Issues in Public–Private Partnerships (Part 1)

By: John Baxter and Rick Moffat

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.

The views expressed in this article are those of the authors and do not necessarily reflect the position or policy of Berkeley Research Group, LLC.