Public-Private Partnerships
Five Principles for Success
by
Tony Kinn
kinn_anthony@bah.com
Steve Bonner
steve.bonner@sonricorp.com
Dr. William D. Rowe, Jr.
rowe_william_jr@bah.com
Carol Bailey
bailey_carol@bah.com
Jennifer Curtin
curtin_jennifer@bah.com
Fred Meurer
meurer@meurermuni.com
Table of Contents
Introduction........................................................................................................................ 1
Background........................................................................................................................ 1
Five Principles for Success.................................................................................................. 3
Momentum: Critical for Success........................................................................................... 6
Conclusion ........................................................................................................................ 7
About Booz Allen................................................................................................................. 9
Offices............................................................................................................................. 10
Public-Private Partnerships
Five Principles for Success
Introduction
Public-private partnerships (P3s) are a proven
infrastructure procurement approach for resourceconstrained government agencies around the world.
P3s combine public sector infrastructure needs
with private sector innovation and capital to deliver
critical infrastructure projects. In the United States,
state and Federal agencies face a variety of funding
challenges for critical infrastructure, energy, and
facilities projects. P3s are an increasingly important
tool to address these challenges. Part of the reason
that P3s have grown in importance and relevance is
the experience gained by the private sector in creating
these innovative partnerships, the lessons learned
that come from this experience, and the willingness to
deploy capital on infrastructure projects that result in
economic growth and efficiencies.
To derive these benefits, government agencies
should create P3 programs that are transparent,
consistent, and reliable; are based on a sound legal
footing; ensure open and honest communication with
the public, private industry, and key stakeholders;
and have a program management office (PMO) that
champions and leads partnership efforts.
At a time when the United States defense, civil,
and transportation infrastructures are in need of
significant investment, government fiscal realities
present seemingly insurmountable obstacles to that
investment. The development and maintenance of
defense, civil, and transportation infrastructures
are critical to our continued economic growth, as
the President made clear in his Memorandum for
the Heads of Executive Departments and Agencies
on “Expanding Public-Private Collaboration on
Infrastructure Development and Financing” dated July
2014. In this document, the President said, "We must
use every tool at our disposal to create jobs now
and lay the foundation for future prosperity, including
better collaboration between the public and private
sectors with respect to infrastructure development
and financing.” Government agencies need to
continue efforts to find innovative and entrepreneurial
avenues to satisfy infrastructure demands and make
the business climate right for the development and
implementation of P3 projects. Partnerships based on
shared risks, rewards, and benefits, with the ultimate
beneficiaries being all stakeholders—government
agencies, private sector partners, and taxpayers—are
the answer to investment needs in many cases.
The challenge facing state and Federal agencies is
developing P3 programs through careful planning,
sound business modeling, and sustained leadership
to ensure completion of efficient, effective, and
successful partnership projects. This paper presents
five fundamental principles that form the foundation
for successful P3 programs: authority, consistency,
transparency, communications, and focus.
Background
P3s are not a new concept. A P3 is a mature
infrastructure and services procurement approach
widely used in Europe, Canada, and many other
nations around the world, and is a critical component
of their infrastructure and public services programs.
P3s in the United States are becoming more common
at the state level and have been employed selectively
at the Federal level to address specific infrastructure
needs enabled by supporting legal authorities.
The Ministry of Defence in the United Kingdom has
experienced some excellent results from P3s. Almost
all military equipment is acquired through some form
of partnership. In infrastructure, a model program to
develop partnerships to deliver and maintain facilities
is helping to keep costs down for the public sector,
produce jobs, and provide good returns on investment
1
for the private sector at major military installations.
One instance is Her Majesty’s Naval Base Portsmouth.
