Demystifying Progressive P3 Delivery with Rodney Moss
Is Public Private Partnership (P3) the ideal delivery method for your justice project? Host Eli Gage and colleague Joe Lee are joined by Hunt Companies Senior Vice President Rodney Moss to navigate the components of successful progressive P3 delivery and the emerging value of the evolving American P3 model. Learn how to identify an ideal delivery scenario, mitigate the risks, and maximize your alternative delivery value to deliver complex assets faster, cheaper, and more efficiently.
In this episode, we explore:
- A breakdown of the components that define P3 delivery and what makes them successful for certain projects
- How to mitigate, manage, and eliminate risk to ensure a high-quality delivery with less expense
- Moss’s insight into the emerging American model of P3 and how it differs from the Canadian and European model
- The unique benefits of P3, how to maximize them, and why it continues to grow at an exceptional rate all over the world
Have questions, comments, or want to learn whether progressive P3 is the right fit for your project? Contact the show host, Eli Gage, at email@example.com
Senior Vice President, Infrastructure Development at Hunt Companies
Senior Vice President Rodney Moss leads the progressive development business unit at Hunt. With a development career spanning three decades, and degrees in both engineering and law, Rodney helps public entities navigate the complexities of P3 delivery models, understand the risks associated with each model, and adopt solutions that eliminate those risks.
The P3 industry has recognized Rodney as a leading expert in Progressive P3 Delivery, also known as “American Progressive Delivery.” As Progressive P3 quickly becomes the preferred model over traditional P3 models, Rodney’s expertise has been in high demand. For the past three years, Rodney has chaired the Law & Legislation Committee for the Association for the Improvement of American Infrastructure (AIAI), an organization where he also holds a board position. While serving in this role, he has been instrumental in drafting new P3 legislation in seven states, including Texas and Florida. Rodney has also represented AIAI and Hunt as an expert panelist at nearly every major P3 conference in the U.S., including the Construction Financial Management Association (CFMA) conference and the nationally renowned Public-Private Partnership Conference & Expo (P3C).
With Rodney’s guidance, public sector officials throughout the U.S. are learning how to identify their ideal delivery scenario, build a solid business case, and provide the highest value to their tax base.
Chief Executive Officer, Facility Management at CGL Companies
Joe’s unique understanding of justice facility operations, combined with his in-depth knowledge of justice building engineering, inspired him to give more attention to the long-term maintenance requirements of the facility. He developed the first contracted maintenance delivery system specifically designed for implementation in justice facilities. Joe’s maintenance system ensures security, prolongs the life of significant capital expenditures and lowers the operating and energy costs of the maintained facility. His system of incorporating maintenance and energy efficiencies into the planning and design of the facility can be implemented to lower the overall facility Total Cost of Ownership.
Welcome to the 360 Justice podcast, where criminal justice leaders talk about how they are solving tough social infrastructure issues, like aging facilities insufficient funding and adequate staffing, and an ever-changing political climate. Here’s your host, Eli Gage.
Eli Gage (00:19):
Hello everybody. And welcome to the 360 Justice podcast. I’m your host Eli Gage, and I’m joined by my cohost and friend, subject matter expert Joe Lee. Thanks for joining Joe.
Joe Lee (00:31):
Thank you, Eli.
Eli Gage (00:32):
I’m also joined today with Rodney Moss, who is a senior vice president with the Hunt Companies who happens to be the parent company of CGL, and honestly, Rodney, not to blow your head up, but I think you’re probably in my opinion, one of the foremost experts on P3 and P3 delivery specifically in the criminal justice world in the country. You don’t have to respond to that. That’s my observation. So thank you for joining us.
Rodney Moss (01:04):
Glad to be here, Eli.
Eli Gage (01:06):
So Rodney, I wanted to start with, for our listeners of the background on you’re a trained engineer as well as a lawyer, and you’ve written P3 languages in the P3 statute in seven or eight states now.
Rodney Moss (01:27):
Yes, I’m working on my eighth in Idaho right now.
Eli Gage (01:30):
Okay. Does anybody else in the country have that kind of legal experience on that side of the, of the P3 world?
Rodney Moss (01:39):
Not to my knowledge. Uh I am the chair of the law and legislative committee for the Association for the Improvement of American Infrastructure, which is so the leading industry advocacy group for public private partnerships. And we tend to get involved in, in every state where there is a a P3 interest from the politicians to, to launch a P3 strategy. So I tend to get a pretty broad perspective across the country of what’s going on and, and what works and doesn’t work in the industry.
