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Establishing A Public-Private Partnership Program: A Primer

November 2012

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Chapter 2 - Program Development Challenges

Transportation agencies seeking to explore and develop a P3 program face a number of organizational capacity challenges. The primary challenges are acquiring or developing new skills, managing organizational and cultural changes, coordination and education of stakeholders, and conserving institutional knowledge. These challenges are discussed below.

Acquiring or Developing New Skills

In many P3 arrangements, the agency's responsibility for design and construction engineering is reduced, since these are done by the private partner. Instead, the agencies become responsible for contract management and oversight of the private partner. Agencies will need to learn how to establish performance standards rather than construction specifications.

This may involve a culture change for public agency engineers, who are used to, for example, specifying standards based on use of certain materials rather than performance. This change in roles may lead to a shift in the types of technical skills required within an agency as there may be less need for hands-on design, and more need for setting of broader performance standards and project management and oversight.

Managing Organizational and Cultural Changes

Only a few State Departments of Transportation (DOTs) currently have an established P3 Program with a dedicated P3 staff. For example, Virginia DOT has established the Office of Transportation Public-Private Partnerships. States with existing design-build programs or toll facilities may be more likely to have at least some of the skills and structures in place to facilitate P3 project development than States without design-build programs or toll facilities.

A major institutional barrier to effective P3 project development is the traditional division of project development responsibilities among multiple offices or agencies. Financial, procurement and engineering expertise and authority generally are housed in different offices. This organizational structure may make sense for traditional project development process steps that are often sequential. Environmental, planning, engineering and financial experts may not have to coordinate closely in order to deliver a traditional project.

However, in developing a P3, many of these steps need to be carried out on a collaborative and iterative basis, requiring more frequent interactions and internal coordination. For example, a public agency may need to consider how the alignment selected for the project affects both the financial and environmental aspects prior to the RFP, and then reevaluate how any changes proposed to the alignment in the winning proposal may change the outcome of that evaluation. Developing projects iteratively, rather than sequentially, may require forming and managing multidisciplinary teams that understand the interactions of various technical, financial and legal factors and can facilitate an iterative project development process. This was the approach used by Virginia DOT before it established its P3 unit.

To manage organizational and culture changes, champions at all levels are needed. In some cases, the champion may be the governor (e.g., Indiana's Gov. Mitch Daniels); in others it may be a legislator, agency director, or community or business leader. A P3 champion can communicate the business case and public good from P3s (both within public agencies and among stakeholders), gather support for the concept, facilitate the streamlining of processes and organizational change, set and manage expectations, and provide assurance to the private sector of the public sector's commitment to the P3 model.

Coordinating with and Educating Others

P3s are generally large projects with significant impacts on local populations and economies. In addition, P3s have complex structures that involve a large number of public and private entities. As a result P3s have many diverse stakeholders, including public agencies, elected officials, private partners, interest groups and the general public. Their interests and capabilities need to be taken into account.

As with any major project with diverse stakeholders and significant impacts, P3s may generate controversy. Furthermore, certain features of P3s may make them more vulnerable to public controversy: they are often toll-financed; they may require allocations of public funds or tolls to private firms over long periods of time; and they involve private firms that are typically large and often foreign (which may arouse concerns about security). By accelerating project delivery, the P3 approach accelerates and condenses the political negotiation and consensus building process, which may lead to a more intense debate about the merits of the project, and thus the need for clear communication.

Conserving Institutional Knowledge

To conduct oversight of long-term concessions, agencies will need to develop their internal capabilities with the understanding that staff may retire or leave and that the demand for specific capabilities may fluctuate over time. Building robust capabilities and documenting institutional knowledge, processes and guidelines is important for maintaining those capabilities over time. Currently, most States lack a steady flow of P3 projects, making it difficult to predict staffing and resource needs. But as projects are identified, developed, procured and implemented, staffing needs will need to be identified and filled.

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