Facing Project Funding and Other Challenges

According to the American Public Transportation Association (APTA), Americans took 10.3 billion trips on public transportation — the highest ridership level in 50 years, and public transportation ridership is up 32 percent since 1995. But transit authorities continue to face increasing challenges like accelerated cost escalation (due in part to increased material costs), environmental sensitivity and the involvement of more and more stakeholders.

In addition, there is more competition for funding and less money available. Transit authorities have met these challenges by considering the use of alternative procurement methods, like public-private partnerships, to accelerate delivery. But obstacles remain, like obtaining public support for a PPP, avoiding claims during construction and otherwise keeping the project on budget and schedule.

Although much of the risk and responsibility lies in the private sector, there are some concrete steps that transit authorities can take before and during a project to increase its chance of success, specifically when working with private partners.

Partnering can and should start before the project is awarded. In recent years, resources have become stretched. Increased demand has resulted in a less experienced labor force, all while projects become more and more complex.

“Owners, contractors, engineers and other stakeholders must form a true partnership to overcome these challenges. Partnering means each player must pool his or her resources and approach the project as a team — everyone must give, take and work toward common goals. If we understand what is important to you and why, it becomes one of our goals, too,” says Matt Girard, Flatiron’s vice president of business development.

“When challenges exist we have to solve them as a team. All players must learn to set aside personal agendas and balance their responsibilities and goals with that of other players, a unique challenge. Our goal is to leave a project with everyone thinking that this was an excellent example of partnering.”

When contractors and owners partner, they should begin by identifying each party’s specific goals and agree to help each other achieve these goals. This is no easy task, but it truly increases the chances of project success.

Flatiron has worked with an extensive list of transit agencies, including those in Denver, Salt Lake City, San Diego, Los Angeles and the Bay Area.

Norm Avery, Flatiron’s Utah district manager, says the lessons learned are tremendous, but probably the most important is that positive relationships are the biggest contributor to a project’s success.

“If a team environment doesn’t exist, the smallest of hurdles will present huge and overly time-consuming challenges, making project success much more elusive,” he says.
An excellent example of proactive partnering is currently happening with the Utah Department of Transportation (UDOT). UDOT is one of the leaders in partnering and contract procurement innovation.

“The greatest lesson I have learned by working with them is that we can accomplish much more and with greater satisfaction by working together. When work is enjoyable, this joy carries on to home, family and life in general. When all is said and done that is where the real value is,” says Avery, who is an active member of UDOT’s executive committee on partnering.

UDOT has teamed with the Associated General Contractors (AGC) to develop a comprehensive partnering program. This program establishes an executive committee of representatives from the public and private sectors who are responsible for developing partnering guidelines. In fact, UDOT and the AGC have written a field guide to partnering on UDOT projects. According to this document, partnering doesn’t result in each party “splitting the difference,” but instead focuses on achieving a win-win situation.

Kris Peterson, UDOT’s director of construction and materials, says that all of his construction projects have mandatory partnering training for management, from both the private and public sides.

“There are two different levels of training, and in order to even begin work on a project, key members from the contractor’s project team must undergo this training,” he says.
“We have tremendous support from our department leadership, as well as from executives of construction companies and the Associated General Contractors in Utah. We have created the program in conjunction with them.”

The main benefit of this partnering program is that it has greatly reduced claims made on projects.

Peterson continues, “By allowing us to have a process to work through issues, we elevate issues quickly and don’t let them get stuck at the project level. What partnering does is give us a process that everyone is familiar with on how to work through the issues. It helps us to not get stuck in the trenches — to make sure we can understand the other people and companies. Even though we’re not in the mass transit world, what we do in terms of partnering is very similar.”

The California Department of Transportation has also created a partnering field guide, opening its doors and seeking industry input. Caltrans formed a steering committee to develop these guidelines. Flatiron’s Western Region President Curt Weltz is a member of this committee, along with representatives from other private firms, Caltrans and representatives from the Associated General Contractors and the Engineering & Utility Contractors Association.

Partnering “field guides” should contain a clear dispute resolution process in which issues reach decision makers who are not directly involved with the dispute at hand. Issues that are handled unilaterally without a defined appeal process can cause a ripple effect and additional problems. It is much better to implement an appeal process that reaches somewhat independent parties sooner rather than later.

“Through the development of Caltrans’s partnering steering committee, we have established partnering specifications and field guide,” notes Weltz.

He continues, “This month kicks off the ‘Fundamentals of Partnering’ — a joint effort by Caltrans and the private construction industry to train the trainer. Flatiron has a phenomenal list of volunteers, from area and district managers on down, involved with this training.”

Additional ways owners can promote partnering are to hold training, develop relationships with partnering facilitators and create an awards program that recognizes individuals and their project teams who follow the partnering guidelines.