Here, a P3 provides shipbuilding and repair, all base
services, housing, messing, communications, and
logistics; produces 26,000 jobs for the region; and
allows the sailors of the fleet to concentrate on their
wartime mission.1
The history of P3s in the United States arguably reaches
back to Benjamin Franklin and the first volunteer fire
department and lending library in America. Certainly
the turnpikes, canals, and early railroads of the 19th
century are examples of close cooperation between the
public and private sectors. In fact, the transportation
sector offers many of the best success stories in
modern-day P3s. Texas, Florida (with its recently opened
Port of Miami Tunnel), Indiana, and Virginia all have
positive records for P3 project completion.
tolls with three or more vehicle occupants. With fewer
occupants, drivers will pay varying tolls depending on
the type of vehicle. The Route 460 Project will provide
a basis for significant economic development through
an additional access route for the Port of Virginia, as
the Port prepares for the added business opportunities
that larger shipping containers will bring in the very
near future. This project will also provide a critically
needed additional evacuation route for the region.2
Other projects, such as the Beltway Project (Interstate
495), Centralized Traffic Operations Centers, and the
Rosslyn Air Rights Project, all have the same central
theme throughout: delivery of important added benefits
to all stakeholders, completion on time and on budget,
and reliance on a strong P3 program for success.
A key takeaway from these P3 projects is that they
could not have been completed without private sector
financing, technical implementation, and shared risk.
Virginia offers particularly good examples of
success. After use of P3s had declined for years,
the Commonwealth introduced a new emphasis and
focused approach to using P3s in its Department of
Transportation. The Dulles Greenway Project leveraged
$350 million in private financing to provide improved
transportation in northern Virginia. To provide further
perspective, the Commonwealth of Virginia has
approximately $6.7 billion in P3 projects that are
moving toward completion. The Downtown-Midtown
Tunnel Project (between Portsmouth and Norfolk)
involves the creation of a new tunnel and badly needed
refurbishment of two existing tunnels currently more
than 50 years old. The Commonwealth, along with its
private sector partners, is leveraging $419 million in
state funds to deliver a $2.1 billion project. The Tunnel
Project will greatly improve the quality of life for users
by decreasing their travel times by more than an hour
per day on the most heavily traveled two-lane road east
of the Mississippi river. The HOT (High Occupancy/Toll)
Lanes Project between Dumphries and Springfield will
provide motorists with significant options for quicker
travel into and out of the Washington DC metroplex
using Interstate I-95. To use the express lanes, drivers
will have an electronic toll device (EZ Pass) and pay no
The Department of Defense (DoD) started with the
government-owned, company-operated concept of
partnership in the 1940s with facilities (such as
the famous “Skunk Works” in southern California)
to develop weapons for World War II. In the
1990s, programs such as the Army Retooling and
Manufacturing Support Program reduced the costs of
ownership of an ammunition plant infrastructure to at
or near $0. DoD’s housing and utilities privatization
(UP) programs have proven very successful. The
Military Housing Privatization Initiative (MHPI) was
created in 1996 and made permanent in 2004 with
statutory limits removed on the amount of private
capital that could be invested in projects. MHPI allows
DoD to work with developers to provide military family
housing using financial tools such as loan guarantees,
direct loans, equity investment, and property or facility
leasing or conveyance. The result is that more than
190,000 new or extensively renovated homes now
give military members and their families not just
safe, but high-quality housing, allowing installation
commanders to focus on their warfighting missions.3
The UP programs have provided positive results in
reducing DoD's costs while improving infrastructure
management. More recent efforts to encourage
1
3
http://www.naval-technology.com/projects/navalportportsmouth/
Legislative fact sheets, April 2013
http://www.acq.osd.mil/housing/projawarded.htm
2 Virginia
2
http://www.acq.osd.mil/housing/projawarded.htm
renewable energy projects on military installations
through P3s put DoD in a leadership position on
renewable energy initiatives.
All the P3s mentioned previously were driven by need.
Budgetary challenges, infrastructure needs, mission
changes, economic development, and similar drivers
all played a role in developing the laws and policies
that enabled these efforts. Those same drivers are
in place today. DoD missions and weapons systems
are in rapid evolution. Federal agencies remain under
pressure to make spending cuts as they face flat or
declining budgets. Aging infrastructure is a growing
challenge for DoD, other Federal agencies, and state
and community interests.
P3 is an important procurement approach for
addressing these challenges. But how do DoD and
other Federal agencies further develop P3 programs
that ensure efficient, effective, and successful
partnership projects?
Five Principles for Success
The creation of a well-defined P3 program as an
integral component of an agency acquisition strategy
must be based on several factors. These include a
sound legislative foundation, consistent business
processes, targeted communications, and educational
components that deliver the benefits and rewards to all
stakeholders as required in a true partnership.
