Public-Private Partnerships:

1
Public-Private Partnerships

• The Risks and Opportunities

2
Task Force Goals

• Identify the best way to present the latest
  information on PPPs,
• Encourage dialogue within AGC,
• Determine the policies and practices that will
  best guide AGCs interaction with PPPs and,
• Develop a white paper outlining the risks and
  opportunities PPPs pose for contractors.

3
PPP Task Force Roster

• Les Snyder, III (Task Force Chair)
• Barton Malow Company
• Bill Burnett
• J. D. Abrams, L. P.
• Scott Cassels
• Kietwit Construction Co.
• Bob Lanham
• Williams Brothers Construction Co
• Chris Matthews
• Chris Matthews Construction, Inc.
• Mike Welch
• BRB Contractors, Inc.
• Bob Bowen
• Bowen Engineering Corporation
• Randy Gibson
• Whitesell-Green Inc.

• Nigel Cary
• Cox Construction Co.
• Joseph A. Kneib
• Herzog Contracting Corp
• Eric Hedlund
• The Sundt Companies, Inc.
• William Choquette
• Gilbane Development Company
• Gene Klien
• Thomas McGee Insurance
• Jim Andoga
• Austin Bridge Road
• Bob Kelly
• Chubb Surety

4
Key Findings, Policies and Practices

• AGCs primary goal is to continue to increase
  public investment in infrastructure.
• Construction inflation and unmet investment needs
  mandate the use of every tool in the tool box
  to enhance construction investment.
• Because there are shortfalls in funding for all
  types of infrastructure, funds derived from
  leases, sales or other agreements should be
  dedicated to investment in a similar type of
  infrastructure.
• PPPs utilize many project delivery methods.
• Be aware of how risks are shifted in PPPs and how
  to deal with them.

5
Key Findings, Policies and Practices (continued)

• State-enabling laws governing PPPs are complex
  and varied.
• Contractors and their advisors should have a seat
  at the table as early as possible.
• PPPs involve a team approach. Contractors must
  know their team members well and fully understand
  the legal documents that bind them together.
• PPPs allow governments to monetize public assets
  and provide projects to the public more quickly.

6
Defining Public-Private Partnerships (PPPs)

• As defined by the Government Accountability
  Office (GAO) and the National Council for
  Public-Private Partnerships (NCPPP)
• a contractual agreement formed between public and
  private sector partners
• public sector usually retains ownership
• the private party will be given additional
  decision making rights in determining how the
  project or task will be completed.

7
Why PPPs Have Emerged

• The United States is facing an infrastructure
  crisis PPPs may help address a portion of the
  problem.
• Highway and bridge needsJust to maintain
  existing Interstate System 49 billion annually
  will be needed by 2015.
• Water and sewer needs--EPA estimates we need
  300-500 billion over the next 20 years.
• Over 30 billion is needed for dams.
• Tolling may grow to finance as much as 50 of new
  urban arterials by 2030.

8
Private Capital Investment in Infrastructure

• Unmet needs and emergence of private capital is
  spurring government interest in PPPs.
• Money has come from investment funds, private
  equity firms, and institutional money managers,
  insurance companies and individual investors.
• Attraction is long-term, secure, inflation
  protected investments that fit well with the
  payout schedules of pensions and life insurance
  policies.

9
Major Infrastructure Areas Where PPPs Have been
Applied

• Transportation
• Water
• Wastewater
• Schools
• Hospitals
• Prisons
• Military housing

10
Legislative Issues
11
Role of PPPs in Relation to Traditional Public
Funding

• To aide in closing the nations infrastructure
  gap
• supplement public funding--not supplant it
• To bring additional revenue to public
  infrastructure
• Leverage additional private investment
• Continue to advocate increasing public investment

12
Benefits of Public-Private Partnerships
(according to Deloitte)

• PPPs allow the costs of investment to be spread
  over the lifetime of the asset.
• PPPs have a solid track record of on-time,
  on-budget delivery.
• PPPs transfer certain risks to the private sector
  and provide incentives for assets to be properly
  maintained.
• PPPs can lower the cost of infrastructure to the
  public entity by reducing both construction costs
  and overall life-cycle costs.
• PPPs encourage a strong customer service
  orientation (satisfaction metrics can be built
  into the contract).
• PPPs enable the private sector to focus on the
  outcome-based public value because the
  destination becomes the organizing theme around
  which the project is built.