The private sector is very interested in partnering award programs because they show us that you, the public entity, are serious about partnering. It also tells the private sector that you understand what partnering truly involves and that you have put some thought into why partnering is important.

When a partnering plan is followed early and management stays involved with issues, projects flow and costs are contained.

“A great example of early stakeholder involvement was on UDOT’s Legacy Parkway Project, a 14-mile stretch of a four-lane highway to provide an alternate roadway for northern Utah commuters between Salt Lake City and Kaysville,” remembers Avery.

“As the Utah AGC Highway Committee, we partnered through the entire procurement process. Seldom do you see partnering on projects before they are bid, but this one was one of those rare cases. The UDOT team lead by Todd Jensen, Bryan Adams and PK Mahanty, would bring issues to the committee, we would have an open dialogue and provide input, and they would follow up. It was a great success,” he says.

Delivery and Financing Decisions
Transit authorities also need to determine as early as possible how they will procure the project. This is the biggest decision they will make. The earlier they decide to procure a project using design-build or public-private partnership, the quicker they can “lock down” cost escalation.

Choosing an alternative delivery method happens before the construction contract is signed. Alternative project delivery methods, such as design-build, accelerate the overall procurement process and help lock in construction pricing earlier. This helps offset the effects of inflation, which can have a huge impact if an owner’s budget is outdated.

Between the ailing economy and the financial situation of most transit agencies, the hottest thing on everyone’s radar screen is public-private partnerships. What everyone must realize is that P3s are not “free money” and must be paid for eventually.

The key to using P3s is figuring out how to pay for them over the long haul, since ridership fares will typically not foot the entire bill of all aspects — design, construction, financing, operation and maintenance.

An even bigger key to P3 success is convincing the public P3s are the way to go. Authorities need to focus on communicating the proper messages to the public and their local politicians, including these three important points:

(1) Financial reality — there are sometimes no other options to procure the project. Since P3s are relatively new in the United States, the public does not understand its choice and may think that the project can be procured using taxpayer dollars or through transportation funding. Owners must make sure that the public and politicians understand that the choice is to procure the project as a P3, or not have a project. This means that there must be substantial interest from the public for the project. If the public does not see a need for the project, it will be very difficult to get support, especially for a P3 project.

(2) Foreign concessionaires — foreign entities should not be viewed as taking eventual profits overseas. They should be viewed as a supplier of foreign investment in the local economy — investment that creates jobs, improves economy and provides the means for an important project. Investment is viewed as a very good thing in essentially any other industry, and we should promote this same thinking in the transportation sector. This will require education and proactive communication among the private sector, transit authorities and the public.

(3) Private sector efficiency — combining all aspects of a project (design, build, finance and operate) and enabling the private sector to address them all allows for increased efficiency.

Increase Competition
Transit owners should consider supply and demand in the construction industry. There are a limited number of contractors qualified for large-scale transit projects. It is important for an owner to attract as much competition as possible.

To keep costs down, owners can make sure they are a client of choice, taking steps that make contractors want to work for them. This brings healthy competition, improves quality and reduces cost.

Some concrete ways transit authorities can be attractive to contracting teams is to hire qualified consultants who understand the market and have worked on “both sides of the fence,” representing both owners and the private sector.

Secondly, the private sector is attracted to projects they have a good chance of winning. Therefore, short listing more than three firms can make the project unattractive to the private sector.

“In our experience, if owners shortlist more than three teams, the private sector will typically shortlist for them; that is, teams will drop out because of straight statistics and a business decision. Owners should therefore shortlist to three and pick the teams they want,” notes Girard.

He adds, “Also, since proposals can cost the private sector millions of dollars, owners that provide stipends are also more attractive to private firms. The private sector never depends on stipends to pay all of its third-party costs, only to cover a reasonable share.”

Stipends may cost more up front, but they can reduce overall cost by attracting well-qualified competition that will spend some money pre-bid to be innovative and bring cost-saving ideas to the table.

Determining which projects to go after is strictly a business decision by large private sector firms. By making your contract terms attractive to the private sector, owners can attract more and stronger competition.

As the public shies away from gas consumption and automobiles for various reasons, we will continue to see an increase in ridership of public transportation. As such, the use of alternative delivery methods is also on the rise, and we expect strong PPP legislation to reach a majority of states within the next five years. Although more transit is needed, gaining public support remains a challenge, which is why early communication with stakeholders is extremely important.

Developing partnering programs is one way to gain early support for projects. They also help to reduce costs during construction. During contract negotiations, increase competition for your project by making sure risks are appropriately assigned. This will ensure lower pricing and better innovation for your project.

Christie DeLuca is the communications manager for Flatiron.

More Related Information:
Archived Article: Flexing and Leveraging Funds for Transit
Archived Article: Innovative Financing Strategies
Mass Transit Buyer’s Guide: Consulting, Outsourcing- Engineering