should far outweigh the costs of designing, constructing, operating, and maintaining it.
The proliferation of P3 projects throughout the U.S. is testimony to the profits available to private entities when properly
forecasted, as well as the benefits to the public agencies with
which they partner. Those in the public sector who use the
facilities are the true beneficiaries, as public improvements
are provided at a lower cost and in less time than traditional
public procurement methods.
RISKS & PITFALLS
Unfortunately, P3s are not for every contractor or every job.
There are a number of pitfalls that should be addressed and
reconciled during project negotiations to ensure the project’s
There is a popular misconception that with P3s, public agencies shed their obligations to provide public services. If the
public does not support the need for the facility or the idea
of constructing it with private participation, then political
pressure can impede or kill the project. So, it is critical that
someone on the public side assumes the role of “project
champion.” The project champion leads the project delivery
team through the channels of public opinion and bureaucracy without getting derailed by red tape or political outcry.
Jane Garvey, North America Chair of Meridiam Infrastructure
(a P3 investment firm), states, “We need to educate the public that the public maintains control [of the development and
operation of the facility]. No payments may be made to the
private entity if public standards aren’t met.”
Fits and starts in the process are only pitfalls for the first
several years of P3 implementation. During this initial phase
of unfamiliarity, it is difficult to get the private agencies and
public entities to speak the same language on issues such as
risk transfer. Private entities are primarily concerned about
the financial risk, whereas the public agencies have broader
concerns, including political risk.
As Garvey also states, “The public and private can sometimes
look at the same issue and see different things. The private
side may not understand the challenges the public official
is facing.” It is therefore sometimes necessary for the public
agency or private entity to retain a consultant familiar with
P3s who can help the parties achieve the same perspective.
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The better the parties can communicate on the same level
without misunderstanding the other side’s perception, the
smoother the process will be.
Assemble a Team
It is critical for the private enterprise to assemble a team that
understands both the nature of developing the specific type
of facility and the local political climate. An ideal team should
1) A developer with expertise in the type of facility
2) An operator with expertise in the type of facility;
3) A lender willing to underwrite the costs of design,
construction, and operation;
4) A consultant who is familiar with the local politics and
has established relationships with decision-makers;
5) A talented forecaster to help foresee the project’s
financial and political performance over several
6) Legal counsel to establish the framework for the
plan, draft the appropriate legal documents, and
help maneuver through the P3 process.
The P3 process is long and arduous and requires advocacy
and stamina to convince public decision-makers that a P3
Rise of P3s in the U.S.
Although P3s have been gaining tremendous popularity in the U.S., the idea is hardly new. P3s have
been the standard project delivery method for public
construction in Europe and Canada for generations.
Until recently, public agencies in the U.S. had never
needed to look to alternative funding sources to
meet their facility and infrastructure requirements.
However, the recent restriction in funding has created the need for an alternative solution.
First implemented on a mass scale in the U.S. with
the construction of roads and transportation infrastructure, the fastest growing non-transportation
sectors in P3 construction have been university
facilities, mixed-use development, parking garages,
and stadiums. Other examples include courthouses,
police stations, jails, and water treatment plants.