Tips for government entities looking to achieve optimal results with P3s
More and more state and local governments are leveraging the tremendous value to be gained from executing a successful public/private partnership (P3). These public-sector organizations are tapping the resources and expertise of the private sector to get projects that can have a transformational effect on a city or region off the ground.
However, developing or repositioning a major public sector property or portfolio is a challenge. Setting up a P3 can alleviate many of the potential problems, but one must ensure that goals are aligned and communicationand communication between all parties is effective. Achieving optimal results rests on navigating these four basic steps:
1) Identifying a feasible project
In general, partnerships are ideal for large or complex projects where the government controls land or property that can be developed with an income stream in mind. P3s have been used successfully to renovate transportation hubs with restaurants and retail, and to develop police and fire stations. They have also been used to build schools and to help municipal agencies consolidate to updated buildings while opening up unoccupied space to the private sector.
2) Setting up appropriate procurement
It helps to understand how private developers analyze P3 opportunities, since the project will need to meet their expectations as well as yours. Developers are driven by profits, so will assess P3 prospects in terms of the projected financial results measured against risks. Public entities and their advisors can anticipate the level of interest a potential project is likely to receive by analyzing financial and risk criteria on a sliding numeric scale. The key dynamic here is the relationship of financial return to risk.
3) Characteristics of selecting a key partner
While the private-sector proposal process tends to focus on maximizing return while minimizing risk, government entities may also place emphasis on qualitative as well as quantitative criteria. Experienced private developers understand this and will attempt to demonstrate how their proposal furthers the mission/task/goals of the public entity. Ultimately, the question for public-sector decision-makers is which developer will deliver the best plan.
4) Long-term asset management
After the bid process is complete, most of the heavy lifting is still ahead. The development phase is the next hurdle, followed by a long-term plan for managing the asset to serve the needs of all partners.
Ensuring success from beginning to end
Though public-private partnerships are fraught with challenges, they are becoming increasingly common as government entities become aware of previous P3s that met or exceeded their goals. Your odds of success with (or without) a P3 delivery structure are greater when someone on the team has navigated these waters before.
Kevin R. Wayer (photo at right) and Barry Scribner are co-presidents of the Washington, D.C.-based Public Institutions JLL group. The organization is part of Jones Lang LaSalle, a global real estate services and investment management firm. JLL’s Public Institutions team partners with government agencies to deliver tailored real estate solutions that can lead to reduced costs while enabling productivity and efficiency.