Don’t forget Denver’s more successful P3s
Ihave been reading with interest the recent developments surrounding the termination of the public-private partnership contractor at Denver International Airport. I’m disappointed, mostly by The Denver Post editorial that recommends against this “P3” delivery method.
P3 projects have been utilized since the late 1700s to support the private financing of major public projects. The Golden Gate Bridge is an example of a project funded through private sources and secured with public real estate. P3 methods have been extensively used in Europe and Australia and were re-introduced to the U.S. market ostensibly to accelerate the development of multi-tiered complex projects while shifting or sharing the investment cost and risk with a concessionaire.
There are several types of P3s: design build (DB), design-buildmaintain
(DBM), design-buildoperate (DBO), design-build-operate-maintain (DBOM), and design-build-finance-operatemaintain (DBFOM) or what we in the industry call a full-blown P3 and it’s closest to the method that Denver airport officials selected. This is also the model that the Regional Transportation District (RTD) introduced in Denver to deliver the commuter rail lines to the airport, Arvada, Wheat Ridge and Westminster. Without a P3, these projects wouldn’t have been delivered to the public for many years.
Benefits of a P3 vary, but in a DBFOM they include potentially lowering project cost, transferring risks to the private sector, facilitating contractor innovation, enhancing schedule certainty and acceleration.
Indeed, there are challenges to implementing a DBFOM, like determining whether the agency is prepared to implement a DBFOM; getting an accurate and timely assessment of this model versus another P3 model; defining, acquiring and sustaining sufficiently qualified consultants and agency managers, with decentralized authority to make quick decisions; conducting an upfront and accurate “value for money” analysis, particularly in an Availability Payment model (the model RTD used on the Eagle P3 project); ensuring engaged decision making versus total reliance on the contract; having a complete interpretation and understanding of the contract; and the ability and skillset to accurately forecast the requirements for a 30-50-year term.
P3 projects require timely decision-making by the agency and they absolutely require a higher level of oversight. Change orders must be controlled and minimized, i.e., “No ornaments on the proverbial Christmas tree.” In other words, know what you want to build and stop designing during the build phase. It’s like remodeling your house and you keep making changes along the way. The contractor will charge you for both the changes and delay in finishing the job. In that respect, a P3 is very similar to any other delivery method but more expensive.
The P3 DBFOM model will continue; over 33 states have formed legislation that supports all methods of P3 project delivery. This model, especially the private equity piece, may indeed be the only approach to executing the difficult and complex nature of mega-projects. I propose that academic institutions develop training to prepare government staff and consultants on how to deliver this model.
Finally, most disappointing is the blanket recommendation by The Denver Post editorial board to not entertain P3s. Coincidently, the only operating transit DBFOM P3 in this country includes the A-Line to the airport. This project has had its challenges, but it was delivered 11 years ahead of schedule, much below budget and is one in which the concession agreement transferred significant risk to the private sector. In addition to the Eagle Project, Denver also boasts both the fabulous Denver Union Station redevelopment and the U.S. 36 Express Lanes project — both successful P3s. I’m happy and proud to have helped guide all three projects during my career at RTD.
If Denver is to be the “world class” city it aspires to be, we should not arbitrarily recommend against the most widely used infrastructure delivery method. Let’s not send that message to the world, but be an example of how it can be done here in the U.S.