Success in a P3 program is measured by the number
of deals closed and projects completed without
significant delays or overruns. A P3 program that
can identify and keep a pipeline of projects moving
toward closure in a timely manner builds momentum
and confidence with all stakeholders. A successful
P3 program leverages public investment with private
financial support and action to create an end result
that is greater than either the public agency or private
enterprise alone could achieve. It fosters long-term
relationships through good communication that
produce a desire for all parties to continue working
together. A P3 program conducted in this manner
inspires public trust and goodwill.
Booz Allen Hamilton's experience supporting and
researching P3 programs reveals the following common
set of principles essential for successful establishment
and execution:
1.Authority: Provide sound supporting legislation and
enabling policy
2.Consistency: Maintain consistent processes that all
stakeholders can understand throughout all phases,
and on all projects
3.Transparency: Be as transparent as possible
throughout the process while respecting
intellectual capital and the needs of procurement
decision-making
4.Communications: Develop and implement a sound
communication plan and never stop improving it
5.Focus: Establish a dedicated PMO with strong
leadership and supporting capability that becomes
the focal point for the establishment and operation
of a partnership program.
Let’s examine each of these principles in order.
Authority
Successful P3 programs in the United States have at
their foundation, enabling legislation that catalyzes
innovation and entrepreneurship. In the transportation
area, Transportation Infrastructure Finance and
Innovation Act (TIFIA) legislation has enabled Federal
and state agencies to stand up and implement
completed P3 projects along with creating a viable
and usable pipeline of future projects, which will
serve to stimulate continued private sector interest
and creativity. For DoD, more than 20 different legal
authorities enable installations to partner with various
entities, from state and local governments through
academia, the nonprofit sector, and private industry.
Those authorities are enacted through policies set in
Office of Management and Budget (OMB) circulars,
defense policies and regulations, and the Federal
Acquisition Regulation (FAR). While many aspects of
those policies could be streamlined, a capable and
3
creative team, fueled by the attributes of innovation and
entrepreneurship mentioned previously, can find the
right authority and policy for almost any contingency. The
DoD and other Federal agencies must think "outside
the box” and learn to use their existing authorities more
effectively, address and manage unnecessary policy
obstacles, and build their programs to look like business
offices. Following those actions, the agencies should go
back to Congress for further clarification and integration
of legislative authorities.
Consistency
Consistency in all components of a successful P3
program greatly enhances the probability of successful
project identification, procurement, award, and
completion. The golden rule is “do exactly as you
promise” in all things. Consistency makes keeping
those promises a much easier proposition from project
concept through procurement to close.
Consistency must be ingrained in all aspects of
a P3 program—in policy guidelines, in processes
from development to procurement, in strategic
communications and planning, and post-award oversight
and support. P3s are true partnerships whose risks
are shared, whose rewards are spelled out, and whose
benefits are clearly defined and recognizable to all
stakeholders. Using a railroad analogy, policy and
legislative authority are the tracks that P3s run on. The
well-defined and consistent process is the fuel that
maintains the forward momentum.
The communication plan clears obstacles in the path
of success, and information on the pipeline of planned
projects draws in the private sector, creating interest
and commitment to pursue project opportunities
essential for future success. Consistent and timely
messaging, action, and performance builds confidence
in all program stakeholders, and these attributes
are critical to providing the financial community with
the comfort it needs to support deals. P3 programs
suffer when there are project delays and when,
without warning, a project is cancelled during the
procurement stage. The private sector, in response to
these inconsistencies and delays, becomes reluctant
4
to partner again with the public entity, and the public
entity is forced to plan on reimbursement stipends to
allow any future projects to be considered. Successful
P3 programs match the private sector’s preparedness
to deal with a "street-ready" project that has all
obstacles accounted for and all risks managed with a
proactive program ready to deal with contingencies and
close the deal.
Perhaps no application of consistency is more critical
than methodical and thorough financial analysis.
Ensuring project funding throughout the project life
cycle—from concept through design, development,
operations, and repair and replacement—is critical
to all parties. The post-construction revenue stream
must be reliable to support the private partner's
debt service, current operations, and long-term
maintenance, as well as be available as a sinking
fund for future parts replacement. A well-planned and
sufficient revenue stream has a direct bearing on
stakeholder approvals, acceptance, and utilization,
because the users of the infrastructure must
understand why their tolls or fees are in place and
appreciate the benefits that their support of the
investment provides.
