Public-Private Partnerships:

1. Public-Private Partnerships: The Risks and Opportunities

2. Task Force Goals • Identify the best way to present the latest information on PPPs, • Encourage dialogue within AGC, • Determine the policies and practices that will best guide AGC’s interaction with PPPs; and, • Develop a white paper outlining the risks and opportunities PPPs pose for contractors.

3. Les Snyder, III (Task Force Chair) Barton Malow Company Bill Burnett J. D. Abrams, L. P. Scott Cassels Kietwit Construction Co. Bob Lanham Williams Brothers Construction Co Chris Matthews Chris Matthews Construction, Inc. Mike Welch BRB Contractors, Inc. Bob Bowen Bowen Engineering Corporation Randy Gibson Whitesell-Green Inc. Nigel Cary Cox Construction Co. Joseph A. Kneib Herzog Contracting Corp Eric Hedlund The Sundt Companies, Inc. William Choquette Gilbane Development Company Gene Klien Thomas McGee Insurance Jim Andoga Austin Bridge & Road Bob Kelly Chubb Surety PPP Task Force Roster

4. Key Findings, Policies and Practices • AGC’s primary goal is to continue to increase public investment in infrastructure. • Construction inflation and unmet investment needs mandate the use of “every tool in the tool box” to enhance construction investment. • Because there are shortfalls in funding for all types of infrastructure, funds derived from leases, sales or other agreements should be dedicated to investment in a similar type of infrastructure. • PPPs utilize many project delivery methods. • Be aware of how risks are shifted in PPPs and how to deal with them.

5. Key Findings, Policies and Practices (continued) • State-enabling laws governing PPPs are complex and varied. • Contractors and their advisors should have a seat at the table as early as possible. • PPPs involve a team approach. Contractors must know their team members well and fully understand the legal documents that bind them together. • PPPs allow governments to monetize public assets and provide projects to the public more quickly.

6. Defining Public-Private Partnerships (PPPs) • As defined by the Government Accountability Office (GAO) and the National Council for Public-Private Partnerships (NCPPP): • a contractual agreement formed between public and private sector partners • public sector usually retains ownership • the private party will be given additional decision making rights in determining how the project or task will be completed.

7. Why PPPs Have Emerged • The United States is facing an infrastructure crisis; PPPs may help address a portion of the problem. • Highway and bridge needs—Just to maintain existing Interstate System $49 billion annually will be needed by 2015. • Water and sewer needs--EPA estimates we need $300-500 billion over the next 20 years. • Over $30 billion is needed for dams. • Tolling may grow to finance as much as 50% of new urban arterials by 2030.

8. Private Capital Investment in Infrastructure • Unmet needs and emergence of private capital is spurring government interest in PPPs. • Money has come from investment funds, private equity firms, and institutional money managers, insurance companies and individual investors. • Attraction is long-term, secure, inflation protected investments that fit well with the payout schedules of pensions and life insurance policies.

9. Major Infrastructure Areas Where PPPs Have been Applied • Transportation • Water • Wastewater • Schools • Hospitals • Prisons • Military housing

10. Legislative Issues

11. Role of PPPs in Relation to Traditional Public Funding • To aide in closing the nation’s infrastructure gap • supplement public funding--not supplant it • To bring additional revenue to public infrastructure • Leverage additional private investment • Continue to advocate increasing publicinvestment

12. Benefits of Public-Private Partnerships (according to Deloitte) • PPPs allow the costs of investment to be spread over the lifetime of the asset. • PPPs have a solid track record of on-time, on-budget delivery. • PPPs transfer certain risks to the private sector and provide incentives for assets to be properly maintained. • PPPs can lower the cost of infrastructure to the public entity by reducing both construction costs and overall life-cycle costs. • PPPs encourage a strong customer service orientation (satisfaction metrics can be built into the contract). • PPPs enable the private sector to focus on the outcome-based public value because the destination becomes the organizing theme around which the project is built.

13. Concerns with PPPs (according to public opinion polls and politicians) • Challenge raised that PPPs do not protect the public interest. • Most controversial issues: • Length of the lease • What to do with large, upfront payments (can governments be trusted?) • Increasing toll and usage rates • Right-of-way acquisition • Non-compete restrictions • Buyout provisions • Involvement of foreign companies

14. Different Types of PPPs • Brownfields (existing facilities) • Greenfields (new capacity or facilities)

15. State Enabling Legislation How They Impact PPPs • Can provide broad authority • Can be limited to a specific project with numerous restrictions or limitations • Many issues to be considered by all affected parties

16. Proceeds from PPP TransactionsUsed for the Following • Dedicate revenue to type of infrastructure where it was derived from (AGC favors) • Pay off unrelated public debt (AGC opposes) • Pay for pensions (AGC opposes) • Pay for other types of unrelated infrastructure (AGC opposes)

17. Challenges to Implementing PPPs • Public is skeptical • Educate public and local lawmakers about benefits and risks • Counter misinformation

18. PPP Contractor Issues

19. Partnering • Partnering is dispute prevention • Rewards come from accurately identifying, analyzing, and pricing risks at all levels • Partnering begins before construction • Identify common goals • Establish communication standards

20. Partnering (Continued) • Know the capabilities and vulnerabilities of your team so that you can: • Evaluate holes in team’s capabilities • Understand the risks to team participants • Understand mutual and long-term commitments • Evaluate pay schedules • Agree on project milestones • Success of the partnering process will likely determine the success of the project

21. How & When Contactors Get Involved • Contractors can be asked to play many roles in PPPs • Know the unique features of your role in the PPP • Get a seat at the table early to positively shape the project and protect from inappropriate risks

22. PPP Roles for Contractors • Help shape the project • Help define roles and responsibilities of team members • Help with the relationship with the public owner

23. Additional Contractor Roles • Public Relations, Government Relations and Community Outreach • Contractors know the rules • Contractors are politically astute • Contractors know the community sentiment • Role of Equity Investments by Contractors • Design and preliminary engineering costs big money and may be done years before project is let • Stipends may offer partial payment • As state and local budgets are squeezed contractors may become financier for the public entity

24. Sizing Up the Risk • Risk shifting is complicated and varied • Risks assumed must be accurately priced • To enhance efficiency, the risks should be held by the entity best able to mitigate each type of risk

25. Insurance Gaps • Flexible delivery systems may urge contractor to go beyond typical role • “Professional” services • Value engineering • Constructability reviews • Control over scope of work • Operation and maintenance, etc… • Common CGL vs. Professional Liability Insurance • Risk Management Forum “Is today’s construction industry outrunning the insurance policies intended to use it?”

26. Conclusion • PPPs may supplement existing funds • Contractors are critical to project success • Early involvement is critical • Know the risks to your team and to you • Involve your insurer, bonding agent and lender early to evaluate project risks and rewards

27. Next Steps for AGC • Distribute the white paper • Construct a PPP website on AGC.org • Partner with another entity to put on educational sessions for public officials and contractors based on the white paper • Continue the PPP Task Force and significantly broaden its membership

28. Case Study

29. The Associated General Contractors of America Building Your Quality of Life