Friday, August 18, 2017

The Rising Advantage of Public-Private Partnerships : McKinsey&Company, Capital Projects and Infrastructure

Michael Della Rocca identified the benefits of Public-Private Partnerships (P3s) as extending beyond the ability to finance major infrastructure projects. Estimated at about $3.5 trillion, the infrastructure needs of the United States has other hurdles besides finance issues. Other obstacles include adhering to budgets and schedules. According to a Syracuse University report,  P3 projects overcome those hurdles more consistently than traditional government owned, managed, and financed projects. However, only 9 percent of U.S. projects have a P3 structure. Rocca cited government's faulty perceptions about P3s as the reason for the lack of acceptance.

Rocca listed the following "pain point" that P3s can alleviate:

"Unclear responsibilities
Poor alignment with strategy
Insufficient optimization of project features
Lack of an ownership mind-set in the delivery team
Lack of discipline in execution
Poor project controls
Low initial cost mind-set
Poor resource optimization"

Admitting that P3s cannot solve all these problems, Rocca referenced P3 successes in the United
Kingdom, Australia, and in the United States. Collectively, the projects saved project owners
up to 20 percent compared to traditional project financing. Rocca offered these statistics:
"The UK Audit Office found a reduction in project schedule overruns deploying a P3 model. An Australian study of 54 projects showed that only 1 percent went over budget; they also beat the schedule on average by 3 percent, while traditional approaches were on average 24 percent late."

The P3 model does not apply in instances of high "political, procurement, delivery, or revenue risks;
value-for-money analyses clearly point out instances where this model is not applicable". If investors demand certain returns on their contributions or if the partnership executes a flawed contract, avoid P3s.

As to the future of P3s in the United States, in January 2016, the Federal Highway Administration noted statutes that included the P3 model as a project delivery mechanism in 36 states and the District of Columbia and Puerto Rico. Rocca anticipated a growing use of P3s in the United States in the future.

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