Public-private partnerships, also referred to as P3s, involve a relationship between a public entity and a private developer, offering financial resources. These financing structures are most regularly seen in higher education, such as student housing, parking, dining, utilities, student centers, and athletics facilities. Financing a project through a public-private partnership offers many benefits to ownership; most notably, these financing structures move projects to completion much sooner and, in some cases, make them a possibility in the first place.

A public-private partnership is not a project delivery method, but rather a funding mechanism leveraged to fund virtually any project regardless of delivery method: design-build, construction manager at-risk, or other. Hourigan has collaborated on and pursued many P3 projects over the years. Sitting down with Hourigan’s resident P3 expert, Elliott Byers, we share our knowledge and lessons learned from past experiences.

Q: What is a public-private partnership and why should municipalities or universities consider this type of development structure?

A: Public-private partnerships are just that. A partnership between a public entity and private developer, offering financial resources. This financing methodology is unique in its ability to deliver higher than average standards of construction and design practices.  Many times, municipalities and universities face budgetary constraints and are tied to low-cost providers. Lowest bid doesn’t equate to highest quality; as such, these entities aren’t able to receive best-in-class design and construction results. P3s are an ideal way to help expediate a project to the market without going through typical governmental channels of bond procurement procurement and referendums.

 

Q: How are these deals funded?

A: They are funded by private investments or other equity partnerships. Agencies can borrow money from the state. Bonds through the state come in as a trickle effect, where money from the bank comes in at about 80% now and then the rest later.

Q: What impacts might an owner anticipate related to a potential P3 deal?

A: P3s offer myriad benefits that impact the success of a project:

• Speed to market – The P3 Model allows for a faster delivery method on multiple fronts throughout the process. Most traditional financing methods are the use of bonds or a mix of revenues from the institution. Whereas P3 financing can be a mix of equity and debt and therefore it can tap into multiple streams of private investment and traditional lending. Secondly, since the model of risk is shifted to the development team verses the institution, the time and resources needed for oversite and project management wouldn’t be deployed allowing for project readiness and less boots on the ground from the institutions. Lately, operations and maintenance can be handled within the P3 model allowing for the institutions to keep staff and resources focused on existing maintenance and deferred maintenance needs.
• Tax-deferred financing- (Tax Exempt Financing) Being able to tap into tax exempt financing only allows the institutions to take advantage of the lowest possible rates and tax advantages on the market. This allows for competitive market rates compared to state issued bond rates. Tax exempt financing is often times as low if not lower than state issued bond rates.
• Frees up debt capacity to allow for other meaningful builds or maintenance- All institutions operate on debt. The more debt to be paid back the less money to invest in new capital improvements projects. However, with the help of a P3 team, the financing can be structured to allow the institutions to keep certain amounts of debt off the books and reallocate funds for needed improvements and maintenance.

Q: What are the potential risks of a P3 project?

A: P3s are driven by finance and are more controlled. If an agency can share control of the design and overall process, then a P3 is the way to go.

Q: Are there project types better suited to this structure?

A: Municipalities: Heavy Civil, Roadway, Wastewater, Utility. As well as higher education such as student housing, parking, dining, utilities, student centers, and athletics facilities.

Q: What are some tips to ensure a seamless execution?     

A: A good team is critical to the success of the project. Having a trusted partner at the table is pivotal because you are in the long haul with that group of individuals. It is important that you share the same vision with your team and that you are all on the same page from the beginning.

Q: What’s the community engagement like for projects like this?

A: As government agencies, these projects must have buy-in from the public. Once the project goes public then the community has a say on whether they want to see this job commence. The most popular way the community shows their opinions is by voting for or against it or attending town hall meetings. Having the community backing you is important because they are going to be able to help you get the job.

Q: What partners should be engaged on this type of structure?

A: Financing, legal for the structure, design & engineering, and construction & development

Q: What should you look for in a P3 partner?

A: You should look for a shared strategic vision, the ability to work seamlessly together and having local and trusted partnerships is key. You will be working with these individuals for an extended amount of time and having a team that is collaboratively working together in agreeance will make this process much smoother.

Q: Where should I go to learn more information?

A: We have a Public-Private Partnerships Blog post on our website that goes into more detail on how public-private partnerships work and how they are successful.