Next Stop: Innovative Project Delivery
The Los Angeles County Metropolitan Transportation Authority (Metro) is implementing the largest and most ambitious voter-approved transportation expansion program in the nation. With the passage of Measure M in November 2016, Metro will build out 40 major transit and highway projects in the next 40 years, and seek to accelerate some of those projects through the “28 by 2028 Initiative” to enhance how Metro moves the world when Los Angeles hosts the 2028 Olympic and Paralympic Games. Taking cues from the best and most innovative agencies around the country and the world, Metro is looking for new ways to deliver these projects better, faster, and more affordably.
Public-Private Partnerships (P3)
Public-Private Partnerships (P3) are collaborations between a public agency and a private partner to deliver a public service, project or facility that can maximize performance, minimize cost, mitigate risks, and speed timelines. The public and the private partner each plays a critical role where the skills and assets of each sector are optimized and potential pitfalls and rewards are shared.
P3s are long-term agreements between a public agency and a team of private sector partners on some or all of the planning, design, construction, finance, operation and maintenance of a project. It works much like the concept of a home mortgage where you partner with a bank and then pay back the bank over a long-term period for the benefit of having the asset of your home, but with the added option for your mortgage to include 30 years of guaranteed home repairs and maintenance, as well as cooking, cleaning, and other tasks.
The Benefits of P3s take on many forms, including:
- Greater Creativity and Access to New Technologies or Approaches: Private firms can often introduce innovative approaches and technologies and take the risk on their performance.
- Improved Project Design and Performance: Private sector innovations can reduce construction, operations and maintenance, life-cycle repair costs.
- Performance Incentives: Improved project performance through accountability for meeting schedule, performance standards, service quality, state of good repair and other requirements, with penalties for failing to perform.
- Project Acceleration: Potential project acceleration through innovative financing.
- Reduced Risk to the Public Sector: Transferring certain risks, such as schedule, budget and performance to the private sector, which can manage them in a more efficient and cost-effective manner.
Types of Public-Private Partnerships
Most P3 models take one of the following forms:
- Design-Build-Finance (DBF): Similar to a Design-Build project, where the public agency contracts with a private party to design and build a project to the specifications provided by the public entity, DBF requires the private partner to finance construction costs. The project developer is not paid until the project is substantially complete, transferring certain risks for design and construction, budget, and schedule to the private contractor. After completion, the public agency operates and maintains the facility. DBF can also help bridge funding gaps, speeding project delivery.
- Design-Build-Finance-Maintain (DBFM): In a DBFM project, the public agency contracts with the private sector to design and construct the project, as well as to maintain the assets for a set period of time, up to 35 years. The contractor may include certain design innovations or use construction techniques that can reduce the long-term maintenance costs of the project, and ensure that maintenance issues don’t impact project performance. The private partner is paid back over the length of the long-term contract, transferring maintenance risks in addition to design and construction risks.
- Design-Build-Finance-Operate-Maintain (DBFOM) : The public agency contracts with the private sector to design, build, finance, operate and maintain a facility under a long-term agreement, while the public entity retains ownership of the facility. This model allows the private partner to greatest flexibility to introduce innovations that support long-term project performance and quality, and puts the responsibility for project performance on the private sector. At the end of that time frame, full responsibility for the facility is transferred to the public agency in a state of good repair.
Not every project is a good P3 candidate. The best P3 candidates are large, complicated, multi-year projects with significant design, engineering, construction and operational challenges. These types of projects can most benefit from risk-sharing and the use of outcomes- or performance-based contracting approaches often used in P3s.
Metro has developed a two-phase screening process for evaluating P3 project candidates. Many of these projects are suggested to Metro through our Unsolicited Proposal Policy, which allows private firms to take the initiative in defining potential P3s.
Metro will undertake a two-step procurement process for most P3 projects, involving the determination of a subset of qualified proposers through a Request for Qualifications, who will be requested to submit proposals in response to a Request for Proposals, culminating with intensive negotiations with the consortium team offering the apparent overall best value to Metro.
Metro is interested in working with consortiums of nationally and internationally qualified P3‑experienced infrastructure providers. Partners may be P3 project development firms that know how to assemble comprehensive teams, or construction firms that specialize in highway and/or public transit design and construction that are experienced at participating in P3 transactions. Teams will also include financial institutions of various kinds including banks, infrastructure, and private equity funds, as well as union, public and private pension plans, to name a few. They may also include operations or maintenance providers.
Regardless of how Metro delivers its projects, there will be local job opportunities. P3s require public agency staff resources for oversight and management of project delivery. As with all public projects, any P3 must meet state and county workforce standards and be governed by all applicable labor agreements. Metro will continue to assign Disadvantaged Business Enterprise (DBE) goals for federally funded projects and Small Business Enterprise (SBE) goals for locally funded projects, regardless of the construction delivery method.