Beyond Politics: The Private Sector & P3s
We are all hearing it, "P3's are all the rage." Universities are promoting Public Private Partnerships on their campuses to add needed student housing, classroom and conference spaces. Governors and Mayors faced with outdated and in many cases dilapidated infrastructure are looking to P3 structuring arrangements to address their water and sewer, public transportation, and government office needs. Communities, clamoring for state-of-the-art convention centers, hospitals, cultural facilities, and justice facilities, have turned their attention to PPPs as a way of addressing their social infrastructure deficiencies. And, with all of this talk, you would think that the private sector would be equally excited about the opportunity to partner with public agencies on all of these projects. So, why the hesitancy and skepticism by the private sector and how can this skepticism be addressed?
The most recent P3 experience that private industry cites as the evidence that their cynicism is warranted is the Indianapolis Courthouse P3 Project. In December 2013, the city of Indianapolis issued a Request for Proposals and Qualifications for a $500 million new consolidated justice complex to replace their existing facilities. The City received five proposals, shortlisted 3, selected a preferred developer (WMB Heartland Justice Partners), agreed to terms of a 35-year agreement, then election politics ultimately lead to the demise of the project.
But Indianapolis is not the only example. In January 2012, the city of Miami Beach authorized the issuance of a Request for Qualification for a $500 to $600 million Public-Private Partnership Mixed-Use Development in Miami Beach for the Enhancement of the Miami Beach Convention Center District, including the expansion of the Miami Beach Convention Center and Development of a Convention Center Hotel. In December 2012, the City authorized simultaneous negotiations with two shortlisted companies, negotiated LOIs and then in July 2013 selected South Beach ACE as the preferred developer. Then, election politics ultimately lead to the unraveling of the South Beach ACE selection. Later, Miami Beach restarted the process; the result, very little interest from the private sector with no more than two respondents to the City's various attempts to attract competition and interest. In both the Indianapolis and Miami Beach examples, the private industry expended millions of dollars pursuing the opportunity only to have election politics intercede.
The issue: After millions of dollars and hundreds of thousands of hours expended and a selection of an awardee, why should a procurement process result in now project at all? Why is there not a process that the government agency could adopt that would prevent these type of results and incent the private sector to participate in healthy competition for these important infrastructure and social infrastructure projects? Maybe there is something that should be considered.
In most cases, the governing bodies issue Requests for Proposals or Requests for Qualifications that result in a contract that is presented to the elected officials to approve or disapprove, often after a year or more of a procurement process. There is an all or nothing vote that occurs at the end of the process. If the contract is voted down, then the time spent by both the public and private sector, and the money and resources expended, are for naught.
Instead, governing bodies should consider a process that contains milestones along the way that require the staff to secure elected official approval (or sign off by the governing body) before proceeding to the next stage. As each milestone is achieved, it should become more difficult, but not impossible, for the elected officials or the governing body to permit politics to undo the process. Such a process would respect the role that the governing officials play in protecting the public's interest and their appropriate oversight roles. The private sector would have a clear path defined for them and can assess the risk before responding to the solicitation. As with the P3 concept in general, risk is shared by both the private and public sectors during the process, instead of being placed exclusively on the private side of the public private partnership.
During this P3 Hub, let's spend some time sharing thoughts on how this can be done so that the "rage" can turn into real projects that address public sector needs.
This article is reprinted with permission from P3 Bulletin.