13
Concerns with PPPs (according to public opinion
polls and politicians)

• Challenge raised that PPPs do not protect the
  public interest.
• Most controversial issues
• Length of the lease
• What to do with large, upfront payments (can
  governments be trusted?)
• Increasing toll and usage rates
• Right-of-way acquisition
• Non-compete restrictions
• Buyout provisions
• Involvement of foreign companies

14
Different Types of PPPs

• Brownfields (existing facilities)
• Greenfields (new capacity or facilities)

15
State Enabling Legislation How They Impact PPPs

• Can provide broad authority
• Can be limited to a specific project with
  numerous restrictions or limitations
• Many issues to be considered by all affected
  parties

16
Proceeds from PPP TransactionsUsed for the
Following

• Dedicate revenue to type of infrastructure where
  it was derived from (AGC favors)
• Pay off unrelated public debt (AGC opposes)
• Pay for pensions (AGC opposes)
• Pay for other types of unrelated infrastructure
  (AGC opposes)

17
Challenges to Implementing PPPs

• Public is skeptical
• Educate public and local lawmakers about benefits
  and risks
• Counter misinformation

18
PPP Contractor Issues
19
Partnering

• Partnering is dispute prevention
• Rewards come from accurately identifying,
  analyzing, and pricing risks at all levels
• Partnering begins before construction
• Identify common goals
• Establish communication standards

20
Partnering (Continued)

• Know the capabilities and vulnerabilities of your
  team so that you can
• Evaluate holes in teams capabilities
• Understand the risks to team participants
• Understand mutual and long-term commitments
• Evaluate pay schedules
• Agree on project milestones
• Success of the partnering process will likely
  determine the success of the project

21
How When Contactors Get Involved

• Contractors can be asked to play many roles in
  PPPs
• Know the unique features of your role in the PPP
• Get a seat at the table early to positively shape
  the project and protect from inappropriate risks

22
PPP Roles for Contractors

• Help shape the project
• Help define roles and responsibilities of team
  members
• Help with the relationship with the public owner

23
Additional Contractor Roles

• Public Relations, Government Relations and
  Community Outreach
• Contractors know the rules
• Contractors are politically astute
• Contractors know the community sentiment
• Role of Equity Investments by Contractors
• Design and preliminary engineering costs big
  money and may be done years before project is let
• Stipends may offer partial payment
• As state and local budgets are squeezed
  contractors may become financier for the public
  entity

24
Sizing Up the Risk

• Risk shifting is complicated and varied
• Risks assumed must be accurately priced
• To enhance efficiency, the risks should be held
  by the entity best able to mitigate each type of
  risk

25
Insurance Gaps

• Flexible delivery systems may urge contractor to
  go beyond typical role
• Professional services
• Value engineering
• Constructability reviews
• Control over scope of work
• Operation and maintenance, etc
• Common CGL vs. Professional Liability Insurance
• Risk Management Forum Is todays construction
  industry outrunning the insurance policies
  intended to use it?

26
Conclusion

• PPPs may supplement existing funds
• Contractors are critical to project success
• Early involvement is critical
• Know the risks to your team and to you
• Involve your insurer, bonding agent and lender
  early to evaluate project risks and rewards

27
Next Steps for AGC

• Distribute the white paper
• Construct a PPP website on AGC.org
• Partner with another entity to put on educational
  sessions for public officials and contractors
  based on the white paper
• Continue the PPP Task Force and significantly
  broaden its membership

28
Case Study
29
The Associated General Contractors of America
Building Your Quality of Life