Hacking the System

With over 40 years of experience in building projects in the public sector, Griffin Structures CEO Roger Torriero has emerged as one of the country’s foremost experts in the delivery of Public-Private Partnership (P3) projects.

P3s are often misunderstood, says Torriero, who often teaches and lectures on the topic. First and foremost, P3 is a “project delivery mechanism, not just a new type of financing,” he says. P3s are a means to strategically combine and integrate the specific advantages of both the public and private sectors, he says. “It takes the best elements of both and intelligently rolls them into one.” Griffin Structures has successfully delivered numerous P3 projects, including several with LPA.

In a discussion with Catalyst, Torriero discussed the intricacies of making a P3 work, the roles of risk and capital and why P3s really are a “better way.”

How has interest in P3s changed in California since redevelopment agencies went away?
I think it’s been evolutionary. With the dissolution of their redevelopment agencies, we found that government agencies did a sort of “knee jerk” retraction and there weren’t mechanisms left available to fund much-needed public projects. That’s changed. Also, it’s important to note that many public assets are at the end of their useful life and haven’t been re-invested in 40 or 50-plus years. Forty years ago, government agencies were in much different fiscal condition then they are today. The capital financing and reinvestment strategies that were prevalent then are not widely available given today’s fiscal reality.

So, what’s advantageous about P3s is that this project delivery tool can be readily and easily deployed to reinvest in our public assets—it’s a generational event —i.e. public facilities development is starting to come back in different ways and forms. Note that P3 is not of itself simply capital. P3 is first and foremost a progressive form of project delivery, readily adaptable to facilities, parks, and infrastructure. There had been for some time, within some sectors, the concept that P3 somehow equated to “free capital.” And it took a while to disavow that.

What other myths do you have to resolve?
I don’t know if it’s so much a myth, but I do think there’s a bit of concern and skepticism that within the P3 environment it’s done in a sort of closed book manner. Some firms do unfortunately operate that way. However, Griffin Structures has gone to great lengths to remedy that by operating in a full disclosure approach. Everything we do is completely open book. We perform competitive trades bidding. Everything is subject to our client’s audit. It’s a complete open process that gives our client a continued seat at the table, from concept to keys, which I think has gone a long way to eliminate concerns about this being a mysterious process performed behind closed doors… think the Wizard of Oz.

Is there a sweet spot for P3s or a certain kind of optimal project?
I used to think perhaps; but now I’ve come to clearly believe that it’s not about a specific project. Rather it’s about the process that fits within a municipality’s overall capital asset management strategy and facilities requirements. You can apply this process universally to almost any type or size of project. In the private sector, it is essentially a build-to-suit project developed for a specific tenant. Correspondingly, a P3 is a build-to-suit project developed for a public sector user delivered within the purview, specificities and nuances of public sector delivery.

What have you learned about how these should be structured?
One of the primary opportunities P3 delivery offers to the public sector is that it’s a comprehensive risk management and risk transference tool, particularly well suited for markets where construction costs and interest rates have great uncertainty. Like today. There is unquestionable risk in project delivery. With constrained capital and resources, it’s very important that the public sector be assured that the capital dollars that it has allocated for a specific project are well managed and that the overall cost does not exceed the funding allocation.

Also, the P3 mechanism is not only used to simply get a project delivered. It also can be utilized as an asset management strategy. This is where we’re really beginning to innovate by not only directly guaranteeing total project costs, but on certain projects we are now capable of guaranteeing specific long-term operating and maintenance costs, if requested by our client.

Why is this a better approach for a public agency than a traditional financing model?
We have found in the last few financings that we’ve undertaken that we have received slightly better rates from the capital markets than the public sector has received on its own similar projects utilizing the same credit rating. The fundamental reason has been that capital sources are also highly risk averse. They are now looking closely at the sponsorship and delivery approach. How well is the project going to be managed? Does the developer have a successful track record in P3 project delivery? What certainty and surety do they have that it will be delivered on time, on schedule, on budget? Is the public agency thinking strategically about how best to manage its real assets? What risk mitigation measures are being implemented?

So, then, how do you mitigate risks to your public sector clients?
First, we provide an overall total guaranteed maximum price. We set the guaranteed price early, which then allows our public projects to go to the financing market early, which if you are in a rising rate market obviously has clearly defined benefits. In a P3 delivery structure, we also have the ability to do some very creative procurement, which then allows our pricing to be very competitive in the marketplace.

Unlike the traditional public sector delivery method of design, permit, then lump sum bidding to general contractors, we bid early and in tranches to trades. If you’re a mechanical contractor, for example, you will be bidding only against other prequalified mechanical contractors. This makes the bid market more responsive and highly competitive, which ultimately results in better pricing for our clients.

What have you learned about making the P3 process work?
For one, it’s critically important to have a well-considered and very well-executed set of drawings. Another is that it’s very important to prequalify our trade contractors. Even though we are competitively bidding the trades, this gives us the ability to direct and control traffic in that area. We firmly believe that having quality, pre-qualified trade contractors who have the ability to provide adequate staffing in today’s constricted labor marketplace is key; this approach also provides for better quality assurances.

It always boils down to individuals. Who are the people actually on your team?
We’ve been fortunate because we’ve been working with the same studio at LPA for several years. They have truly become an extension of our team because they think like we think, and to paraphrase Coach Bill Belichick, “do their job!” The same is definitely to be said for our long- term contractor partner, Swinerton Builders.

How do you make the diverse elements work together?
We continue to be a believer in maintaining our individual team members’ traditional roles, while closely integrating those team members into a cohesive organization, which we manage. For example, in design-build, the architect is under contract to the contractor. We feel there is the opportunity for inherent conflicts in that approach. In P3s we maintain the roles and responsibilities of the architect and the contractor separate and apart. This allows us to be in the strategic position of “ombudsman” of the process and to manage and mitigate the differences, while keeping the project on schedule and on budget as that’s unquestionably one of our key responsibilities.

In Griffin Structures’ business model, cost and schedule cost overruns are contractually and financially our responsibility. We guarantee every single cost and line item on each project and the corresponding project schedule. We are fully at risk. Thus, we have a high motivation to meet budget and schedule and we necessarily impart that sense of focus and discipline across the board to our entire team.

We unequivocally believe that these are the reasons why, in our 40 continuous years in business, we have yet to exceed a budget or miss a schedule. We intend to keep that record intact.

This story originally appeared in Catalyst Issue 2 2019. Subscribe today to receive Catalyst, a quarterly publication that takes a deep dive into design ideas, industry leaders and initiatives.