P3: CUTTING THE TAPE

Thinking Highways
By Thinking Highways October 20, 2017 16:31

P3: CUTTING THE TAPE


One way or another, says David Pickeral, public-private partnerships in some form will again be central to evolving our transportation infrastructure; the key will be ensuring their ability to act with speed, discretion and accountability

Having addressed public-private partnerships (aka PPP or P3) in conference presentations, industry publications, white papers, blog posts, grad school theses (yes, that long ago!) for some time, I wanted in the context of the current debate in the United States on infrastructure funding to lay out here a concise business case for why they are necessary, and provide as basic and generic framework as possible for what one might look like, more or less, anywhere in the world.

On this occasion I am primarily (and atypically) focused on the US ecosystem versus attempting my usual effort at global relevance in my contributions in Thinking Highways. To that end the diagram above provides an admittedly simplistic look at what can potentially be a very complex structure, though with the admonition thereby that I am not certain that complexity is always essential versus the need to have clear consensus and commitment by the parties involved.

The Procurement Jungle

I first came into contact with the byzantine world of government procurements in 1988, only a couple of months after I entered the workforce as a newly-commissioned US Navy Ensign temporarily assigned to supporting contract review while awaiting flight school. In the succeeding almost 30 years I have become even more acquainted with the NOFA, (pre-)RFP, BAFO, Orals, Mods, Task Orders, IDIQ, COTR and the FAR (and its state and municipal equivalents) from just about every angle on both the government and vendor side of the table. During the same three decades I was also involved on the commercial side related to both B2B and B2C sales and other transactions which significantly underscored my realization that B2G had become by any objective standard a painfully slow, inefficient process.

Credit where it’s due to our ancestors, the current public agency procurement system that exists now in some form within governments at all levels was a necessary, even revolutionary development when it originated well back in the 20th Century as an effective response to the “smoke filled room” kind of closed-door dealing that had taken place during the 19th and even earlier. In its day it allowed a discipline of process and above all a transparency that allowed for more or less fair (“full and open”) competition among vendors of all sizes providing theoretically all manner of goods and even services, but generally focused on the main business of Big Government then at hand: Building major transportation infrastructure – capital assets – including and especially the Interstate Highway System, multiple urban transit properties, intermodal port facilities, and the modern airports with long runways and high-capacity passenger terminals needed for the Jet Age.

Now in the Digital Age, the limitations on that model that could not even have been conceived a generation or more ago are showing almost as clearly as the deterioration of the infrastructure itself. Modern technology including the “Doing Business With…” web portals that virtually every government of any size now maintains, the numerous free resources to provide visibility into procurements, and the real-time transparency as to every buying transaction undertaken make the need for the weeks, months and even years needed for solicitation and fulfillment of work decidedly unnecessary.

Beyond the process itself, there is also a lingering (though fortunately now diminishing) focus on the funding and procurement of tangible assets which is still geared towards lane miles over capacity, and inventory over SLA or KPI. In short, stuff not solutions.

As even mainstream media have emphasized in the US, including a recent CBS News national feature on the topic, currently only of 1 per cent of US transportation projects are now done through P3. Moreover, 15 of the 50 US states and all Territories except Puerto Rico (which to its credit actually established a P3 Administration to oversee them) effectively prohibit public-private partnerships.[1] Or, to be more precise currently lack the necessary legal framework to create them, essentially mandating that transportation and other “public” infrastructure must rely entirely on government funds, thereby ensuring that the cycle of low or limited monetization continues indefinitely.

In reviewing this situation, I believe to some extent the Procurement conundrum is itself largely incurable. To be absolutely clear on this point, this is not through any lack of commitment by what I will maintain at every opportunity are dedicated, elected and appointed officials along with career civil service leadership who at every opportunity want on balance to do the right thing but are often mired by the sheer inertia inside of as well as political forces beyond their own agencies. It is for that reason that I am firmly convinced that the only way to move forward is to combine the immediacy, scale and fast action of the 19th Century with the integrity and oversight forged in the 20th to develop a 21st Century model for P3 that works outside the existing procurement model, not replaces it outright as some have suggested.

Autonomy is Key

In this context I am, for once, not talking about driverless vehicles. Rather I refer to the need for the P3 to exist to the largest extent possible as a separate legal entity (coining the acronym “SLE,” at least for purposes of this discussion, as shown in the diagram). Doing so allows for more rapid decision-making and greater focus, and to at least some extent isolates the P3 from rapidly changing forces, especially in non-parliamentary government ecosystems like the United States where fixed terms for legislative and executive branches allows what might be best termed a clearly definable “run time” to accomplish the P3s discrete objectives.

Towards that end there is a requirement for specific commitment on both sides of the transaction in essentially the same manner that governmental and commercial interests already collaborate with each other in their separate silos – because only in doing so will the necessary binding commitment be achieved.

On the industry side, this is more or less straightforward, requiring commitments from boards of directors either directly or through those placed in clear authority thereby, as well as contracts that spell out the duration, monetary value, liquidated damages and other specific elements.

In terms of government’s role, citing the latest discussion here in Washington regarding the determined but as yet uncertain path towards a much-needed new model for infrastructure funding, I genuinely appreciate the current attention being paid at the White House and on Capitol Hill towards making both desperately needed fixes and competitive technological enhancements in the US transportation system within and across all modes. It is essential that this dialogue continue both here and in state capitals since, as the diagram indicates, both executive and legislative changes (many decades overdue) need to take place to allow government at any level to partner effectively with industry related to transportation and other infrastructure.

