Issues in Public–Private Partnerships (Part 1)
[co-author: John Baxter]
As public–private partnerships (P3) become an increasingly popular delivery model, a new set of risks has begun to arise for both owners and bidders seeking to win projects. Based on experience, BRG sees common areas where disagreements occur; we then proactively address potential gaps and work towards further enhancing agreements between parties. The following are a couple of samples of areas in which we have seen these risks.
Interpretation of Details
One issue that increases risk to both the owner and bidders providing P3 proposals is caused by the lack of detail in the specifications provided by the owner in instances where the owner has specific requirements it wants met but has not necessarily made it clear as part of the specifications. Generally, specifications and requirements provided by owners are intentionally left open to provide each bidder the freedom to come up with different ways to provide the services and utility the owner wants from the project. The issue arises when bidders interpret an item in the specification differently than the owner had intended.
For example, consider an owner that specifies it wants an insulation rating for an interior wall that exceeds the local building code, but does not list any restrictions on how this can be achieved. The bidder, thinking of longevity and durability, may design a solution to this requirement that would cause the wall to be much thicker and not allow for easy future modifications. This may not have been what the owner had initially intended, but without the owner having provided direction otherwise, the bidder could not have known. Once the overall proposal is accepted by the owner and detailed drawings are created and submitted, the owner would then discover that future modifications would be complicated by the type of wall system designed by the bidder. The owner could possibly request that the bidder redesign the walls, at which time the bidder could state that it met the requirement of the thermal wall rating and that there was no requirement for designing a specific type of wall. This disagreement could, depending on the issue, increase the cost of design and construction or alter the expected functionality of the project.
In Part 2, we will discuss user groups and potential solutions to risks.
Issues in Public–Private Partnerships (Part 2)
In Part 1, we introduced public–private partnerships as a delivery model, and we discussed the risks involved in interpreting details. In this post, we will discuss user groups and potential solutions to risks.
Another issue that arises after award of a project involves user groups. In some cases, after the winning bidder is selected, there is a period of time during which the bidder must refine its initial design. One aspect of this involves having user-group sessions to provide more detail on how people will actually use the space. During these sessions, it is often discovered that the accepted proposal did not meet the requirements of a particular department, due to the requirement not being either listed or initially considered during the bid phase. Many issues could be resolved prior to the closing of the bid process if user groups had more access to short-listed bidders. User groups would have an opportunity to explain their requirements to bidders before submission of proposals.
In both situations discussed above, the solution involves providing as much information as possible to the bidders prior to choosing the successful proposal. The bidders could, depending on the proposal process, submit a request for clarification on issues for which they were unsure of the owner’s intent. However, the bidders are involved in a competitive bid situation, wherein they achieve their competitive advantage by implementing creative design solutions. If the owner’s policy was to share requests for information (RFIs) or design clarifications with all bidders, this would dissuade some bidders from submitting RFIs so that their design is not exposed to their competitors. Alternatively, if the owner decided all RFIs would be kept confidential or anonymous, bidders would more likely submit more RFIs, reducing the risk of a conflict later in the design construction phases of the project.
There are pros and cons to both approaches, but at the end of the day it is in the best interests of all parties to understand specifications and requirements prior to submitting bids. This will reduce the risk for all stakeholders involved in the project. The risk management solution is to engage owners and bidders in an open dialogue that ensures the owners get the product they want while allowing the competitive bidding advantage that is one of the main appeals of the P3 contracting model.
[View source] Part One.
[View source] Part Two.