Funding, Risk Allocation Driving P3 Delivery of Mega-Projects

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Public-private partnerships, P3s, continue to emerge as the preferred delivery mechanism for multi-year, multi-billion transportation and infrastructure ventures.

Associated General Contractors of America Vice President of Public Affairs & Strategic Initiatives Brian Turmail says ongoing mega-projects such as the $3 billion Fargo-Moorhead Red River Diversion and the $5 billion LaGuardia Airport Terminal B are relying upon P3 project delivery to bring these large-scale, big-dollar ventures to completion.

“Funding is often a big driver for P3s because they allow owners to move forward with a project without having to secure full financing on their own,” said Turmail. “However, P3 projects can be risky because they are often run by internationally based financiers who do not know or understand construction. These financiers produce contracts that are typically very long – hundreds of pages – non-standard and pass all the risks of the project to the construction teams.”

An international slate of project partners is heading both the Fargo-Moorhead Red River Diversion Project and LaGuardia’s new terminal. The former project is represented by the P3 of ACCIONA (the parent company of Spain’s Acciona Energy), Shikun & Binui USA (the domestic subsidiary of the Israeli-based infrastructure and real estate firm) and North American Construction Group, a Canadian heavy construction and mining contractor. LaGuardia’s P3 includes Parisian global investor and asset manager Meridiam, Swedish Skanska Infrastructure Development and Vancouver-based Vantage Airport Group.

P3 projects are also often complex, says Turmail, carrying more risk than smaller-scale efforts. “The quantities involved for these massive projects have very expensive ramifications when the assumptions are off, even by a little,” he said. “They fail sometimes due to overly optimistic revenue projection from parties bidding out the work.”

P3 projects are also risky because of their multi-year development and construction timeframes, Turmail says. Construction of the Red River Diversion Project, for example, involves building a 30-miles diversion channel to divert floodwaters around the metro area during severe floods and will take 10 years to complete. The project is estimated to wrap in 2027. The 1.3 million-square-foot Terminal B at LaGuardia Airport began construction in mid-2016 and will complete later this year.

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