Transit projects are a priority item for governments around the world, and many are considering a public private partnership (P3) model to help deliver them. What lessons have we learned to date to improve both the process and the outcomes?

Richard Fechner, Global Leader of Infrastructure Investment & Economics with GHD Advisory, spoke on a panel at the Canadian Council for Public-Private Partnerships's (CCPPP) 25th Annual Conference on November 6-7, 2017 in Toronto and shared the key takeaways he has learned from some of the biggest transit P3 projects in Australia.

Q: Why is the P3 model an attractive approach for governments looking to implement major transit projects?

A: As with other types of infrastructure, there are several reasons why this model is appealing. First, it allows the government to better allocate risk to those who are most able to bear it, in return for a sharing of responsibilities and rewards.

Second, it can help to accelerate the delivery of critical infrastructure, and for transit projects in particular this is a huge benefit. Congestion or lack of accessibility can create a massive drain on efficiencies, resources, and productivity, so improving connectivity can really benefit communities, both in the short and the long-term.

Third, it keeps highly emotional assets like transit under public ownership, while drawing on the expertise of design, construction and operating specialists who can contribute to the long-term optimization of the system.

Q: Is the Australian experience transferrable to other countries?

A: Australia is really one of the first countries to truly embrace this model of delivering infrastructure projects. For a country like Canada where this conference took place, there are a lot of parallels that make the Australian experience quite relevant. Both countries have similar legal frameworks. The federal and state/provincial governments are limited in what is acceptable on their balance sheets. They are both highly urbanized nations, where more than 80 percent of people live in cities, continually driving demand for new and upgraded infrastructure to support population growth. Australia and Canada have huge landmasses with regional/remote communities that also require essential services.

So you can see the general conditions and driving factors line up pretty well. Of course, all countries will have unique factors that will affect how P3s are structured and best utilized, but in general we have learned some lessons, especially around managing the risks and challenges, that can be broadly applied.

There are also great examples, such as the Sydney light rail, where the availability of new services has dramatically changed transport modes in a short time. Social and travel change can be fast tracked.

Q: What barriers do you think prevent private companies such as GHD from being involved in more P3 projects? How do you think this approach will evolve to solve some of the current problems with P3 arrangements?

A: There are many barriers, however there are three common ones for firms like GHD to participate in the P3 space. Risk is by far the most prominent, both technical and commercial. Depending on the requirements that flow down to a designer, these can be too challenging for firms of a certain size. Another is capacity. Usually a P3 project is of a certain magnitude that requires enormous time to bid and execute which is why design firms partner to share risk and tap into larger pools of technical capacity to meet the demands of a given project. A third barrier is demonstrable experience. While technically most firms can execute a project, the qualifying requirements of a P3 are stringent and firms need to have both the people and projects that match what a client expects. This can be a high bar to cross and can be difficult for smaller specialized firms to attain.

Strategic partnerships help address all of these barriers: share the risk, pool your talent and demonstrate common experience on relevant projects that improve your chance of making the shortlist.

Q: Can you tell us what some of these lessons learned are, as well as recommendations to apply them?

A: As with other large projects, P3 projects are still vulnerable to poor planning, technical or design flaws, political instability, heated public opinion, and over complicated or unsustainable financing practices - but with that in mind, there are particular ways that these risks can be better managed on a P3 project.

When crafting a P3, the focus should be on delivering the desired outcome - for example in transit projects, say reduced congestion or better regional connectivity. Then, while the project structure needs to be tailored to the specific circumstances, there is no need to have unwieldy or cumbersome structures - as much as possible, keep things simplified.

When it comes to spelling out risk-sharing, using a framework that can adapt to shifting risks as construction progresses is helpful, and ensures that risks are consistently managed while also insulating against imbalances from external shocks on demand and supply sides.

Risk allocation requires a fine balance and government must always ensure that the taxpayer is not saddled with onerous demands by the private sector. However this goes both ways, especially given P3s require the goodwill of private entities. Clauses that seek to completely abrogate risks are not conducive to this goodwill and ultimately cost more. Risk allocation must be equitable and borne by those who can bear it best.

In addition, completely removing risk also removes government incentive to have the project delivered effectively, given they no longer 'have skin in the game.' P3s are not tools that should allow private sector to be treated as 'risk-free money'. Public entities should not be content to allow private providers excessive leeway in the performance of specific contracts. All contract participants should be motivated to complete contracts to the best of their ability and to be accountable when things go awry.

With regards to technical planning, early and continual engagement with those responsible for the operation and performance of the network is paramount. The operations and maintenance contractor can have a significant influence on overall design outcomes. Strong leadership and direction, notably from the project director can go a long way in setting the course and avoiding delay or confusion. Multiple external stakeholder interfaces need to be well coordinated and specific requirements for the project must be agreed early. It is essential that a complete set of Specific Project Requirements are established and approved by all stakeholders before design and construction is even contemplated.

The real long-term value of a project needs to be rigorously tested, especially when tenders are awarded. A long-term "whole-of-life" approach should be used for decision-making, rather than being persuaded by the allure of inflated revenue streams, high upfront payments and short-term gains. This requires courage and foresight, as well as the acknowledgement that infrastructure projects are not financial instruments. They are a means of facilitating economic activity and require bulletproof technical appraisal and far-sighted political leadership to avoid confusion and delay. This is where keeping a focus on social outcomes can again be useful, as a reminder to treat infrastructure projects as more than just a financial transaction.

Finally, as cities grow in footprint or density, transit projects need augmentation or extension, so setting up initial projects with a plan to extend or add to the services later can provide enormous future-proofing for moderate up-front costs

Q:  Are there any last guiding principles or values that you would like to share?

A: The complex nature of P3 projects require both private and public bodies to commit high level resources to the execution of commercial and technical project facets. Strong leadership and the application of common sense should be used to avoid counter-productive construction incentives. Maintaining transparency is essential - not only for the sake of ethics, but because keeping workings outside the 'black-box' allows for correction of mistakes before projects reach the point of no return. Infrastructure provision is crucial to any functioning society, and transit projects are arguably one of the most highly visible types of projects in this era of global travel and demand for unfettered mobility. Finally -- build with the future in mind.

For more information, contact Richard Fechner.