Largest minority P3 developer in the USA. (800)896-5502
Public-private partnerships offer a unique opportunity to redevelop and revitalize smaller communities around the country. A public-private partnership, also known as a P3 or PPP, is an agreement between a private company and a public body that allows for the public sector to transfer certain risks and responsibilities to the private sector. P3s, when structured properly, can provide an opportunity for small communities to develop new facilities and infrastructure, which can be a catalyst for community redevelopment. Two popular P3 delivery methods are known as a design-build-finance (DBF) and design-build-finance-operate-maintain (DBFOM). These delivery methods can be used to relieve significant burdens and risks from the public sector.
Urban communities have gotten a lot of attention in recent years for improving assets using public-private partnerships. The lack of public funding and the abundance of private capital has made P3 a popular tool for delivering public facilities and infrastructure. However, smaller underserved communities also have significant needs for improved facilities and infrastructure. The needs of smaller communities are much more pressing than those of sprawling urban centers.
Complicating the issue is the fact that many smaller communities often have not constructed new facilities or infrastructure in decades. A well-structured P3 shifts risk from the public sector to the private sector while focusing on allowing the construction activity to be executed by local contractors, subcontractors and vendors. A well-structured P3 also allows municipalities to incorporate small and minority-owned business participation requirements that can be managed in a more transparent manner. The use of national resources partnered with the local workforce creates an inherent best value proposition for the community. When the construction dollars stay within the local community, these dollars can turn over six to seven times, creating a significant impact on the bottom line for the community.
Smaller communities typically do not have the technical resources and expertise to deliver capital projects efficiently. Also, the traditional design-bid-build methodology has proven to be a time-consuming and often more costly method of delivering public projects, especially in smaller communities. The lack of sophisticated construction management experience and the lack of integration between the design, construction and finance often results in projects that are over budget and of inferior quality. However, these communities still have a substantial need for new infrastructure, public safety facilities, courthouses, healthcare facilities, parks, museums and much more. The ability to make needed improvements to public facilities and infrastructure results in a better quality of life for the citizens and increased revenues for the public agency.
A well-structured P3 should accomplish a number of important things for smaller communities. In addition to gaining technical expertise, these communities should be able to take advantage of tax-exempt financing as well as no upfront costs for attorney fees, program managers, site acquisition, architectural design, engineering, etc. The private sector is well suited and well-capitalized to carry these upfront expenses, which can be as much as 18%-20% of the total project cost.
P3s also allow the private sector the ability to structure financing for essential facilities and infrastructure in a manner that does not require a pledge of full faith and credit from the public entity. When a public entity does not pledge its full faith and credit, in most states, this eliminates the requirement of a bond referendum and also does not impact the general obligation capacity of the community.
A tax-exempt lease purchase agreement is a common structure used to deliver P3 projects quickly and efficiently and is a perfect structure for small communities. Under a tax-exempt lease purchase agreement, the private sector establishes a special purpose entity to hold the asset. At the end of the lease purchase term, which can be up to 30 years, the government purchases the asset for $1.
Using a tax-exempt lease purchase agreement to fund a P3 project ensures that the private developer is working for a fixed fee and that the community is able to fund the project with the lowest cost of capital. Under this structure, essential facilities and infrastructure can typically be financed with semi-annual payments that are subject to annual appropriations and the availability of funds. Tax-exempt financing also offers long-term fixed rates, which are a much more attractive proposition than commercial bank financing.
While 2020 was a year of unprecedented challenges, it was also a year that presented many new opportunities. This has been especially true among those of us developers and architects who are part of robust public-private partnership (P3) collaboratives.
The vast majority of P3s use an integrated project delivery (IPD) method. Delivering public facilities and infrastructure using an IPD method allows the integration of processes, practices and systems in a collaborative approach that captures the collective intelligence of all stakeholders. P3s that use an IPD method tend to result in the best value to the public sector by maximizing overall productivity through the reduction of delivery time and waste.
The current pandemic is forcing design teams to think outside the box to deliver projects in an accelerated time frame. Using an IPD method in conjunction with powerful online collaborative platforms enables design firms to execute unique concepts that must adhere to rigorous budgetary constraints and timelines. Design firms that are part of P3s are also finding it necessary to hire staff members who are determined and nimble, possess an acute technical vocabulary, have excellent listening skills and are highly collaborative.
The value of an IPD method in P3 projects is that it allows facilities to be designed and delivered in record time. A design-build-finance collaborative can have a project under construction in less than 90 days when the team can deliver a guaranteed maximum price, construction documents and financing virtually simultaneously. Rapid project delivery is paramount during a pandemic because access to essential services such as healthcare is critically important. The current pandemic has forced design and construction firms to operate outside of their comfort zones and trust their teams’ ability to create highly collaborative designs during these very challenging times.
Meanwhile, now more than ever before, agencies realize that new facilities must be responsive to the challenges and needs of the community during a pandemic. P3 collaboratives have the unique ability to assist public agencies in addressing weaknesses in public infrastructure that were made painfully obvious over the last year. Government agencies should look at developing community-based facilities, such as health and wellness centers, that can contribute to the public's long-term health and safety.
Health and wellness centers can be crafted specifically to help combat risk factors in the community and region. These facilities can provide a place for the community to engage in health and wellness activities and receive education on nutrition and other related programs. These facilities can be designed to be converted into medical space that can support temporary hospital beds and can also integrate drive-through infectious disease testing facilities with associated laboratories. The additional hospital bed capacity may be critical for the communities when more capacity is needed to save lives or to address routine healthcare needs during a pandemic.
For instance, my firm is involved with two Arkansas projects. A health unit was designed to respond to the current pandemic, featuring elements like a drive-through test site and laboratory, HVAC and mechanical systems meant to prevent airborne disease transmission, and a courtyard where staff could find fresh air and respite. The coroner’s office was designed to feature a decontamination unit that provides an area for the coroner and staff to decontaminate after encountering a deceased individual who may have had an infectious disease. The morgue also has washable walls and floors to allow for easy decontamination. These are all essential elements of designing these types of facilities in response to the Covid-19 pandemic.
The current pandemic has forced P3 collaborative teams to be forward-thinking in their approach to designing public facilities. The integration of design, construction, financing, people, processes and systems is leading to designs that are more robust and can be delivered quickly and efficiently. The pandemic has also increased the efficiency of holding design charrettes, which are now hosted remotely via Zoom, Teams and other similar platforms. Having all stakeholders at the table from the beginning of the process creates outcomes that can only be achieved through collective intelligence.