Understand Risk Transfer
P3 is not business as usual — it calls for a new mindset on the part of University leaders around control over project design, delivery, financing, operations, and maintenance. Under P3, elements of the design, construction, financing, operations, and maintenance risks are transferred to the private entity, or Developer, under a Project Agreement that delineates strict cost and schedule implications to be assumed by the University should it elect to make changes to the contract. Key implications include the need to develop subject matter expertise in this type of real estate transaction; understanding of the inflexibility of the Project Agreement; and the recognition that most current P3 transactions do not include the kind of stakeholder engagement to which consensus-driven cultures at academic institutions are accustomed.
P3 is not business as usual. It calls for a new mindset about control over project design, delivery, financing, operations, and maintenance.
While decisions about risk transfer impact everything from the quality of construction to systems performance, the Developer does not assume all risks. The allocation of risk between the P3 parties varies and depends upon many factors, including University preference, project type, and market conditions. Typically, the University decides to retain control over select improvements or maintenance areas. Universities should think through and codify the specifics of risk transfer with the Developer partner to identify the appropriate party for handling the risk. For example, air conditioning replacement may be under the purview of the private entity while parking, grounds maintenance, or student-facing service facilities might make more sense for the University to retain.