More than a decade since the Great Recession, which shook institutions of higher education and their ability to secure funding for capital improvement projects, they now face a new crisis, spurred by a global pandemic. As federal and state budgets reallocate public funds away from colleges and universities, private capital becomes crucial for financing.
To manage inflated operating cost, deferred maintenance, and the need for capital improvements, many institutions are faced with the difficult decision to raise enrollment cost. But with tuition already outpacing inflation for over a generation, and competition for students higher than ever, the market can only bear so much. Colleges and universities are being challenged to differentiate themselves, while keeping student costs low.
One method that is gaining traction is the use of public-private partnerships.
Simply stated, public-private partnerships, often referred to as P3s, are cooperative ventures between public, tax-supported entities and private businesses. A public-private partnership is not a project delivery method, but rather a funding mechanism leveraged to fund virtually any project regardless of delivery method: design-build, construction manager at risk, or other.
P3 is a model that involves an agreement between a public owner and a private sector partner. The private sector partner is charged with the design, construction, financing, and often long-term operations and maintenance of one or more infrastructure assets over the specified term. Under the P3 model, the private sector partner absorbs risks that are typically retained by the public owner under traditional delivery models. P3 models allow the public sector to harness the knowledge and experience of the private sector’s innovative approaches.
Interest in P3s has grown, Brailsford & Dunlavey reported 95 potential P3 projects, collectively valued at over $8 billion, slated for the upcoming years. This is a result of tighter public sector budgets, greater project complexity, and a shift in public sector priorities.
While public-private partnerships are traditionally seen in the transportation sector, institutions of higher education are increasingly using them to redefine their financial and political limitations. Even in a period of economic slowdown, university enrollment is challenged to improve or enhance facilities. As colleges and universities struggle to expand and redevelop their facilities, these institutions are seeking the benefits of a private partner.
Key to the P3 funding method is an available revenue stream used to compensate the private partner. The revenue generated from student housing makes this a popular and often successful P3 project. In fact, student housing projects are so successful, P3s are expanding into other types of campus infrastructure projects, including parking garages, student centers, dining halls, athletic facilities, performing arts theaters, recreation centers, student engagement centers, and renewable energy initiatives.
Higher education institutions see several benefits from bringing on a private partner, including:
While P3s offer many benefits to higher education institutions, these agreements may come with disadvantages to consider. Depending on the deal, they may include:
Developing a winning team is crucial for the success of P3 projects, and the following tips can help ensure the positive impacts are seen for generations:
Think long-term– A well-rounded P3 team includes members with expertise in private-development equity, architecture, engineering, contracting, and law. With projects often spanning several years, it is important to choose these members not just with skill in mind, but also ability to work together. Higher education participants should carefully develop criteria for evaluating potential partners.
Expect the unexpected– Few large-scale projects are completed without unanticipated challenges, so it is important to select partners who have demonstrated the stability and commitment required to see projects through to completion. Higher education administrators should carefully study their potential partners’ portfolio and evaluate how each dealt with the inevitable circumstances that challenge a team’s ability to finish a project or to operate and maintain it afterward. Also, evaluate all members of the P3 team and their resumes for design, construction, and successful development of similar projects.
Have a champion– Successful projects have institutional champions who advocate for the P3 solution and oversee the process through to completion. The role of champions in the P3 delivery model cannot be understated. They play a crucial role in securing buy-in for the project at the earliest possible stage and developing strategies to overcome obstacles. Establishing consensus on the campus also provides potential private partners the needed assurance to commit to a P3 project and helps secure the best possible pool of P3 talent.
Thinking towards the next decade, it is crucial that America’s colleges and universities find creative solutions to increased competition for students and decreased budgets. When executed correctly, a public-private partnership allows administrators to create solutions that differentiate their campus and brand them as a place capable of innovation and progress.
