Getting the Most Out of Public-Private Partnerships
Why government agencies should advocate for good design.
When done right, public-private partnerships can deliver big results for cash-strapped government agencies. Architect Joseph P. Ruocco, a director in our Washington, D.C. office, offers his perspective on how government can get the most value out of P3.
The building and construction industry is buzzing about P3 — and U.S. government agencies are taking notice. As an alternative method for financing and delivering building projects, public-private partnership, or P3, is a compelling model for public agencies with limited budgets. At all levels of government, officials are considering this delivery method for public buildings and infrastructure projects. Messages around P3 are saturating our industry by way of think tanks, advisors, and coalitions, all newly formed to influence the conversation.
With many federal projects delayed due to lack of funding, it would be irresponsible for government officials to overlook the potential of P3. But what’s often left out of the conversation is the value that architects and designers bring to the table. Regardless of the delivery method — but especially with P3 projects — public agencies should consider the longterm impact of design excellence in making a project successful.
When evaluating the best strategy for investing public and private funds, officials should prioritize the selection of an innovative and methodical architectural team. It is the quality of the design that will provide the greatest value over the lifespan of the project. Given the architect’s fee represents on average one-tenth of 1% of the total investment, in the P3 world, that truly is “value for money.”
Success starts with a good RFP
It’s important for owners — in this case, the government agencies commissioning a P3 project — to consider how the design team is selected in a P3 project, and what they can do to ensure the best outcome.
Publicly funded building projects are structured to manage risks, including design and construction costs and associated schedules. For this reason, some government agencies favor a design-build contract with a single provider capable of taking on these risks. P3 contracts are designed to provide the most security to lenders and sponsors by passing down each of the various risks to the party best able to manage it.
The impact of great design should not be underestimated.
In P3 procurement, the owner relies on the qualifications of the concessionaire — the primary contract holder — to deliver the project. Think of the concessionaire as a mutual fund manager who oversees your investment in a building project. Concessionaires will work with lenders for financing, a designer/builder for construction, and an operator to maintain the project. However, since the contractor is fully responsible for building the project, the concessionaire may defer to the contractor to select the architect/engineer (AE) team.
Teams are usually selected based upon previous experience, giving priority to those who can demonstrate success on comparable projects. These selections may take the path of least resistance to manage costs — often to the detriment of design excellence. Unless the owner’s RFP values design, rates the quality of the AE team as a primary consideration for concessionaire selection, and understands the long view of project life cycle costs, the result may be a missed design opportunity — followed by an unremarkable outcome for the project and the surrounding community.
When writing an RFP, owners should take care to describe their desired project values and weight evaluation factors appropriately. This will influence the selection process, quality, time, and most significantly, the design process — all of which contribute to a successful outcome.
The larger the scope of the project, the greater a catalyst it can be for economic development.
The design process requires clear and effective open communication between designers and end users. The RFP process should require meetings between the design team and the owner team, including end users and affected neighborhood groups, to discuss preliminary design options and the design team’s understanding of the RFP’s project requirements. During these meetings, the chemistry among all parties is a good barometer to gauge the team’s potential for success.
For civic and government projects, effective dialogue with stakeholders during the design process is essential. Our work as designers affects existing communities and has the potential to create new economic opportunities for civic, residential, and commercial growth. The larger the scope of the project, the greater a catalyst it can be for economic development. An integrated design and owner team fosters constructive dialogue, understanding, and opportunities to develop innovative solutions to the problems defined within the RFP.
Case study: Long Beach, California
Of the various P3 models, it is the Design-Build-Finance-Operate-Maintain (DBFOM) model that concessionaires are most interested in seeing the federal government adopt. The “operate and maintain” component provides investors the greatest opportunity for return on investment over a life cycle of 25, 30, or 40 years. Among investors, there is a consensus that once the federal agencies embrace the DBFOM model, many federal real estate and public building opportunities will quickly be prepared for market.
In Long Beach, California, we’ve put this model to the test. SOM designed the Long Beach Civic Center City Hall and Port Headquarters, one of the first municipal P3 projects using DBFOM in the United States. At a cost of $520 million, the project represents tremendous forethought and leadership from the city officials of Long Beach, who were committed to leveraging their existing real estate assets to meet the community’s needs for generations to come. We’re working with Clark Construction under a conventional Design-Build (DB) agreement. Our DB team is under contract with Plenary Group, one of the most experienced concessionaires delivering P3 projects using the DBFOM model.
Federal agencies — especially those housed in obsolete buildings, such as the General Services Administration and Department of the Treasury — should consider the value of a project delivery model similar to the one being used in Long Beach. They should review the project’s financial structure and the procurement process outlined in the RFP to understand its merits. I would invite them also to meet with our team to learn how we responded to the community’s needs throughout the design process. They will leave with a greater appreciation of the transformative benefits that exceptional urban, architectural, and interior design can bring to a local civic government and its surrounding community. The impact of simple urban planning moves, complemented by great design, should not be underestimated.
Advocating for smarter investment
Senior public officials have told me that the Office of Management and Budget (OMB) scoring rules are outdated, and new budget concepts for evaluating the longterm cost of deferred maintenance for federally owned buildings and real estate assets are needed. What’s more, if it were not for the limitations of the current OMB scoring rules, concessionaires would be investing in public buildings and delivering projects like the Department of Labor Headquarters and FBI Headquarters — both of which have been stalled due to lack of funding.
Federal agency leaders must become advocates for their own assets. They should call for changing the outdated OMB scoring rules to allow private investment to design, build, finance, operate, and maintain public buildings — especially those located within urban cores, where these buildings have the greatest potential to spur economic development.
While the principles that enabled the City of Long Beach to reposition its real estate assets are black and white, a commitment to design excellence is essential to the project’s success. A P3 endeavor must be rooted in a dialogue with civic leaders and community members to ensure that their aspirations and requirements are integrated into the design. This type of engagement — leading to an outcome that benefits both the client and the community — is at the heart of what we mean by design excellence.
Joseph P. Ruocco, a director based in our Washington, D.C. office, leads SOM’s civic and government practice. He has worked on many architectural projects for federal and international clients, including the General Services Administration, the FBI, the U.S. Department of State, and the U.S. Army Corps of Engineers.
Explore more perspectives from design leaders at SOM: