B.C. developers profit from rise of public-private partnerships in U.S.

Debt-laden governments south of the border seek new ways to upgrade US$3.6 trillion in crumbling infrastructure
Plenary Concessions CEO Mike Marasco believes the US$3.6 trillion worth of infrastructure upgrades needed in the U.S. makes that country a "sleeping giant" for P3s

British Columbia developers who have experience with public-private partnerships (P3s) are starting to win work in the United States, where US$3.6 trillion worth of infrastructure upgrades is up for grabs and the concept of P3s is catching on.

State governments are often so deep in debt that they are unable to get financing to fix crumbling public buildings. Add to that the unwillingness of Uncle Sam to come to the rescue and it is clear why governments are forced to push the financing risk to the private sector – a place where hedge funds are keen to get higher yields than they get from other fixed-income investments, said Chris Taylor, executive director at West Coast Infrastructure Exchange.

Taylor’s year-old organization is a partnership between the Washington, Oregon and California state governments as well as Partnerships BC. It is tasked with educating state agencies about why P3s are good for taxpayers.

Vancouver developer Plenary Group has already bid on many U.S. P3 projects. So far this year, Plenary has won work on a toll highway in Colorado and has been shortlisted as the lead developer in consortia to design, build, finance and operate the Long Beach civic centre and a justice complex in Indianapolis.

Other B.C. developers, such as Concert Properties, have experience delivering P3 projects and are poised to capitalize on increasing demand for P3 projects in the U.S.

“A lot of developers have moved to Canada to do P3 work and get experience, so they’re ready for the sleeping giant south of the 49th [parallel],” said Mike Marasco, CEO of Plenary Concessions, which holds all of Plenary’s project-specific companies.

He listed international conglomerates Balfour Beatty PLC and Bouygues S.A. as examples.

Template Canadian P3s involve a government agency contracting a private consortium to design, build, finance and operate a project such as a hospital or a courthouse. Similar P3 models exist in the U.K. and Australia but have been slow to develop in the U.S.

The government continues to own the facility but signs a contract entitling the private partner to operate it in exchange for “availability payments.” Those fees are similar to lease payments but differ in that they are tied to the facility being available.

If an elevator is broken, for example, a courtroom may be inaccessible. That would trigger a specified fee, such as $20,000 per day, to be automatically deducted from the availability payment that the government pays the private partner on a monthly basis.

“Building automation systems automatically track availability,” Marasco explained. “So it’s not debatable whether the space is available or not.”

Because of these fees, the private partner does everything it possibly can to ensure availability. The fees are also an incentive for the private partner to perform maintenance to stave off costly repairs – something governments rarely do.

“When I was a vice-president at Fraser Health and it came time to choose between buildings and bandages, bandages always won,” Marasco said. “We would defer maintenance.”

Private partners also design buildings to maximize availability.

That’s one of the reasons why Long Beach, Calfornia’s new courthouse is a long midrise and not a narrower tower. The larger footprint enables 19 elevator shafts – a redundancy that strongly limits the risk of parts of the building becoming unavailable, said Jeff Fullerton, director of Edgemore Infrastructure and Real Estate, which built the facility.

He believes that his company’s courthouse is the first U.S. public building to be built under what he calls the Canadian P3 model – a broader one than the “P3 light” most often followed by U.S. companies, which have seldom participated in the financing and operation of public buildings. 

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