A new document published by Rebel Group has outlined some of the main considerations in developing the P3 proposal for the Clackamas County Courthouse project.
The scheme, which reached financial close in August, saw a Fengate-PCL consortium win the contract to deliver a new 215,000sq ft courthouse, including 16 courtrooms as well as ancillary space.
Rebel carried out a review of the procurement process following financial close, and the document outlines some key takeaways to be considered on future projects, including looking at how the team assessed the VFM process.
The county and its advisors identified a number of key risks, and then identified how these would be dealt with under five different models: traditional design-bid-build; design-build; design-build-maintain; design-build-finance-operate-maintain; and a 63-20 tax exempt procurement.
Maintenance costs risk was quickly marked out as of significant importance, according to Jim Ziglar, principal at Rebel Group.
“The problem was not that costs had gone up significantly, it was more that the county had been deferring maintenance for years, to the point that things had started breaking. So some years costs would be very high as things had to be replaced, then the next year, if nothing broke, costs would be far lower. So maintenance costs became highly erratic, and the ability to plan for costs [through a P3 model] was of incredible value to the county.”
By outlining some of the different risks, and explaining how the different models would apportion and deal with these risks, the county was able to make a clear judgement on what solution best fitted with its own appetite for risk.
Among the other lessons contained in the document is underlining the importance of an ‘intelligent client’, so that the public procurer is well versed in the model and understands the risks that are being passed to the private sector - as well as those that aren’t. The report also highlighted the need for the public sector and its advisors to listen to the market to understand what is and isn’t achievable. This is particularly important during volatile times, as changes in the market may mean the best solution will be different depending on the timing.
Another key aspect that helped the Clackamas deal during volatile economic times was the use of an interest rate hedge, which enabled the county to cap its most significant risk to achieving financial close. “By agreeing to reimburse the project company for a relatively inexpensive financial instrument, the county ensured that it would be able to limit its risks,” the report explains. “In addition, because the hedge had an expiration date, this provided additional incentive for the team to focus and make efficient decisions in order to achieve a timely financial close.”
To read the report in full, click here.