The final course of the specialization expands the knowledge of a construction project manager to include an understanding of economics and the mathematics of money, an essential component of every construction project. Topics covered include the time value of money, the definition and calculation of the types of interest rates, and the importance of Cash Flow Diagrams.
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From the course by Columbia University
Construction Finance
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From the lesson
Public - Private Partnerships
Karl Reichert introduces public and private partnerships.
Meet the Instructors
Ibrahim Odeh, Ph.D., MBAInstructor, Department of Civil Engineering and Engineering Mechanics, Columbia University
Director of Research and Founder, Global Leaders in Construction Management
So how do you apply the public-private partnership model?
It works across a number of sectors typically the projects have to be complex.
They're of critical importance to the community or to the agency or
to deliver an important service to the taxpayers and citizens.
The sectors that have been most active in the United States
have been in the four or five that are listed here.
Government buildings, and by that I mean perhaps a courthouse or a justice complex,
where you're combining the sheriff's office and the judiciary.
And perhaps a jail and all the support functions.
And you're consolidating it onto a single piece of property.
And it is a large scale building of 4 or
$500 million where you're gaining tons of efficiency for the public client.
You're taking over the operations and maintenance of it.
You're financing the new construction.
And you're running it under the availability payment structure.
So there's been governmental P3s done, certainly many in Canada and
elsewhere around the world, only a few in the US.
Certainly hospitals and schools are another example and
I'll share two case studies on that.
But especially in Europe, there's been numerous hospital public-private
partnerships done, largely in the UK along with school districts.
And I think these are two opportunities in the US market and
I'll get to that in a moment.
The predominant sector for public-private partnerships in the US has been in
the highway, bridges, tunnels, airports, or I call the transportation sector.
This is where, I think, the P3 model is best applied.
So you see toll roads that had been built in several major states Virginia,
Florida, Texas, predominantly have built out their
toll road sectors based on using the P3 model.
There's been several bridges,
the Goethals Bridge in New York is a public-private partnership.
I'll talk later about the midtown downtown tunnels project in Norfolk, Portsmouth,
Virginia, which is a tunneling project.
It also has a network along with it.
But it is an immersed tube tunnel project done as a P3, and
it's the first of its kind in our country.
And now you also see renewable energy, that sector emerging in the P3 space,
where you have this massive demand for energy consumption, energy infrastructure.
And so we're seeing more public-private partnership type projects come out of
the renewable energy sector.
Hydro being an interesting example and waste water being another.
And you have solar and wind and tidal that also have been
developing in other markets that may eventually come to the US.
So you have what I would call, I would classify those projects as greenfield.
And what I mean by that is, these are projects that were newly built.
There may be a brownfield component, in other words,
there maybe an aspect of the project in that sector that's already existing.
And now you've done an expansion and an overhaul and taken the concession forward.
But mostly the P3 projects in the US have been greenfield, or original projects,
where there was land available and a project was done or
right of way secured over many years, and the project then delivered as a P3.
But there's also been a few brownfield P3s where the assets were
actually in existence, toll roads, and they were sold.
And then they were improved, perhaps tolls increased to improve service delivery,
to fix the highway that hadn't been repaired in ages.
To improve flow with intelligent tolling systems, free flow tolling.
To do away with toll booths so
that no longer would cars need to stop and traffic be interrupted.
To make life safety improvements, striping and guardrails and signage.
So there are projects that were considered public-private partnerships predominately
in the mid 2000 era, where there were acquisitions and
then there were expansions of those existing assets and
improvements in the monetization of those assets.
So that's what I mean when I say a brownfield.
What is important to stress, is in a public-private partnership,
the government is always in command and in control.
They are our client.
Now of course, the traveling public or the users are the ultimate client and
the consumer.
And those are the individuals that are focused on heavily by both the public and
the private partner.
But there's a lot of mysticism out there and a lot of misdirection out
there about governments giving away assets to private entities.
And that's not at all the case in a public-private partnership.
There is absolute, constant oversight from the governmental entity.
There is state and federal funding involved.
So there's always the fact that, hey, we're co-invested with the private partner
in this project, and so we consider ourselves a shareholder in a way.
And that partnership goes throughout the entire length of the 25, 50,
100 year concession agreement.