The mechanisms for governments to participate in P3 are thereby far more complicated and as might be expected vary greatly from state to state. They can be as simple as a Memorandum of Understanding (MoU) or an Intergovernmental Agreement (IGA). For more complex and especially inter-jurisdictional projects a formal Compact may be required, with major transportation-focused examples here being the Washington Metropolitan Area Transit Authority (between the District of Columbia, Maryland and Virginia) and the Port Authority of New York and New Jersey.

A final major element of Autonomy that I cite above, and one that I suggest will probably be critical both in ensuring public trust and acceptance as well as preventing extended delays, is the idea of neutral apportionment of proceeds to both sides and, if necessary, binding non-judicial arbitration in the event of a dispute.

The Old Dominion

A substantial portion of these are in my family’s home state (since 1611), the Commonwealth of Virginia, which if it were a separate country would be second only to the United Kingdom in terms of its commitment to them. Thinking historically this is probably not surprising, since effectively the Commonwealth itself started as a P3, with the Virginia Company of London having been established 1606 by a group of private investors under a Royal Charter from then newly crowned King James I and effectively named for recently deceased Queen Elizabeth I (the Virgin Queen).

The formal establishment of Virginia in Jamestown the following year essentially established the North American precedent for government-industry-citizen cooperation that for the most part was responsible for getting things built for the next 300 years. The Erie and C&O Canals, the National Road, the stagecoach routes (established in the US, as in the UK, primarily to deliver mail with passengers as more or less an add-on) the transcontinental rail lines all leveraged the authority of government, but also were undertaken with the assumption of all participation – and the eager expectation of investors – that private resources would be used to accomplish the project in return for a reasonable ROI. It was not until the New Deal of the 1930s, which in itself was not unlike many other social reform issues tied to infrastructure creation taking place around the world in that era, that the balance substantially tilted away from private capital towards exclusive reliance on government funding, with much of it provided at the national level. Continuing through the Interstate era, the effect has been the creation of a multi-generational dependency and a culture of entitlement that roads should be “free.”

In swinging the pendulum back away from this dependency it is, I would suggest, time after a few centuries for other US States to begin adapting the experiences of the distant past in truly opening the door using the mechanisms described previously to once again create the soft of genuine opportunities that established this and virtually all other modern industrialized nations.

Truth in Advertising

On that note it is also important going forward that both industry and government properly identify legitimate P3s as such. All too often what have been routine procurements under the model discussed previously have been branded from both sides of the table as public-private partnerships as part of a marketing strategy to drive current quarter sales and/or in support of a near-term political agenda versus being indicative of a sustained commitment to work together with commensurate mutual investment. This level of clear recognition by the investors and the public will be essential in their support of the differentiated value that true P3s can offer.

By whatever means achieved, the real economic benefits of P3 cannot be achieved on the basis of rhetoric, even at the highest level of government and industry. Neither can it be achieved by unilateral action even from the top down. By whatever means, legislative action, executive order, corporate board ratification, etc, the commitments must be solid, binding and legally enforceable in the courts.

A Reasonable Start

Citing the 1 per cent figure within the 35 US States and Puerto Rico, I would humbly recommend that these two near-term goals should be pursued during the coming four years of the Trump Administration. First, the legislation and executive approval lacking in the remaining 15 States and all other Territories must be put into place at a minimum. Beyond that I would suggest that a 10 per cent target for transportation P3s is actually a reasonable near-term goal, one suggested by outgoing US Transportation Secretary Anthony Foxx among many others as a realistic start, representing as it would an already tenfold increase in the current level.

Transportation as all of us in this industry know is, however advanced the technology becomes, institutionally both an incremental and an iterative process, and change (not to mention acquisition of the billions if not trillions of dollars of needed funds) will not appear overnight. But as with the rapid innovation now occurring with such things as Connected & Autonomous Vehicles, the transformative process has already begun and the interest of Citizen-Customers has been piqued to support – if not demand – tangible results. The onus is on both government and industry not to miss that window of opportunity to make P3 the mechanism for disruption. More importantly, the public has by and large, through the great education efforts by so many in the ITS industry as well as their own mounting frustration at congestion and reduced mobility options, now fairy decisively figured out that the cost of the status quo is by all metrics more costly than that of the resolution. The scissors are out on both sides of the political aisle, and in the boardrooms in and well beyond America. It’s time to start cutting the red tape!

 

FYI

David E. Pickeral, JD, has 29 years of leadership experience in both public and private sector related to realizing the potential of information and communications technology (ICT) to enhance transportation effectiveness, efficiency, accessibility, sustainability, intermodality and safety from the local to the global level. He is currently focused on Autonomous Connected Electric & Shared (ACES) vehicles, as well as Smart City development. In this capacity he advises multiple start-ups as well as VC & PE investment firms worldwide. He also has several academic affiliations including MIT, the University of Virginia and George Mason University and is a member of the National Academies of Science, Engineering & Medicine – Transportation Research Board ITS Committee. 

He may be contacted through his LinkedIn profile: www.linkedin.com/in/pickeral

[1] https://www.fhwa.dot.gov/ipd/p3/state_legislation/

Thinking Highways
By Thinking Highways October 20, 2017 16:31