What’s driving the emerging federal P3 market?

Representatives for the US Navy & Army give P3 Bulletin a look under the hood of one of the most exciting emerging sectors in the industry.

Credit: Getty

Cities, universities, and departments of transportation are generally considered to be the pumps that carry the flow of projects around the P3 pipeline. But over the last few years, federally led P3s have emerged as a superstar subset in the mix. They’ve got the industry fighting hard for what have so far been relatively rare opportunities; but there's more to come.

"A Federal P3 can be a big feather in their corporate caps," says Greg Geisen, project manager of the Point Loma Revitalization Project at Naval Information Warfare Systems Command (NAVWAR), when asked why these projects are so attractive to the private sector. "There's a lot of interest from the commercial sector, not just for the financial benefit for their company but also a genuine interest in being a part of the Navy mission."

The emergence of this project, and the more recent RFI from US Department of the Navy on another major P3 project, which it describes as a “rare opportunity”, is born out of changes in federal laws over the last 10 years that have enabled in-kind consideration agreements to be undertaken and signed off at a departmental level.

The change came with Congress's understanding of the need to recapitalize large parts of infrastructure, and with most of the money being spent on the pointy end of the Navy spear, using alternate delivery for the supporting end makes a lot of sense.

"We like to think of it as recapitalizing the taxpayers' assets. We have something that is being used inefficiently. We can find, through a P3, a more efficient way to recapitalize that asset into new capabilities," says Geisen. "We can use these in-kind considerations to enter into a P3 and repurpose an underutilized asset for the benefit of the Navy and the surrounding community."

A decade of federal law changes to yield a few rare bonafide P3 opportunities may not sound like speed, but without a P3 option, the Navy would have used the traditional military construction process that involved federal funding and purchasing what you want to build. Just to secure this funding can take up to 10 years, as it works up the chain of command and back down again - let alone the design.

"The P3 process can be extremely fast for the federal government. But the mix has to be right," Geisen says, pointing to the attractive San Diego land swap involved in the deal.

This may be sprightly for the feds, but project preparation can still be a long process, stretching on for years, which can make it difficult for private parties to stick with it. 

Nonetheless, it's not without its benefits. "A P3 project in its nature transfers risk. It's incumbent on the Navy to ensure we can do everything we can to remove that risk and minimize it," says Geisen. "We understand our partner will give their best to the project, so we want to make sure we have given ours and have gone above and beyond to give them the comfort that the risk they are willing to take is acceptable."

The agency has "done more than it has to", in almost every sense, trying to make it into the "strongest possible partner", he continues, ranging from extensive soil samples to pushing the NEPA application far beyond its requirements.

In essence, those within the federal government hope this shows why they are one of the ultimate partners, an attribute that can be boiled down into a phrase: slow is smooth, smooth is fast.

"It comes down to the fact that as the federal government, we are the custodians of the taxpayer dollar, so taking things slowly and methodically means potentially wasting less money," says Caitlin Ostomel, director of public affairs for the Navy Region South West. "With a P3, the goal is to minimize public expenditure and put some of that on the private sector, so by taking it a little bit slower, we are potentially able to minimize mistakes, re-do things, and preempt future litigation.”

This steady-handed approach will be music to the ears of much of the industry, which is always conscious of the large splashes that big P3 failures can have. But the impact that this success could have is enormous.

"The Navy is exploring how to use different assets in different ways across the country to get the best value for taxpayer or public lands and aging infrastructure to get the Navy what they need right now," adds Ostomel.

"Out-of-the-box thinking is encouraged, and the Navy is open to these ideas," Geisen concurs.