Partnering for Success: The Case for Public-Private Partnerships in America

At the heart of a public-private partnership (P3) is the collaboration between a public entity and private sector firms, especially when building large, complex infrastructure projects. P3s have much to offer.

Jon Kindrachuk, a senior project manager with PCL Construction, is currently working on the Clackamas County Courthouse P3 project. “We anticipate public entities are closely observing the outcomes of existing P3s before determining the most advantageous procurement method for their next project,” says Kindrachuk. For PCL and Kindrachuk, this presents an exciting opportunity to champion a model that promises mutual rewards and supports PCL’s vision.

Instead of fragmenting a project in the manner of traditional procurement, the public sector integrates all parts of a project into one contract with a P3. This holistic approach brings together a diverse team comprising the equity developer, designer, design builder, lenders, maintenance, and operations providers into a powerful consortium.

To truly appreciate the essence of P3s, it is helpful to understand how they diverge from traditional design-bid-build (DBB) contracts. The advantages of P3s stand out in three primary ways from DBB contracts:

1) Financing and Risk Allocation

DBB: The public sector (usually a government entity) typically provides the financing for the project and retains most of the risk, such as cost overruns, construction delays, ongoing lifecycle costs, and maintenance issues.
P3: Private entities provide equity and debt financing, and the risk transfer from the public to the private sector is greater over the entire term of the concession. This means the private sector takes responsibility for risks like design errors, construction costs and schedules, life cycle, energy usage, and the performance from an availability perspective of the completed facility. The distribution of risk contributes to better cost management and schedule management with financial incentives in place for the private entity to avoid delays and overruns.

2) Project Life-cycle Involvement:

DBB: Each project phase is contracted out to different parties (design, construction, and maintenance). Once the project is built, the public entity commonly takes over responsibility for operation and maintenance.
P3: A single private entity, a unified consortium of the parties typically involved in each project phase, is contractually and fiscally responsible across multiple stages of the project, from design to construction and even through the operation and maintenance of the project. Involvement can last for several decades and often results in better project quality and sustainability, as the private entity is incentivized to minimize long-term operating and maintenance costs.

3) Innovation and Efficiency:

DBB: Follows a specified process where the design phase precedes the bidding by construction firms, which then build exactly what is designed. This sequence can limit opportunities for innovation and cost efficiency construction firms only engage after the design is completed.
P3: Promotes a more integrated approach where design and construction are conducted by a singular consortium. This can foster greater innovation and efficiency as the entities responsible for building and operating the facility can offer design tweaks grounded in their hands-on experience. The private sector is also motivated to deliver services more efficiently.

For clients considering a P3, Lee Clayton, senior vice president, global strategic initiatives, emphasizes the importance of partnering with a consortium experienced in successfully delivering P3 projects tailored to the project’s market sector. The strength of each consortium member is paramount to a successful outcome.

With a legacy as a leading developer partner on $21 billion in P3s across North America and Australia, PCL specializes in vertical construction. From airports and courthouses to hospitals, PCL’s expertise spans diverse domains. Presently in the United States, teams are working on two unique P3 projects: the Clackamas County Courthouse in Oregon City and the Consolidated Rent-A-Car Facility at Los Angeles International Airport.

Clackamas County Circuit Courthouse

The $230 million Clackamas County Courthouse is a six-story, 257,000-square-foot building with 16 courtrooms scheduled for completion in 2025. The project will seek LEED Gold certification.

The P3 contract model allowed Clackamas County to best meet its objective to build an iconic, legacy project focused on value. The additional effort spent up front vetting technical, programming, and operational requirements resulted in a best-value product. Risk transfer allowed by the P3 contract model helped ensure that costs stayed within the project agreement.

Clackamas Progress Partners comprises Fengate Asset Management; PCL Investments Inc.; PCL Construction Services, Inc.; Honeywell; and DLR Group. The 30-year project agreement was structured as a design-build-partial finance-operate-maintain (DBFOM) P3.

The Clackamas County Circuit Courthouse project was recognized as Social Infrastructure Deal of the Year at the IJGlobal Awards 2022 ceremony. The project marks the first time in Oregon history that a courthouse is being delivered through a P3 and the first successful closing of an availability payment P3 in Oregon. This type of P3 allows for infrastructure that does not have an attached revenue stream (such as tolls) to be built using private financing.

Despite serious uncertainty in construction and financial markets during the post-Covid era of rising interest rates and increasing construction costs, it was one of the fastest P3 procurements ever conducted in the United States. The procurement process took a mere 11 months from the issuance of the Request for Qualifications (RFQ) to the selection of the winning proposer and an additional three months from selection to commercial and financial close.

"Clackamas County's relentless commitment to closing the deal, even in the face of post-Covid challenges, is truly inspiring. Their vision and dedication highlight the transformative potential of this procurement method. By embracing the P3 model, they demonstrate their forward-thinking approach and dedication to innovative solutions. We commend their leadership in making the P3 contract model the preferred procurement method, shaping a brighter future for infrastructure development,” says Deron Brown, president and chief operating officer, U.S. operations.

Consolidated Rent-A-Car Facility

Described by Clayton as a “perfect team sport,” a P3 is a true collaborative effort that works towards a common goal in which everyone wins. The emerging delivery method offers many benefits; contributing to the success of clients and partners is one of the most rewarding partnerships for PCL. The Consolidated Rent-A-Car (ConRAC) facility is a 28-year, $2 billion P3 DBFOM agreement with LAX ConRAC Partners (LAXCP) and combines over a dozen independently housed rental car locations in the Los Angeles International Airport area into one facility. With the completion of the facility, LAX will see a significant reduction in vehicle traffic and passengers waiting to board rental car shuttles curbside at the airport with the elimination of 3,200 daily shuttle trips, as well as improved land use and reduced carbon emissions.

The ConRAC features more than 18,000 rental car vehicle spaces, an 8,400-megawatt photovoltaic solar panel system, and Quick Turn Around (QTA) facilities that allow for car washing, fueling, and light maintenance. At 6.3 million square feet, ConRAC is estimated to be the largest cast-in-place concrete project of its kind and is the second-largest concrete structure in the United States, behind only the Pentagon. In 2022, the QTA facilities received an American Concrete Institute Excellence award from the Southern California Chapter for Infrastructure, and the project recently achieved Leadership in Energy and Environmental Design (LEED) Gold accreditation.

LAXCP comprises Fengate Capital Management Ltd.; PCL Investments USA, LLC; PCL Construction Services, Inc.; PGAL, Inc.; AC Martin Partners; Johnson Controls, Inc.; and MVI Field Services, LLC.

Requiring more than two and a half million labor hours, ConRAC will be completed in 2024 on time and within budget.

A seasoned design-build partner can be the key to unlocking the advantages of a public-private partnership. This alternative delivery method with the right team brings a high-value benefit to municipalities and public agencies looking to fund capital improvement and community development projects.