Eli Gage (02:21):
And for our listeners, Rodney, what I’m going to try to do today is really break this down into layman’s terms, because one of the things, and you and I have presented several times successfully, namely on Travis County in a P3 procurement, and one of the things that jumps out to me every time we make a presentation and we don’t bring you in to do it for us, is the misnomer of what P3 actually is. And I think that’s the biggest problem in our market. At least in the criminal justice market right now is people don’t understand what P3 actually is. Some people think it’s philanthropy and the three of us know that that’s not the case. So broadly speaking, you know, we we’ve, we’ve used the word alternative finance, we’ve used the word design, build finance, maintain, operate, et cetera, et cetera. Do you kind of lump everything under the word P3, does that encompass kind of all the alternative financing solutions that are out there?
Rodney Moss (03:21):
Yes. I mean, P3 is a, is a bit of an ambiguous word. I mean, it’s, it, it is a, it is a higher level of, of risk transfer. It is a, a tool in the toolkit that allows you to deliver complex assets faster, better, cheaper. It only about one in seven projects really makes for a good P3, but there’s a, there’s a business case for every delivery method, whether it’s design bid build, or design build, or design build finance or design build, maintain, whatever the combination of the, the, the scope is. You have to understand where the risks are, what what’s on, whose balance sheet whether it’s the public or the private and tailor that risk transfer in a way that meets the public need and provides a better value through, through better risk transfer to the private sector, which oftentimes is in a better position and better able to manage the risk and, and eliminate the risk which provides for a, you know, at the end of the day, the less expensive delivery.
Eli Gage (04:38):
Can you give me an example of what you mean by risk?
Rodney Moss (04:44):
So if you think about, for example, if, if justice facility needs to be located on a different piece of property than the government currently owns, you know, there’s, there’s land acquisition risks, there’s a utility risk, there’s permitting risks, there’s site conditions, risk there’s, you know, beyond just the basic design component. And we lumped all of that risk into what we call development risk and that development risk in a traditional delivery has, has resided on, on the public sector. And, you know, the public sector, all of the, the really good folks that are there, they don’t do this every day. And a lot of times they rely on consultants, but those consultants don’t take risk. And they also, you know, don’t do this every day. And so transferring that risk, for example, in that kind of procurement, where you’re, you’re relocating a facility and you need to make it all work together and do it as quickly and as efficiently as possible is, is just one component.
Rodney Moss (05:56):
So if you think now on the design build where you’ve got, you know, technology risk and maintenance risk and obsolescence risk and things like that, that, that relate to the facility, once it’s turned over again, those risks are oftentimes on the public sector side, but, you know, if, if those things aren’t aren’t well, they, they end up being a big exposure. So how that risk is both on the front and the backside of, of a design and build is where P3 comes in and, you know, the more complex it is the more, the larger scale that it is then it becomes too, you know, comes to becoming more of a P3 delivery where that, that risk transfer adds value over, over other methods. We often think of, you know, P3 is designed, build on steroids, starts earlier, ends later, but what it is and how, when it starts, and when it ends is all very deal specific.
Eli Gage (07:06):
So really the, the name public private is exactly that it’s the public working with the private to get a, to get the job done.
Rodney Moss (07:16):
Right. And, and, you know, there’s, there’s three things you can do with risk. You can accept it and retain it. You can transfer it, or you can eliminate it. And the, the thing that really adds value is eliminating risk because that lowers the cost of risks that’s baked into these, these deals. And so if you think about finance. Finances, just like when you go in and buy a home or a car, your credit score determines your cost of capital determines how much equity is needed, determines how much your debt costs based on, on the risk. And so, you know, if you are really gonna, gonna analyze a transaction and, and, and what it actually costs at the end of the day, you need to look at the whole cost of ownership, the whole, from the beginning of delivery to the time the asset needs to be replaced, look at the whole cost of the whole duration of the asset. And when you come together and with the public and the private and all the ideas and innovation and ability to problem solve that, that resides in both public and private organizations, that’s how you really are able to optimize things and design for, you know, lifecycle risk and, and eliminate the risk, as opposed to just lobbing it over the fence or retaining it, which really doesn’t add a lot of value.
Eli Gage (08:47):
So, Joe, you’ve been involved in a number of P3 projects primarily in Canada, and it’s been mostly on the FM side. We, I think even the three of us have talked about how there’s a Canadian model, there’s a European model. And it seems like, and Rodney correct me if I’m wrong here, but it seems like there is a bit of an American model emerging. Joe, tell us about the work that you did up in Canada and how you see it different in the United States now.
