Judged a success in California

The new Governor George Deukmejian Courthouse in Long Beach, California, is a celebration of the best in US government. At a time when citizens often question government’s ability to carry out its mission while being responsive to taxpayer concerns, multiple levels of Californian government were able to collaborate in
meeting the tests of competence, transparency, efficiency and effectiveness.

The Deukmejian Courthouse (named after beloved former California Governor, George Deukmejian, a Long Beach resident) will transform downtown Long Beach, broaden the discussion in California on how to best deliver public infrastructure, and reconfirm the State of California’s reputation for leadership in national innovation.

The Deukmejian Courthouse replaces a functionally obsolescent facility constructed in 1959 plagued by overcrowding, unsafe conditions for occupants and visitors, and leaks and vermin infestation.

The City of Long Beach therefore viewed that courthouse as blight, and the re-use of that parcel, along with new courthouse construction on another downtown parcel, were considered central elements of Mayor Robert Foster’s downtown redevelopment strategy.

EFFECTIVE CAMPAIGN

Mayor Foster undertook an effective campaign to convince then Governor, Arnold Schwarzenegger, to prioritise the new courthouse’s development. Governor Schwarzenegger was searching for an opportunity to introduce innovation into the infrastructure delivery systems available to the state. The Governor, focusing on Partnerships BC/Vancouver’s fine work, asked his staff to develop a Performance-Based Infrastructure (PBI) approach (the state’s name for Public- Private Partnerships or “PPP”) and the legislature for the ability to use PBI for the Long Beach courthouse. Legislation in 2007 authorised the Judicial Council to undertake the project.

In California, courthouses are owned and managed by the state judicial branch. The Judicial Council is the policy-making body for the state court system and oversees the court system’s capital programme. The Administrative Office of the Courts (AOC) is the staff agency of the Judicial Council, and serves the trial and appellate courts state-wide by managing new court design and construction through the Judicial Branch Capital Program Office.

Clifford Ham, principal architect within this office, spearheaded the procurement process for the Deukmejian Courthouse, overseeing the Request for Qualifications and Request for Proposals evaluation programme, and remaining involved in the project’s transition to operations from construction.

The AOC implemented the procurement in textbook fashion. For an agency that was using a complex procurement system for the first time, it undertook a series of strategies enabling the project’s success:

1. Bringing in high-quality advisors who blended Canadian best practices with specific California judicial branch requirements;
2. Creating a broad stakeholder outreach programme including elected officials, multiple city, county and state agencies, citizens, judges and law enforcement;
3. Creating an open and transparent procurement process, encouraging a creative dialogue with the private sector and ensuring competitive tension.
4. From Meridiam’s perspective, the firm decided this project could serve as a game-changer in terms of North American visibility. As teams formed for this project in 2008, Meridiam was relatively unknown in North America. The firm was involved in a number of pursuits as a minority shareholder and not perceived
as a true lead developer. This project represented an opportunity for Meridiam to firmly plant its stake in the ground.

Meridiam carefully analysed this opportunity as to what would be required to win and then successfully implement the project. The company’s key success criteria had almost nothing to do with finance but rather the need to:

1. Drive a design process during the bid phase appealing to the broad set of stakeholders;
2. Make key judgments about the economics and opportunities related to the “long-term expansion space” that the successful bidder needed to provide for future AOC courtrooms;
3. Convince the client that Meridiam’s team was fully integrated and committed to long – term project success.

This process played to Meridiam’s strengths in an era when the dominant North American developers included Babcock and Brown, Macquarie and John Laing (these last two are still very important
players).

Meridiam chose to go it alone as sole developer and formed a team with outstanding technical partners even if their PPP portfolios were light or non-existent. Meridiam sought out the following characteristics: strong southern California building presence; excellent public design, construction and facilities management
track record with the State of California; exceptional US courthouse design, build, operate and maintain (DBOM) background; and finally, strong balance sheets and a commitment to learn and thrive in this new PPP market.

Meridiam also believed that a key PPP deal flow limitation was that up until this period, the US market was dominated by foreign developers and contractors. Meridiam sought to assemble a fully US-based technical team, in part to demonstrate that US firms could compete and win in this new market.

JUSTICE TRACK RECORD

Meridiam initiated team-building by approaching AECOM whose strong courthouse design practice combined with its Southern California headquarters presence, made it the ideal architect and engineer to partner with Clark Construction, the ninth-largest US general contractor as the design-builder. Clark’s extensive design-build experience, particularly on government buildings, represented an excellent marriage with AECOM’s 60-year justice sector track record of over 100 courthouses.

Johnson Controls (JCI) was the other critical member of Meridiam’s consortium, serving as the operating service provider and bringing Canadian courthouse PPP experience. JCI, responsible for both daily operations and maintenance and long-term capital repair and replacement, manages 1.8 billion square feet of commercial space globally.

In structuring this transaction, the developer and its investors focused on the critical assets germane to availability payment-based PPPs dependent on annual appropriations by the California Legislature. The Deukmejian Courthouse represented the first availability payment-based social infrastructure PPP in the US, and an understanding of the state’s budgeting and appropriation process was required. Given important recent reforms in this process, as well as this asset’s essential nature with respect to the state’s judicial system, the developer, its investors and its lenders all developed comfort with appropriation risk.

The project was completed in September 2013, 11 days ahead of schedule and under budget. The Superior Court of Los Angeles County, as well as five Los Angeles County justice-related agencies under separate commercial lease agreements, have all occupied their premises, and operations have stabilised and are proceeding efficiently. The AOC’s annual service fee was included in the State’s 2013-14 fiscal year budget, and the first month’s service fee has been paid.

Two factors contributed significantly to the project’s success. First, the AOC’s staff capabilities and capacity for working with the development team significantly facilitated the implementation of the project’s design, construction and transition processes. AOC staff was highly supportive of, and engaged in, the PBI
delivery method. Second, in navigating the many management issues inherent in this complex project, all team members participated in an open and transparent process, resulting in mutually beneficial long-run solutions.

COMMITMENT TO COMMUNITY

The developer demonstrated its commitment to the community in terms of local employment and a positive relationship with organised labour, as well as continuous engagement. Clark had an excellent relationship with Los Angeles area labour unions. Although the courthouse was subject to the state’s prevailing wages, Clark negotiated a Project Labor Agreement to ensure a supply of qualified, well trained tradespeople throughout construction. Ten percent of construction man-hours were accounted for by Long Beach residents, and the project doubled its Disabled Veteran Business Enterprise programme goal.

Community engagement activities included a close relationship with the neighboring Caesar Chavez Elementary School involving construction fence mural painting, as well as tutoring and playground activities programmes. Quarterly newsletters were sent to all surrounding households, a project website was hosted online, a project call-in number was established with quick responses, and a construction site job-seeker programme was implemented. A successful public art programme was also executed.

The George Deukmejian Courthouse is recognised as both a Long Beach and Southern California landmark, not only for its efficient, functional and aesthetically pleasing design, but also as the first PPP of its kind in the US. In addition, it serves as a major catalyst for the redevelopment and economic revitalisation of Downtown Long Beach.

Joseph Aiello is director of business development, North America, at Paris-based fund manager Meridiam Infrastructure; Stephen Reinstein is CEO at Long Beach Judicial Partners in Los Angeles