So there's always that aspect of there's tension, but there's also partnership
to try to ultimately deliver the asset in a very great way for
the community and where it's been developed.
There's also transparent, robust competition for
public-private partnerships.
So it's not as if projects can be given away to foreign entities or
pension funds or builder-developers.
You have to earn your stripes on a P3.
And I'll talk a little bit about the competitive process shortly.
There are performance-based contracts that I mentioned earlier, where there's
pre-agreed standards to how the private sector has to behave in operating and
maintaining the asset that it finances and builds and designs.
And if there is a failure of any kind, there is a system in place to assure that
we live up to our obligations as investors.
Or our investors in debt and equity can lose a portion of their return,
if not all of their return.
So there's always the governmental entity or
the authority that has a performance-based regime applied to its private sector
partner that we are obligated to live up to, in order to earn our return.
There are also very stringent environmental and safety and
performance aspects of a public-private partnership contract.
So all along the way, we cannot take our eye off the ball as the private partner.
An example I'll give is if you're riding along a traditional highway and
there is a car wreck on the side of the road, it typically slows down traffic.
It takes a while for the wrecker to get there to clear the debris and
to attend to the vehicles and the people.
You may have emergency vehicles and so on.
In a public-private partnership on a toll road,
the private partner has every incentive to be on the scene quickly,
to clear the scene quickly, to assure that it is safe.
To make sure the people are okay and
the wrecks are cleared in a much more effective and efficient way.
Because it affects how the traffic flows and therefore how tolls
can be collected and how operations and maintenance can be managed.
So typically you'll see a privately develop and
operated toll road very efficiently and well run.
And that's because there is that incentive, that competitive
consumer-oriented incentive to get that situation resolved in a safe manner.
Make sure things are good, but also recognize that traffic has to continue.
And it tends to be done much more efficiently and
effectively in partnership with the private partner there.
And I want to mention that public-private partnerships are relatively new to
the scene in the US.
Now there will be an argument that says they've been happening since the 90s in
the US, and that may be so.
But the high time for
public-private partnerships has been around the mid 2000s to the present.
But at the same time, there's only been five or
maybe six financial closes on US P3s per year over the last ten years.
So the deal flow, if you will,
is a little bit lower in comparison to countries around the world.
And I list a few here.
Certainly Canada is a leader worldwide in utilizing in the P3 procurement
method, as are many Latin American countries, certainly the UK and Europe.
And the point I make there is that if it can be done there,
it certainly should be able to be done in the US, and perhaps more so.
And in the US, we have federal and state programs that encourage P3s.
So at the US Department of Transportation,
the Federal Highways Administration in particular.
Now you have the EPA, the Army Corps, other agencies,
the Veterans Administration, the General Services Administration.
All getting involved in the P3 area as a way to deliver alternate
delivery kinds of projects and stretch out the tax payer dollars and
avoid going into debt as I talked about earlier.
Perhaps getting projects done on time and on budget.
They're now looking more and more to use the P3 model.
And on top of that, they're providing credit assistance and there's private
activity bond availability for us to take advantage of as we're developing projects.
And P3 is available to be utilized in some 32 states in our country.
Now not all states are highly active.
There are few that really stand out.
California for sure, Texas, Virginia, Florida,
Ohio, Indiana, New York to name a few.
There's a few states that are emerging.
There's a project going on right now in Fargo, North Dakota, of all places.
They have a serious issue with the Red River flooding.
And they've come up with a solution that they'll pursue as
a public-private partnership to divert the river if it ever hits high flood points.
And they want to make sure that the project is done with high level
of life cycle thinking and stretching in the private investments.
So here we have our first ever US river diversion P3.
We have an airport P3, the first one in the United States happening in New York
at LaGuardia Airport.
And I'll talk about that in a moment.
You have a few other states that are seriously looking at P3s because governors
really can't wait for Washington to send money.
They're really loathe to raise taxes or go further into debt.
Yet the demand for improving infrastructure is so very high.
So this provides an alternative.
It's not an answer to every project that has limited funding availability.
There has to be certain parameters met for a P3 to work.
But the idea that governors in particular are more and
more looking to P3s as viable alternative I believe is very promising.
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