Your university has just signed a complex P3 agreement, complete with celebratory closing dinner. Is your P3 on track to be a success? Not necessarily. Now you must begin the hard work of governance - managing the project and holding your private sector partner accountable over the life of the contract.
No matter how thoughtfully the contract is designed, no P3 is without surprises. What differentiates successful P3s from the less successful is not only a well-considered contract, but governance practices embedded in the agreement and enforced throughout the life of the contract.
Why governance is essential
In any P3, anticipating every possible issue that may create delays or conflicts is difficult. For instance, a P3 project for one university was delayed because the developer did not complete the permit application properly. Since the contract lacked detail about permitting responsibilities and penalties, the permitting dispute continued for a year.
Governance also includes internal structures for enforcing contract compliance. As one university learned, non-compliance penalties are not meaningful unless enforced. In this instance, the P3 contractor had been delivering its required reports each quarter - but no one at the university actually scrutinized the details. Four years in, someone noticed that the contractor was out of compliance with the contract obligations. Unfortunately, the institution could not legally enforce the contract retroactively.
Eight best practices for after the contract is signed
Often, what is missing from the P3 contract is only revealed after the fact. The more robust your governance framework and the team supporting it, the more easily your organization will be able to protect its interests.
The following are eight best practices that will help keep your P3 on track while avoiding costly conflicts and delays.
Appoint a dedicated contract manager or a team to manage the P3. The more complex your P3 undertaking, the more you need a dedicated manager, team, office or other entity to monitor and manage the P3. Your procurement office may be able to help negotiate the agreement, but few procurement offices have the resources to manage a contract that may be several hundred pages long and may span many years.
Long after the design and construction phases, the contractor may be operating and maintaining your facilities. Throughout, someone must ensure that the contractor performs to the required standards at the agreed-upon price. A dedicated contract manager or governance team can enforce compliance with contract terms, resolve disputes and keep the P3 on track from start to finish.Engage the right stakeholders. A common pitfall of higher education P3s is neglecting to engage key stakeholders - including the college or university leadership team - at the right time. Engaged too late, a stakeholder may object to specific actions or the entire project concept, bringing the process to a halt.
A common practice is to create a chart of project milestones and stakeholders who should be responsible, accountable, consulted or informed at each stage (a RACI chart). In higher education, knowing when and why to engage the leadership team is particularly critical, as these stakeholders are accountable to the larger community of alumni, donors, students, faculty, staff and community.
Create a process for internal decision-making. A typical higher education P3 involves many stakeholders and many decisions. Beginning with the RACI chart, you’ll need a streamlined process for internal decision-making, escalating issues and resolving internal disputes. Without a clear path, your P3 can be bogged down by institutional decision-making - which can increase costs or delay results.
Establish a system for tracking key performance indicators and contract compliance. Obviously, simply requiring reports will not be enough. A better approach is to create a calendar of key deadlines and assign a job role to monitor milestones and key performance indicators against contract requirements.
Enforce your partner’s contract violations. Your team will need a system for tracking contractor non-compliance actions and mitigating issues as they occur. For example, your contract could include a points system or other metrics, and penalties for non-performance. If excessive points accumulate, contract termination may be warranted.
Don’t over-complicate your governance framework. Creating an effective governance structure is a matter of balance. The larger and more complex your project, the more comprehensive your contract and governance activities will be, naturally.
However, you shouldn’t need a team of lawyers and accountants to manage your P3. The best governance framework addresses the key tasks of contract compliance without processes that are very difficult to implement.
Don’t overlook community stakeholders. If your P3 will affect the surrounding community, addressing community concerns will be critical to the success of your project. Even a small school system, college or university can have an outsized presence in a small town, putting a spotlight on public engagement.
Engaging community groups in constructive dialogue requires a specialized skill set that not every university has in-house. If community stakeholders are important, consider adding a public affairs consultant to your team. With engagement expertise, you can uncover neighborhood perceptions about your project, and devise a plan to maintain your organization’s reputation as a trustworthy institutional partner.
Augment your team with expertise. In addition to a public affairs specialist, you may need other outside advisors to close internal gaps in expertise. For example, during the design and construction phase, an owner’s representative can help you anticipate and resolve issues, and accelerate decision-making when time is of the essence.
The developer might propose a last-minute undesirable design change, or cost increase, along with a thick stack of reference materials that no-one on your team has time to review. Yet, the developer needs you to respond quickly - in a difficult timeframe for your busy team. An owner’s representative would be able to review and assess the documents to help you make an informed decision.
Beginning the real work of governance
Every P3 presents unique challenges that can dramatically alter the entire undertaking. As more universities turn to P3s to deliver essential facilities, understanding P3 governance is becoming more important than ever. By dedicating time and attention to establishing proper governance, you can help ensure the success of a P3 over the entire engagement.
To find out more, contact:
Brian Oakley
Executive Vice President, Clean Energy & Infrastructure, JLL
Brian.Oakley@am.jll.com
+1 202 236 2006
Lindsay Stowell
Executive Vice President, Real Estate and P3 Advisory, Government and Education, JLL
Lindsey.Stowell@am.jll.com
+1 312 228 3561
Matt Do
Executive Vice President, Real Estate and P3 Advisory, Government and Education, JLL
Matt.Do@am.jll.com
+1 858 410 1219