at the landscape in [my] state, we need to build partnerships with reliable minority- and women-owned firms and advocacy organisations. They are often critically important to influencing decision-makers on the ground about the value and the prospects for success in the new P3 model.”