PHOTO CAP: Lake Pleasant Water Treatment Plant, the city’s first design-build project.

Op-Ed: Alternative project delivery methods gain popularity

Justin Kelton is Vice President of McCarthy Building Companies leading the firm’s education, health care, hospitality, parking, and renewable energy teams. Reach him at jkelton@mccarthy.com.

Justin Kelton is Vice President of McCarthy Building Companies leading the firm’s education, health care, hospitality, parking, and renewable energy teams. Reach him at jkelton@mccarthy.com.

As a general contractor, one of the most critical roles we play is that of educator. Construction delivery methods are constantly evolving and expanding, and it’s our responsibility to stay abreast of the latest evolutions to inform our project owners so they understand all options available when planning for the design and construction of new projects.
This is especially true when it comes to public projects like schools, water and waste water treatment plants, aviation projects, roads and highways and prisons. These owners haven’t had as much experience with alternative delivery as private owners because legislation enabling this in the public sector is relatively new.
While owners’ needs haven’t changed during the downturn – they are still serving an ever-growing population but doing so on at-times drastically reduced budgets – what has changed is their ability to finance construction projects. Today, we have two construction delivery methods available to public owners that are well suited to help: design-build-finance and public-private partnerships (P3).
Design-Build-Finance: This is the most preferred mode of project delivery for an owner who acts as a third party responsible for providing the service, which is a common case with municipal institutions that operate water and wastewater treatment plants as an example, because it gives them a viable financing alternative without the huge capital investment typically associated with plant construction. Variations of this delivery method also include design-build-operate and design-build. The latter is the basis of these integrated models, which overlaps design and construction by hiring one design-build team to deliver the project requirements versus hiring an architect/engineer and contractor separately. This contracting approach solicits creativity from industry by providing integrated design and construction solutions and provides price certainty early in the life cycle of the project.
Public-Private Partnership: A public-private partnership involves a contract between a public-sector authority and a private party, in which the private party provides a public project and assumes substantial financial, technical and operational risk in the project. In some types of P3, the cost of using the facility is borne exclusively by the users and not by the taxpayers. Of all the delivery methods available today, P3 has the most potential to solve more problems and deal with the challenges associated with complex projects. As states continue to develop legislation to enable and support these types of partnerships, it will become a more viable and attractive option for owners. P3 enables the public sector to harness the expertise and efficiencies that the private sector can bring to the delivery of certain facilities that have been traditionally procured and delivered by the public sector. P3 is structured so that the public-sector owner seeking to make a capital investment does not incur any borrowing. Rather, the P3 borrowing is incurred by the private-sector vehicle implementing the project and therefore, from the public sector’s perspective, a P3 is an “off-balance sheet” method of financing the delivery of new or refurbished public-sector assets.
Today, the construction industry is doing a much better job allowing owners the flexibility of delivery methods. Of course, design-build-finance and P3 are just two of several alternative delivery methods available today.
Unfortunately, there is no “one size fits all” prescription when it comes to construction delivery. Each project is unique and often has a complex set of circumstances to consider before selecting a delivery method. It takes a lot of training, insight and experience to get it right. Owners should not be averse to opening up a dialogue with contractors and learning from their varied experiences – good and bad – with an array of owners.
For additional resources on construction delivery methods, visit the Alliance for Construction Excellence housed within the Ira A. Fulton Schools of Engineering at Arizona State University or the Construction Industry Institute.

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