Facing Project Funding and Other Challenges

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 This helps offset the effects of inflation, which can have a huge impact if an owner’s budget is outdated.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.