Transparency
P3s are an unknown entity to most stakeholders,
agency personnel, businesses, regulators, legislatures,
and the public. The private sector often does not fully
understand the requirements of the public sector and
vice versa. Therefore, to build trust and confidence,
the P3 process must be as open and transparent
as possible, and it must allow for continued
improvements. The process must include input and
oversight during all stages.
While P3 transparency is always a critical component
of successful partnerships, it must be balanced
against the real proprietary interests of the private
sector and the need for Federal agencies to have frank
deliberations about the best value. The FAR allows
for the protection of private sector intellectual capital
and proprietary information, and provides a process
for Federal agencies to use to deliberate about
procurements in private with appropriate oversight and
opportunities for appeal. The push for transparency
should include due respect for those needs and
processes while not allowing any attempts to use them
to obfuscate or delay legitimate change.
The project development process should address all
due diligence, including analyses, project feasibility,
and project viability, and should be communicated
appropriately to all stakeholders. During the
procurement stage, transparency should be confined
to the appropriate governing bodies. The process
should enable all the “homework” to be done upfront.
The statement “meddle at your own peril” should be
kept front and center, and should be interpreted to
mean projects should be thoroughly analyzed and all
requirements known or disclosed early. Transparency
is lost in requirements that are developed late, or
after procurement start, and creates consternation
and concern within the private sector. Remember, time
is money. The private sector needs to trust that its
public partners will issue a project bid that has been
well vetted internally, where the work scope is clearly
defined and prepared for release, and the request
for proposals is ready to go. The private sector has
invested potentially large sums of money to study and
prepare the bid response and has demonstrated its
willingness to partner.
Communications
P3 is a new procurement tool to most United States
stakeholders. P3s requires a different procurement
process, different risk components, and higher benefit
profiles for all stakeholders. P3s require different
awareness and communication requirements for the
key stakeholder segments. Public-private partnerships
are not simply "P3" but "P5"—public, private, political,
publicity partnerships.
Successful P3 programs strongly depend on a concise,
targeted communications strategy for each key internal
and external stakeholder. Federal agency personnel
must be educated on the value of P3, successes must
be publicized, and the benefits to the agency must
be constantly reinforced. Legislatures and governing
bodies must be briefed on project selection, project
prioritization, and importance to their constituents
of the program for any given project. Legislative
fact sheets and briefings are a consistent tool to
be considered for this stakeholder segment. Local
citizen organizations must be constantly mined for
their input. Their support efforts must be reinforced
with press releases and meetings with citizen groups
to build consensus. Keys to success, regardless of
the stakeholder, are to tailor the message for that
listener by providing specific benefits and to answer
the questions “what’s in it for me?” and "what's in it
for us?"
Focus
P3 efforts require focused, sustained, consistent,
and persistent work. An agency seeking to build a P3
program must be willing to invest in the development
of a PMO based on a sound business model. This
office becomes a focal point for the entire enterprise
and must be staffed with strong leadership and an
interdisciplinary team of people who are well versed
in existing law and policy, private sector finance, risk
management, procurement process, and deal-making,
and, at the same time, are willing to innovate and
question the status quo. P3 projects are complex and
often have high political profiles. Such partnerships,
therefore, need to be managed, processed, marketed,
and communicated differently from traditional
procurement methods.
A PMO establishes the agency’s full-time commitment
to its P3 program. If the public sector is asking the
private sector to take financial risk, the public sector
must be in lockstep to match the private sector’s level
of commitment. A phrase that needs to disappear from
the lexicon as Federal agencies move forward with their
P3 programs is “we just don’t do it that way.” Agencies
must be willing to scrap existing methods and put in
place new, innovative procurement options that the
private sector is familiar and comfortable with to reach
the desired goals.
The successful P3 PMO should create opportunities
for hybrid working relationships between the public
5
and private components. As a program succeeds,
P3 opportunities continue to be developed, and the
competition for investor capital intensifies. Therefore,
the development of a sound business model that
meets an agency’s legal and business requirements is
mandatory for a program’s success.
Time is money, and the private sector will not invest
its funds on a less than well-planned and positioned
solicitation. The private sector will more readily partner
when it is evident an agency’s planning and due
diligence have resulted in a financeable opportunity.
