Public-Private Partnerships

By Aram Kalousdian, Editor | September 28, 2010

The Inaugural Michigan P3 (public-private partnerships) Summit was held on September 23 at the Detroit Athletic Club in Detroit, MI, in order for government officials, contractors and financiers to gain a better understanding of public-private partnerships.

Under the traditional procurement model, public projects such as road construction projects are paid for during and immediately following construction. Under the public-private partnership model, financial responsibility and incentives around construction completion rest with the private sector.

“So when we're looking at the importance of traditional procurement versus a public-private partnership model, the finance side obviously comes up first in a number of conversations, but I think what is lost is the risk transfer – being able to shift the construction cost; being able to shift the completion time. I know that the Michigan Department of Transportation has a fairly good track record of delivering projects on time and on budget,” Geoffrey Segal, vice president of Government Relations at Macquarie Capital (USA) Inc., said. Macquarie Capital is a global financial services organization.

“Public-private partnerships encourage innovation and they save time and money. The private sector has more incentives to limit the costs than the public sector. Having one entity responsible for the design, construction and operation can result in efficiencies that are impossible with traditional design-build methods,” Dennis Gillow, treasurer with the International Union of Operating Engineers Local 324, said.

“Infrastructure needs could be addressed quicker. The influx of private funding will help maintain an adequate road system in the state of Michigan. Because of the savings of time and money, there is the potential for additional projects. Right now we are just keeping up or doing bandage approaches because we don't have the money.

“The economic well-being of this state is directly related to the condition of its roads. A good road system is essential for economic growth. Public-private partnerships should maintain the requirements of the federal Davis-Bacon prevailing wage law and Michigan's prevailing wage law. Why is prevailing wage so important? The state is required to award contracts to the lowest bidder, unlike private or commercial owners. This only requires minimum qualifications related to experience, quality and trained employees. Such requirements are often difficult to measure. The state has limited means to evaluate and rank one bidder from another without subjecting themselves to a bid dispute. Union and non-union contractors that have higher qualifications will be forced out of the state bidding for these low-bid-only-type contracts if it were not for Michigan's prevailing wage law. Including minimum wage requirements in the contracts attracts all bidders, from the low end to the high end, and encourages contractors to bid with their best price using their inherent qualifications.

“When all things are equal, the cost of labor, the work force management, experience, and worker skill level will create the best value. Moreover, low bid contracts without the prevailing wage component open the doors for out-of-state or inexpensive labor to enter Michigan, which has already happened in many other states. A transient work force that is here on a temporary basis, not spending money, not buying homes in the area or paying taxes in the area does little for the community or the state. By paying a prevailing wage in the community, the community receives all of the economic benefits, plus the security of a locally employed work force that's spending money in the area, regardless if they are union or non-union. Prevailing wage opens the bidding process to all bidders, ensures local contracting, and levels the playing field against contractors that do not offer their employees, who stay employed full time, employment training and benefits.

“Labor supports the exploration of public-private partnerships as an alternative to raising taxes.”