Image from state of Virginia office of P3s website video.
Another sad day for the image of the construction industry and an example of the risks faced by industry companies in dealing with the media: the Washington Post’s publication of its story, “Virginia is getting soaked on Midtown Tunnel deal.” In its print version the headline was a terse, “Tunnel project soaking Va.”
After reading this story, and the 60-some comments following it, you couldn’t conceive of a more persuasive argument against public-private infrastructure partnerships if you tried.
In the story, Washington Post reporter Michael Laris shows how a 2011 P3 created so that Norfolk could have a critical piece of new infrastructure, another tunnel, is actually costing the state of Virginia way more than anyone was led to believe by public officials at the time of the deal.
“Whether the much-touted projects are good for the public today, or decades from today, often depends on arcane provisions hashed out between global financial titans seeking maximum returns and state officials hungry to get deals done,” Laris wrote. “And sometimes things go wrong.”
In this case, Virginia committed to contributing $308 million of the $2.1 billion total, and with the additional state expenditures triggered by provisions of the deal, another $273 million.
Skanska/Macquarie are partners in the 50-year deal.
Among the features of the original deal and subsequent changes to it, Virginia agreed to let the partnership impose tolls on existing tunnels and to make payments to Skanska/Macquarie in exchange lower tolls on the new tunnels.
The overall deal and some of its complexity is best absorbed by reading the story. But the essence of it is that the taxpayers of Virginia were sold on the deal by their own former governor, Robert F. McDonnell, who, the Washington Post points out, recently was convicted of accepting illegal gifts (and is appealing the conviction).
One thing I like about the story is that its author interviewed a Skanska source whose responses seemed straightforward and to the point. In essence, the Skanska executive, Wade Watson, says that former governor McDonnell insisted that the tolls be held to a certain maximum. Then the Washington Post says that Skanska/Macquarie required the state to agree to new terms insisted on by the concessionaire. And that the concessionaire somehow came out ahead in the deal despite taking the "revenue risk" on the project.
There doesn’t seem to be very much judging of Skanska/Macquarie, which are after all businesses—until the end of the article.
That’s where Laris and the Washington Post point out that a “separate Skanska entity” was recently “fired by Apple, which wanted changes in how its new space-age headquarters was being built in Cupertino, Calif. Virginia officials say the quality of the company’s construction work on the Midtown Tunnel has been excellent.”
That spoils what had been apparently a pretty fair treatment. Somehow Laris and the Washington Post believe that the inability of Apple and Skanska to come to an agreement on a deal, for a building, not a tunnel, is a negative sign on Skanska and the quality of Skanska’s work.
That’s like saying that someone who turns down a job at the Washington Post is suspect for declining a position with such an outstanding newspaper. A newspaper owned by Amazon Tycoon Jeff Bezos, who is himself a “financial titan,” which is how Laris describes the P3 concessionaires.
And from what I read in the New York Times about working for Jeff Bezos, turning down a job at Amazon, if not the Washington Post, might not be such a bad idea.
Why don’t the media just assume everybody in construction is looking out for their own interests without portraying construction companies as ruthless charlatans? At least until they find something suggesting otherwise.
From what I read, Skanska was pretty forthcoming about how the deal was done.