Five common missteps can thwart success

HNTB shares insights gleaned over a decade to help owners stay on a smoother path to public-private partnership success.

Over the past decade, HNTB has advised numerous states and served on the private side of a number of public-private partnerships. Each time, the firm focuses on three key objectives: meeting the goals of the client and the traveling public; developing a project that is both attractive and fair to potential private-sector partners; and protecting the state’s interests throughout the long-term arrangement.

As part of this work, we have studied in great detail the strategies and processes used by states across the nation. While the details of each project are unique, we have analyzed some of the most common problem areas and present them below in five thematic groups. We hope that by describing these “common missteps” we can help those who are pursuing P3s stay on a smoother path to success.

1. Pursuing a P3 for the wrong reason
Policymakers and public-sector owners sometimes view public-private partnerships as alluring panaceas for project challenges or shortcomings. But too often, the solution-in-search-of-a-problem approach can connect a P3 to a project for which it’s ill-suited.

The fact is a P3 approach can’t transform a bad project into a good one. It actually may sour the public’s appetite for future innovations if things don’t work out.

A better approach is to first map out with stakeholders the project’s goals, funding needs and construction parameters. Then bring in experts to educate stakeholders about the advantages and disadvantages of a P3 and how it might contribute to the project’s success.

2. Rushing into procurement
Nothing will derail a project or undermine bidder confidence faster than when an owner moves into procurement with an ill-conceived project.

To define the project, conduct a goal-setting workshop with key stakeholders — political officials, federal partners, local leaders, key business professionals and experts of P3 program development. The workshop should focus on helping stakeholders answer a critical question: If we pursue a P3, what will success look like?

Deceptively simple, this question sparks discussions ranging from quality of life and environment to finance and culture change. By unearthing those issues early on, the workshop can align program and stakeholder goals and promote a shared understanding of expected outcomes and the path to reach them.

Preparatory due diligence also should include comprehensive value for money analyses. This compares the financial impact of a P3 project against the traditional public delivery alternative, helping the owner determine whether a specific project is appropriate for a P3.

A typical analysis involves:
1. Creating a public-sector comparator, which estimates the life-cycle cost of completing the project under a traditional approach.
2. Estimating the life-cycle cost of the P3 alternative, either as proposed by a private bidder or by using a hypothetical “shadow bid” at the pre-procurement stage.
3. Comparing the two approaches’ costs, taking risk transfer into consideration.

Combining this rigorous quantitative calculus with the practical qualitative dimensions of any large project — technical, environmental, political, fiscal and permitting issues — can help ensure the P3 is structured to meets the owner’s objectives. Only then is the project ready for private-sector reaction.

3. Clinging to prescriptive funding approaches
How does a public owner – who believes it’s not possible to deliver significant value to the public without highly prescriptive contracts – transition to an approach that demands much more of the contractor? A first step is to develop performance-based requirements for initial design and construction, emphasizing what must be built rather than how to build it.

Next, define specific, achievable, affordable requirements for long-term operations and performance. This is a complex step because it must balance:
- Achieving goals for operations and maintenance
- Ensuring the project can be feasibly delivered by a concessionaire
- Setting reasonable expectations for future long-term lifecycle costs

Such collaboration can open the door to money-saving innovations. For example, the public owner can pass the entire risk of achieving an operational electrical and mechanical system to the private sector. This allows the owner to develop a contract with clear targets for achieving results that customers value, such as quicker incident response times, prompt user information or rapid snow clearance. This change in approach allows public agency staffers to focus on their missions: Providing safe transportation services at minimum cost.

Moving toward a performance-based model creates a performance and measurement system that clearly defines how the public owner will audit activities, how the private partner will detect and correct problems and what sanctions will be triggered if the private partner fails to comply with the contract in future years.

4. Neglecting to choose and support a champion
The early stages of developing a potential P3 often involve taskforces, committees and collaborations across multiple departments. This wise approach lets people share ideas, learn more about P3 implications and recognize what must change to complete the project. It also spreads political and reputational risk in the early stages of P3 inquiry.

But there’s a point where this model must be eclipsed by a champion/leader model in which one pair of hands — not dozens — holds the wheel.

The champion must be:
- A true believer. He or she must understand and be a highly committed P3 advocate amid often-strong political and operational headwinds. The champion must be willing to stake much of his or her reputation on the program’s success and be able to inspire confidence and sustain a collaborative spirit among all parties involved.
- Consistent and connected. When people involved in the project encounter impasses, the champion must provide clear-headed, impartial advice. This requires the champion to remain connected to community groups, politicians, contractors and others and to keep relationships resilient despite sporadic tensions.

5. Underestimating institutional resistance to change
Political leaders and appointees gain their positions by envisioning positive change that will accrue measurable public benefits. They rightly assess P3s as a practical, symbolic change in how a public owner does business, particularly since P3s have potential to alleviate risk and harness private-sector innovation.

However, those in the public sector often are steeped in a culture that prizes the design-bid-build delivery model and may have a highly prescriptive approach to contracting with private-sector entities. Therefore, P3s should be positioned as an alternative — part of the toolbox to deliver infrastructure. P3 champions must thoughtfully, proactively engage the public owner team, so they can contribute to — rather than feel threatened by — the change.

Engagement efforts are tricky. It may be wise to consult with outside experts who can tailor already-proven P3 training modules to an institution’s specific culture and operations.

A third party also can impartially facilitate frictions that arise as organizational realignments, employee role changes and resource allocations roll out. Public sector staff will better understand the context for the changes because the outside team, based on experience, will have shown how public owners elsewhere have successfully broadened their skills and increased their impact by adopting P3s and other innovative approaches.