? Owner Beware - PPP/P3 Advisory trap
In October, our team converged in San Diego with 100's of University administrators, Developers, consultants and other interested parties for the Higher Education P3 Conference.
During the conference, there were various discussions around development opportunities for availability-based P3 models, mature revenue-based housing and market sounding on the potential pipeline and private sector capability.
"We've seen the good, the bad and the ugly."
As a firm who have been involved in P3 projects internationally since 1999, with a team experience portfolio totalling in excess of USD $50 Billion dollars - we've seen it all.
From contractor insolvency and O&M provider replacement, to end of term negotiations as well as acting on all sides of transactions - we've distilled some key insights which we urge all owners to consider as they engage in the potentially costly exercise of developing a P3 deal.
?? "Don't pay consultants to learn on the job or to reinvent the wheel"
When obtaining advice (remember you'll need financial, legal and technical advice) seek out expertise with both sector relevant (road / rail / education etc) and P3 advisory advice. Good advice will be founded in understanding the Owner's needs, but in the context of market precedence. Overly elaborate or complex structures come at a higher cost from the market.
?? "Obtain advice from advisors with experience on all sides and stages of transactions."
P3 projects require the engagement of private and public sector participants. If the Owner engages a team who are only experienced in advising other owners, they will not have the critical understanding of how the market will respond to the Owner's requirements. This can lead to costly unforeseen consequences which will likely jeopardize schedule and budget. Avoid the jeopardy by obtaining private sector insight in defining the transaction through the right advisors.
?? "Remember, with risk transfer, if you're not paying for it, someone else has to."
One of the most publicized benefits of P3 procurement is risk transfer.
The trouble with risk transfer is that it's the ownership of the risk that moves - not the cost.
Too often Owners see the benefits of moving a risk without understanding the cost-benefit analysis of who is best to hold the risk. For example, an Owner may not like the unpredictability of retaining geotechnical risk, however, if the likelihood of an issue arising is well understood the Owner may be better placed to budget a contingency amount to deal with this issue rather than the Developer. The Developer will act upon the same information but also add a risk premium to holding that risk. The extra cost of the Developer doing so is what should be assessed - is it a worthwhile investment for peace of mind alone?
?? ?? ?? ???"Once you reach Financial Close, the real work beings to deliver the project and honor your side of the partnership."
From RFQs to RFPs and through to Financial Close, it's an immense effort on all sides to get to that joyous day when the i's are dotted, the t's are crossed and 'we have a deal'. Just as that elation fades and bid fatigue hits everyone, there is one serious kicker.... you actually have to go ahead and build the project.
It's important to start with the end in mind. The P3 transaction is not the project, but simply a process that you must go through to get the contract in your hands to allow ground to be broken.
But wait! The skill sets required to implement a P3 contract are different from typical construction projects, requiring a greater degree of commercial and contract focus as well as specific experience in understanding the numerous layers of inter-related contractual agreements. To make sure the project can be a success, you must resource your delivery team appropriately to ensure the project can be delivered in line with the contract. Remember, as an Owner you are now a partner with the Development team - not the autarch. A well-crafted team will support you in being a successful partner.
?? "P3's are complex to integrate into the ecosystem of even the most mature owner organization. Organizational change doesn't appear in the Project Agreement, but it's essential to the long-term success of the project."
Just as the hard work starts following Financial Close, it's important to understand where the P3 transaction sits in the context of your organization. Perhaps you have a construction department:
Each of these questions are better posed early in the transaction development to make sure that schedule and success can be achieved. Also, don't neglect the considerations after construction is complete;
MAPM MPWI MIET MINCOSE ACIRO MCIM Outgoing Head of Rail Systems & Civil Infrastructure (available 04/25), Leader, Former MD & Chairman, NED, BU Director, Business Strategy & Development, Rail Infrastructure Consultant
8 年So true especially about paying consultants to learn on the job - so look across that pond to the British consulting industry Decades of experience and remember that it's not just the successes that matter but in fact more is learned from thing that didn't go quite to plan
Proven Catalyst to Shape more Conscious Innovation, Compelling Organizations, a Future with Greater shared Purpose All Can Thrive In per WE-Relevance
8 年Hi Kathleen, Thanks. Hope you are doing well. As one with deep positive education value creation experience, and seeing a major conference, I expected a different dialog. This made HP Geek talk look tame. The gap between education and industry is growing exponentially fast and AI will greatly shorten already slow reaction time as more job categories disappear. Conversely, an education system that works with industry and that helps solve how education can gain an advantage that passes on to students is a huge opportunity, if anyone is minding that store.
Proven Catalyst to Shape more Conscious Innovation, Compelling Organizations, a Future with Greater shared Purpose All Can Thrive In per WE-Relevance
8 年Wow, I thought engineers spoke a different language but this completely avoids the human aspect of education and the biggest opportunities to align education with industry to prepare people for a new class of work . The classic MBA languishes in preparing leaders for skills that an MFA comes closer to understanding but it starts with real vision and a sense of what is about to happen. Robots can legitimately do what many traditional, routine and thinking job classifications can do. Microsoft, Amazon, IBM, Facebook and Google formed an alliance on AI that has larger implications than most even imagine. The education program I strategized for HP and Agilent many years ago started closing the gaps that only real leadership can see and add value to so students are prepared. We hear government talk about job creation without a clue about what is required in this economy. I understand your historic value but wow, the gaps worry me.
Senior Investment Operations Consultant - Water & Urban Development: Region 1
8 年Well written. An Owner should realise that procuring a good O&M Operator is as important as a good transaction Advisor. The Operator will be the party who has the longest service tenure, after equity & will need to perform to ensure that the Owner achieves its stated ovjectives, incl return on investment.
Senior Consultant at P3 Advisors Inc. and P1-Consulting Inc.
8 年Well thought out article and some excellent points made therein. Owners should also realize the importance of collective knowledge, as often the teams engaged to procure the project are very different than the delivery team and the operational one. Having continuity of knowledge as well as the expertise in various areas mentioned above will be extremely beneficial for a successful project in the long term.