By

Bob Prieto
Senior Vice President
Fluor

The lessons learned that follow are based on experience in the infrastructure, buildings, government, power and industrial sectors on “mega-projects”. “Mega-projects” are those projects which are complex in nature (technically, logistically, politically, etc.) and have total installed costs in excess of $1,000,000,000.

This is the fifth and final part in a series of such lessons learned. This part addresses lessons learned in:

• PPP or Public Private Partnerships
• PPP Lessons Learned – Government
• PPP Lessons Learned – Developer-Contractor
• Design Build
• Design Build Lessons Learned – Agency

The first four parts of this series addressed lessons learned with respect to:

• Project Management Plan
• Finance Plan
• Safety
• Schedule
• Cost Estimating
• Cost, Schedule, and Status Reporting
• Cost Containment
• Project Personnel
• Technical
• Continuous Improvement
• Procurement
• Risk
• Document Control
• Payments
• Public Outreach
• Agency Coordination
• Audit & Oversight
• Labor

These lessons learned are not intended to be comprehensive in nature but rather represent a compilation of such lessons that the author has, through his various professional and industry experiences, identified as important to the success of “mega-projects”. Many represent nothing more than the fundamentals of good project management, but because scaling effects are non-linear, they take on special importance on “mega-projects”.

The lessons that are described apply across a full spectrum of delivery and contracting approaches.

PPP or Public Private Partnerships

PPP Lessons Learned – Government

1. Know your priorities
• prioritize
• prioritize again
• focus on “ready to go” projects that have been “costed”
• proposed solution must accomplish project objectives
• recognize that there is always more capital than good projects – at least in the short term
2. Understand which financing approach will work best for each project
• reasonableness and risk of private sector plan of finance clearly understood
• project price relative to benefits to the public
• market risk understood
3. Remove or reduce non financial barriers
• legal
• administrative, including approvals
4. Understand how PPP commitments made by government will be accounted for on government books
• non government assets when:
1. private partner bears construction risk, and
2. private partner bears at least one of either availability or demand risk
5. Identify risk mitigation opportunities
• post construction risk which cannot be mitigated in the marketplace
• traffic and revenue shortfalls in early years of Greenfield project
• don’t privatize risks best managed by the public sector
6. Create a climate for sustained use of the PPP model
• project pipeline and sector profile
• political support beyond pilot project stage
• complexity and cost of procurement process
• valuation/appropriateness of risk transfer
• availability of appropriate funding
• short, long term
• equity, non-recourse debt
• openness of market to non-domestic competition
7. Form true partnership with private sector
• quality partners
• strength of balance sheet, ability to provide bonding or insurance required
• proven PPP record
• ability to handle projects of scale and complete the project
• cooperation vs. confrontation
• regular contact vs. formal contact only
• recognize mutual learning curve of both partners
• contract form that rewards quality and success in meeting project objectives
• availability/capacity
8. Understand Private Sector Needs in a PPP
• four overriding needs:
• reasonable process for unsolicited proposals
• projects of Scale
• design/Build providing maximum flexibility in design details and construction approach
• project financing as a project feature
• enabling legislation to permit unsolicited as well as solicited proposals to maximize innovation
• list of priority projects
• Providing a clear, long term travel time benefit to public - NEPA/location studies completed or near completion (concept of pre-cleared projects but ones that have allowed private sector to suggest alternatives in NEPA process linked to unsolicited proposal process)
• opportunity to help build public support for the project
• rewards that balance the intellectual and financial investment
• buy in by all transportation agency participants
• Single point contact on the state side to the maximum extent possible
• performance specifications not prescriptive specs

PPP Lessons Learned – Developer-Contractor

1. Exclusivity to develop the project
• transaction and development costs are otherwise too high to make investments for success
2. Project goals defined but means and methods provide room for innovation and value creation
3. Transparency in PPP process to ensure level playing field and reduced opportunity for future protest of franchise award.
4. Comprehensive risk allocation matrix developed in partnership with public sector at early stage
• risk allocated to the party best able to bear/manage the risk
5. Quality emphasized to ensure life cycle performance objectives met
6. “Balanced” contract linked to risk allocation matrix
• Don’t privatize risks best managed by the public sector
7. Clear leadership structure for each partner
8. Project schedule which can meet or exceed public’s expectations
• time is the biggest risk a privatization project faces
9. Importance of public and community relations program that begins at proposal stage
10. Unambiguous public and affected governmental entity support for the project
• The longer the fence around a privatization project the harder it is to implement
11. Most important element of making a privatization project go is the exit strategy

Design-Build

Design Build Lessons Learned – Agency

• two step process (quality; value) provides best outcome
• contract documents must clearly spell out design-builder’s QA/QC role and obligations
• QA/QC manager must be key member of project team from outset of project
• design criteria must be unambiguous and specify minimum requirements for processes as well as products
• partnering produces better outcomes