What does Vidal Sassoon have to do with P3s?
If you don’t look good, we don't look good
Vidal Sassoon died this month, and that news brought me back to the 1980s somehow (or maybe it was the new version of “Dallas.” Yikes.) But it reminded me that Copley Place was completed in the early 80s, the last project to be built on Turnpike air rights in Boston.
Public/private partnerships, or P3s, are getting a lot of attention lately, yet it’s difficult to find examples that point the way to success. For starters, the term means different things to different people. For some, it’s a method of delivering public infrastructure using private capital and management. For others, it’s a way of delivering a project that combines resources from both the public and private sectors, like Copley Place.
The second type is especially relevant in Boston right now. New private sector development is planned over the Massachusetts Turnpike in the Back Bay. Along the Greenway, a Public Market is being planned and, next door, private development is under review for publicly-owned parcels created by the Big Dig. Meanwhile, Mayor Thomas Menino is pushing the redevelopment of Dudley Square, and putting public resources up to make it happen.
Once, I found myself in the throes of negotiations over the redevelopment of public land with an investor. As we worked through some financial detail, I declined to do what the investor was proposing because of the negative way I thought it might be perceived. I explained that we needed to be cognizant of how the transaction would be covered by the press, and understood by the public, who, after all, did own the land. But I knew we were going to have trouble “getting to yes” when I heard this come back at me: “I don’t care what the press says about this deal.”
The parties to a public/private partnership have different objectives, different constituencies, and, in a way, they speak different languages. Both parties want to complete the project (on time and under budget, naturally). But the private partner understandably cares mostly about making a reasonable return for his investors, and reducing the amount of risk to his capital. On the other hand, the public partner needs to be a prudent steward of public resources, and take enough risk to get the project done, but no more. And the public partner also needs to ensure that the public, and the press, can understand the deal, and perceive it as fair.
So, what distinguishes a public/private partnership that gets built from one that does not? First, the public partner needs to engage the resources necessary to keep things rolling. Too often the public partner does not empower its staff to make decisions, or doesn’t have the expertise on staff that can make a deal, or the financial resources to hire it. Time is wasted, investors get skittish or lose patience, and things fall apart.
Second, the private partner very often comes into the room expecting to encounter a bunch of “do-nothing” bureaucrats. As the public partner, don’t confirm that prejudice. Successful public/private partnerships require the public partner to have staff that are willing to take the informed, calculated risks that are sometimes needed to make a project go. It is usually the safest option for the public party’s staff to be risk-averse, or to rely on time-honored but ineffectual ways of doing business. No public sector professional ever lost their job for not taking a risk that failed, or for doing things “the way we’ve always done them.” The public party’s management needs to make it safe for staff to take the necessary risks that are nearly always needed to get a public/private partnership done.
Third, the public partner needs to explain its expectations clearly at the outset and, much more importantly, be consistent till the end. Capital hates risk, and if a public/private partnership is going to attract the necessary private capital, the public partner can’t keep changing the rules.
On the other hand, the private partner first needs to recognize that it’s a partnership. Lack of transparency, for instance, or trying to fudge the numbers, only makes the public party suspicious, slowing down or killing the deal. The public party needs to be confident that it is taking any needed risk with a partner it can trust.Second, it helps if the private party recognizes the various constituencies the public partner has to answer to: management, perhaps a board of directors, elected officials, regulators, the press and, most importantly, the public.
Peter O’Connor is a lawyer in Boston who previously served as the Deputy Secretary for Real Estate and Economic Development in the Executive Office of Transportation, and later as a member of the senior staff at MassDOT. He can be reached at email@example.com