During a discussion about public/private partnerships (PPPs or P3s) at the 2018 ULI Fall Meeting in Boston, panelists explored what types of infrastructure projects are likely to be best suited for the innovative tool in which public agencies can facilitate desired projects while shifting much of the development, financing, operating responsibility, and risk to private developers.
The session, moderated by Mahlon “Sandy” Apgar, who pioneered a military housing public/private partnership, and Leslie Woo, chief planning and development officer for the Metrolinx transportation authority in Greater Toronto, also explored why the United States is years behind countries such as Canada and Australia in adopting private/public partnerships.
In Australia, for example, governments must at least consider P3s for infrastructure projects, said Jonathan Kennedy, an infrastructure consultant and strategic adviser to governments and multilateral organizations. In the United States, however, there are still an “inherent skepticism” and a resistance to government ceding its authority and resources to the private sector, Apgar said. “It is ironic that as the world’s largest capitalist economy, we actually resist some of the basic premises of capitalism,” he added.
Just how far the United States lags other countries was illustrated by the evolution of Australia’s P3 value proposition and structure, the first of which was introduced in 1988. The profits that private-sector prison operators earn in Australia are based on the recidivism rate, for example. So instead of just focusing on providing a cell of certain size, three meals a day, and other basics, the government has incentivized efforts to help prisoners reintegrate into society.
“You’re contracting with the private sector to help you solve a problem, be it social or economic,” said Kennedy, referring to the public party.
That is a stark difference from typical U.S. P3 contracts, which often are driven by executing the most efficient and cost-effective project possible, or “inputs,” and not by outcomes, said R. Richard Geddes, professor and founder of Cornell University’s Cornell Program in Infrastructure Policy.
“P3 contracts should be focused on performance and social outcomes,” he said. “And that will change the mind-set of the private partner.”
Still, Casey Nolan, a senior managing director for apartment developer CRC Companies, noted that a P3 housing agreement between his company and the military had indeed provided social benefits. Among other elements, the project focused on a simple and clear mission to improve the quality of life for service members and their families. Moreover, the agreement provided flexibility to change the project’s parameters as market conditions, living habits, or external influences dictated. Ultimately, that allowed the company to redesign some housing to meet the needs of wounded soldiers without having to seek approval, he said.
Another discussion topic centered on which types of projects the public sector should consider for P3s, which generally last 25 to 30 years, and on the project types that are not appropriate for these partnerships. P3s typically make sense for costly projects, including civil and social infrastructure such as roads, bridges, airports, schools, hospitals, and courthouses, Geddes said. They do not make sense when the costs of the project outweigh the social benefits or when it would be difficult to monitor the quality of the private sector’s performance, he said.
Peter Zuk, chief capital officer for Metrolinx, took a more liberal view, saying that P3s are appropriate whenever the partners can envision a value proposition. In
Ontario, Canada, the introduction of P3s began with social infrastructure but now includes civil projects like a multibillion-dollar public transit endeavor that Metrolinx is planning, he said. But he cautioned that executing a P3 was a little bit like politics and called for governments to carefully consider projects and avoid viewing the private party as the enemy. “As public owners, we get as good or as bad a set of benefits from a project that we deserve,” he said.