Desirable opportunities begin with potential project
identification in which a simple, easy-to-understand
project recognition process engenders private sector
interest and involvement.
A detailed and thorough project selection, project
analysis, and value for money analysis that captures
the value returned for both the public and investors
not only attract private sector interest, but also set
the framework for success. The importance of this
upfront process is to create a business-to-business
environment that is fair and equitable for all parties.
P3 projects are more complex than most traditional
procurements, and creation of that business-tobusiness platform will simply be good for project
completion, help identify and mitigate risks, and
alleviate uncertainty.
The key to standing up a successful P3 program is
dedication to the effort. These complex partnerships
cannot be effectively administered without a dedicated
and focused team. PMO staff makeup for P3s is
different from a traditional Federal agency. A PMO
staff charged with finding, analyzing, vetting, and
delivering completed projects to the agency must be
educated on elements of successful partnerships
and include subject matter experts in all phases of
partnership execution and delivery. For example, the
staff in the Virginia Department of Transportation P3
office includes expertise in city planning, archeology,
finance, mathematics, legal, marketing, business
development, engineering, and marketing. Diversity in
this type of organization is critical to success, because
6
no two P3 projects are identical, and to continue to
be successful, these projects must be managed from
many different viewpoints.
A PMO, as discussed above, does not function as
an island; it must be closely intertwined with the
managing agency throughout the process to be able
to deliver the project with all issues addressed. Using
the good strategic communications strategy discussed
previously is critical to creating a cross-functional
team concept that gives all components of the agency
“ownership” in the process. This ownership is a critical
step to overcoming resistance.
The final component needed for a successful PMO is
the targeted use of external subject matter experts
to supplement government agency staff. Access to
outside consultants should be focused on adding
specific expertise—legal, technical, financial, and
commercial—that applies appropriate knowledge and
experience to any given project. This diverse and deep
interdisciplinary expertise is particularly important in
public sector agencies, where there is less job mobility
than in the private sector.
Momentum: Critical for Success
“A rising tide floats all boats” is an apt phrase to
describe development of a successful P3 program.
Building and sustaining momentum is perhaps the
most critical factor in achieving success, and the
key to building momentum is to award and complete
projects. Program success is accomplished through
the consistency and focus discussed earlier, but
most important, through sustainment of a pipeline
of proposed future projects. Envision a boardroom
at an interested potential private sector partner. The
conversation will center on what projects the board
should target, not what the current agency policy is
or other details. A program with a consistent process
that offers well-researched future proposed projects
sustains the interest and involvement of that board
(or investors). Similarly, a robust pipeline of projects
attracts the capital market.
This pipeline is not simply a list of projects. Rather, it
is a well-thought-out portfolio populated with thoroughly
researched and prioritized business opportunities.
The pipeline development process provides a very
important opportunity to connect with all local and
legislative stakeholders, and seeks to identify risks,
obstacles, and opposition as early as possible. Such
communication, coupled with thorough due diligence,
may help prevent or circumvent delays later in the
process. A strong public sector business environment
creates private partner and investor interest in “what
will they do next?” which is a key characteristic of
effective pipeline development.
Conclusion
The P3 market is growing, particularly in the United
States, because the timing, drivers, and conditions
are right. Obstacles, such as lack of knowledge,
misperceived value, and program misconceptions,
must be addressed and overcome. A good business
process and commitment based on the five
fundamental principles of authority, consistency,
transparency, communications, and focus yield positive
results and build momentum for both public interest
and needs, and private interest and investment bottom
lines. P3—an innovative procurement approach that
combines public sector needs with private sector
innovation, financing, and capabilities to deliver key
projects on time and under budget—is the tool of
choice for meeting the critical infrastructure, energy,
and facilities management challenges faced by the
DoD and other Federal agencies today.
7
Contact Information:
Dr. William D. Rowe, Jr.
Principal
rowe_william_jr@bah.com
703-902-5229
Carol Bailey
Senior Associate
bailey_carol@bah.com
703-412-7790
Tony Kinn
Associate
kinn_anthony@bah.com
434-975-8568
Jennifer Curtin
Senior Associate
curtin_jennifer@bah.com
301-535-8224
8
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