Construction projects are generally classified into two categories – public and private projects. Everyone from the industry, including you, knows that private projects face far lesser regulation than public ones. The control of such projects is actually within the hands of construction businesses and private owners, generating efficiency gains over slow-moving public jobs.
It’s no wonder project delivery methods are a highly mentioned topic among construction professionals. The contracting environment you’ve practiced in, your personal experiences, the methods your project clients are allowed to use, and your partnerships – all of these factors and more play into what methods should appear to have less or more merit.
For this blog, let’s discuss Public-Private Partnership, its pros and cons, and the reasons why it can be beneficial for your business
Defining Public-Private Partnerships
Public-private projects, referred to as P3 projects, are contractual partnerships between private and public agencies. This ground-breaking project delivery method transfers risks to the parties that best understand and manage risks – developers, construction contractors, financiers, suppliers, service providers, and operators. The resulting comprehensive team will operate to implement the client’s objectives and goals for the good of the project.
P3 projects aim to take all benefits of both private and public projects. And like private projects, extensive control by the private company will help in adding expertise and creating efficiency. There’s decreased payment risks, steady project owner, and a project that significantly benefits the general public like public jobs.
Due to the benefits, the P3 format is generally used on significant and complex public construction works that consume an extended amount of time. Therefore, only a strategic P3 approach can mitigate the schedule delays and overruns that plague traditional infrastructure project delivery.
Listed below are several pain points that P3s can eventually address:
- Unclear responsibilities – a lack of clarity in project governance hinders effective project delivery. P3s can address this challenge by simply requiring the owner to negotiate and document the performance standards, rewards, risk-allocation mechanisms, and so on.
- Poor alignment with strategy – implementation can be delayed and support can decrease whenever a strategic commitment and project management do not back up projects for construction. Once P3s are thoroughly screened, it results in project commitments aligned with the basic strategy.
- Insufficient optimization of project features – clients are often constrained by current standards and limited exposure to ideal practices. However, P3s encourage creative problem solving during design, construction, bidding, and long-term operational phases.
- Lack of discipline in execution – large and complex infrastructure projects usually suffer from competing objectives, resource commitments, and time frames. P3s can help in achieving operational accountability and clarity of delivery.
- Lack of an ownership mindset in the delivery team – traditional project delivery typically results in poor alignment between the owner and the contractor. In P3s, concessionaires adopt the perspective of sponsors, owners and both. In addition to P3, having construction scheduling software will put everyone’s attention in one place, allowing everyone to collaborate.
- Poor project controls – different systems and multiple participants may lead to a strained relationship. With P3S concessionaries, there’s a deployment of project-wide systems and vast resources to manage, identify and mitigate deviations from the plan.
Benefits and Risks of Public-Private Partnerships
Benefits of a Public-Private Partnership
- Faster completion – due to construction and overlapping design, any projects can be started while the designs are still ongoing. Additionally, issues that may have affected other projects can be more easily resolved with a team approach and subcontractor scheduling software.
- Reallocating funds – government funds can be utilized elsewhere in the community. In fact, by increasing the efficiency of the government’s investment, the P3 allows government funds to be redirected to any crucial socioeconomic areas.
- Funding – projects that will otherwise not have funding can still be completed using long-term payments requiring an increase in taxes.
- Greater ROI – the public-private partnerships ROI can be greater compare to projects with traditional and all-government fulfillment. Financing approaches and innovative design become available as well when the two work entities are working together.
- Risks are appraised – any risks are fully appraised early on to determine project feasibility. The private partner, in a way, serves as a check against impractical government expectations or promise.
- Transferrable project execution and operational risks – the project execution and operational risks are being transferred from the government towards the private participant, which typically has more experience when it comes to cost containment.
- Comprehensive problem solving – having a comprehensive team from beginning to end allows contractors and engineers to collaborate from the start to resolve any project issues. This particular collaboration, combined with the best construction inventory management software, provides better solutions.
Possible Risks in Public-Private Partnerships
- Construction scope changes – market conditions, cost growth, and labor agreements can change the scope of your project. In addition, schedule slippage and community can significantly impact the public’s interests.
- Development phase – Geological conditions, environmental policies, political will, permitting, and financing can largely influence how successful the project will be.
- Operational concerns – The impact concerns lower than expected usage can decrease available revenue. Also, the project’s profits may vary depending on the assumed risks, complexity, level of competition, and project scope.
- Limited number of private entities – when there’s only a limited number of private entities that can complete a certain project, like constructing high-speed rail systems, the small field of bidders may mean lesser competition and therefore, less cost-effective partnering.
- Inaccurate assessment of the proposed costs – If the expertise in the partnership mainly lies in the private sector, the government is at an inherent disadvantage, for instance. It may be incapable of precisely assessing any proposed costs.
Common Uses for the P3 Project Type
In case if you don’t know, Public-private partnerships are commonly used on complex and large construction projects. On such projects, the government can benefit from greater participation, especially from their private partners. Hence, you have to keep in your mind though that blending the advantages of private and public works may be valuable to any of your given projects.
Here are some common uses of P3s, just in case you decide to get involved in it:
- Green construction
If you have green construction projects, you can dive into P3s because green construction projects are frequently under public-private partnerships. And when a massive wind farm or solar farm is being constructed, it’s usually done on vacant land that is publicly owned.
- Affordable Housing
Affordable housing projects are often public and involved with different partners from the private sector. Commonly, this comes in the form of private land with government funding. Hence, builders like you have to familiarize themselves with the opportunities available in this area.
P3s are regularly used for any infrastructure projects. Toll roads, bridges, and highways, you name it. With roadways crumbling today, fixes are needed so fast. And this is where the P3 project becomes helpful because it offers flexibility, both in project coordination and financing, in order to get the job done.
When done right, P3s can create cost savings, too.
What Makes Public-Private Partnerships Effective for Your Business?
With P3s, your construction projects can benefit the most, and you’ll have greater participation from the private sector. There will be many opportunities out there for your business that can increase efficiency and support cost savings for the public entities entering into such projects. Moreover, you can benefit from the experience because private construction companies have many more experiences with construction projects compared to how the government does.
There’s also many incentives you can gain, too. First, the government is always almost paying its bills and it consistently pays on time. Moreover, these projects usually feature pretty favorable financial terms for a private partner like you. Therefore, you will have much greater control than the typical public project.
Overall, P3s often include terms that can pay out over an extended period of time. It only means that your business has the tremendous opportunity to secure future cash flows beyond the project’s completion.
Public-private partnerships known to live in the grey area between private projects and public ones. It is very apparent, but the setup has ramifications and that you should know. It’s unclear whether the rule for private projects or rules for public projects will apply. But then again, there are tons of considerations on this front.
P3 projects are on the rise today; in fact, more on that in a minute. Therefore, your business has to be prepared when working on a public-private partnership project. With that being said, your business has to be equipped with the best crew and, of course, the right tools such as construction inventory software! Having this specialized software will give you full control over all areas of your business – inventory, crew, resources, time, scheduling, etc.
Public-Private partnerships can tackle any challenges. There’s even an increasing body of evidence that supports the assertion that P3s can indeed solve many operational and structural issues that often cause schedule and budget overruns, especially for large capital projects.