Special Report: Which Way the Winds are Blowing on P3s
A generation after public-private partnerships burst onto the infrastructure construction scene as a project finance approach, participants are using lessons learned from successes and failures to refine methods, particularly as needs grow and public funding tightens further. But P3 isn't a panacea and improving it can be tough, as the U.K. now is finding.
In Canada, P3 infrastructure projects have become a mainstay in transportation and "social" infrastructure sectors such as health care and education, pushed by strong government support, standardization and lots of private-sector competition.
"Our documents aren't simple. They can be 800 pages long, " says John McKendrick, senior vice president at Infrastructure Ontario, which manages provincial P3 projects. "But once a bidder has mastered the process, it's easier." Adds Brad Nelson, president of PCL Constructors Inc., "when there is a proposal call, you know it will go forward."
While P3 projects in both sectors also are proceeding in the U.S., the market has been more inconsistent in its P3 adoption. A new FMI study notes the market's "tipping point." Says its report: "Scarce resources and hard-fought opportunities in the industry have seen contractors look for greater autonomy over procurement.
But FMI adds that "many obstacles must be cleared before a broad-sweeping P3 revolution can take place in the U.S." and that "the intracacies of risk allocation often present new ground for contractors to cover."
But lobbyists are calling for more. "By knocking down barriers, we can unlock up to $250 billion in private capital for infrastructure," said Thomas J. Donahue, U.S. Chamber of Commerce CEO in a Jan. 12 address.
Philadelphia-based P3 consultant Jeffrey A. Parker says that, in transportation, funding uncertainties need resolution. "Many projects have enormous risks. How do you allocate them properly so it's commercially feasible?" he says. "It's a delicate and difficult balance to achieve."
Public Works Financing editor William G. Reinhardt is optimistic about P3 in water and wastewater markets based on a survey of of market participants. “The market has been shrinking steadily but could turn around quickly if affordable financing can be added to the value chain,” he hold a P3 industry conference in October.
“Levels of service are dropping public water purveyors," added. "Because of the diligence and proven performance of P3 operators, I believe the water market is coming their way and strongly.”
But even in Canada’s more established and federally-supported market, not all P3 projects go as planned. In November, voters in Abbotsford, B.C. defeated a proposed 25-year, $290-million water treatment plan project to expedite its dwindling supply, despite a $66-million government subsidy to go forward, raising concerns about asset ownership and project cost.
Some participants are not enthusiastic about P3 potential in the U.S. sector. “Despite abundant wishful thinking and a growing push in marketing by cash rich equity funds looking to invest in a capital projects, we don't see notable P3 movement in the water-wastewater market,” says Steve Gates, senior vice president of design-build services at Brown & Caldwell.
“Our public sector clients generally have ready access to less costly, traditional project financing. Private equity deals for municipal utility assets just don't pencil out favorably compared to general obligation or revenue bonds supporting capital project implementation, no matter the project delivery method used," he says.
Others remain concerned about a slow market. Says Stantec Vice President and P3 practice leader Steve Fleck: "Will you have the deal flow to develop a level of expertise? It’s a challenge north and south of the border?”