Joe Lee (09:18):
Well, the biggest thing in Canada is there was a national, I guess it was a law, wasn’t it, Rodney? That said, or direction that said if a project was over a hundred million, and this is, I think it’s been revised since then that it had to go P3. So there was a, you know, a direction for the whole country to try to correct some problems they had with building infrastructure, especially social infrastructure with the projects that I worked on. And the biggest issue besides transferring risk was that governments weren’t funding facility maintenance and life cycle replacement. And therefore the infrastructure was failing prematurely and they want to do eliminate that. So they had a pretty structured approach to it. And in most of the provinces that we worked in Ontario province and the, in British Columbia, and they had, you know, they wanted to include subject matter experts to make sure they got the best of the best, both in design and construction to an in facility maintenance and life cycle, so that they had a in Canada’s case, a 70 year design life.
Joe Lee (10:33):
So they were trying to shepherd good investment social infrastructure that was long lasting and serve the taxpayers well. The United States hadn’t quite caught up with that yet, but have the same need relative to the, you know, the financial structure that exists today and the biggest problems and in countries that are doing P3s and countries that are not doing P3s is governments don’t fund maintenance. And when you transfer the risk of ownership over to the private sector, the private sector is required by the documents to fund maintenance and to do the lifecycle replacements and upgrades as they are needed, rather than deferring that cost, which creates kind of an unfunded liability. What we learned from Canada, we took to some of the project we worked with the United States to properly insent the facility managers and, and the sponsors that were the developers, if you will, for the, for the project to not be punitively penalized for making honest mistakes yet incented with possible deductions, if they didn’t perform well and giving governments an opportunity to correct problems with facility maintenance. So I think the American model is evolving. I think the evolution is headed towards assigning the proper cost of risk and not overly penalizing companies so that they don’t overprice it. And Rodney, and had a lot of conversations about this and that’s, we’re trying to bring the lessons learned from Canada and those that we’ve done in the US to other governments.
Rodney Moss (12:39):
If you think about that, there’s an optimum point of risk transfer in every deal. There’s, there’s a, there’s a a place where you’ve optimized the risk transfer and maximize the value for money. So if you think about, if you under transfer risk, you destroy value because you’re retaining too much of it. And, and you are therefore spending more or if you over transfer risk, you are overpaying for risks that should not have been transferred. And, and the what is happening is the US is is different in many respects because we have this tax exempt municipal debt that, that provides cheaper debt than other countries who don’t have this tax structure around their debt. But the basic equation of, you know, how much, if any, do I want to finance versus have the private sector finance, or how much, if any of the maintenance do I want to retain versus transfer?
Rodney Moss (13:40):
There is a business case in an optimum case of risk transfer that creates that proper balance and therefore creates the highest value for money as part of the, you know, the project scope. And I think the US is evolving in ways that allows parties to better come together and figure that out as you are designing the facility, as you are figuring out what the risks really are, and we call that a progressive delivery, progressive development and it allows through an interim agreement structure or a pre-development agreement under which there’s no financial commitment from the public sector to go forward with the project, but requires the developer to fund all of this design and development costs and figure out what all the issues are that are, that are, that might be increasing the cost unnecessarily, and, and then put strategies around de-risking the deal before you go to finance, and therefore you’re able to optimize the whole thing and hit that point, that tipping point that I’m talking about, where you, you create the proper allocation of risk.
Eli Gage (14:53):
I know that Rodney, you and Joe and I have talked, and oftentimes we say that it’s not going down the path of P3 until there’s a financial and a legal consultant hired. Would you agree with that?
Rodney Moss (15:06):
Yeah. So there’s three work streams in every project, whether however they’re financed and however they’re delivered that, that you have to run separately. And then they intersect at various points along the delivery process, but every government has to have a financial advisor that advises them that has an independent view of the transaction and the balance sheet implications for the government’s balance sheet. And they also always have a technical advisor, you know, whether it’s the designer, they hired to do a traditional design bid build, or a program manager that, that helps them put their program together. And they also frankly have legal advisors who are helping them think about, you know, what all the contractual issues are and, and bond counsel and all those things. So every deal involves these three components of advisors. The, the thing about a P3 is what you end up having are three sets of those.
Rodney Moss (16:11):
You have, you have government set of legal, financial, technical, you’ve got developer set of legal, technical, and financial, and then you’ve got the lender or the bond holders set a legal, technical financial. And so what makes P3 could make it unaffordable is when you stack all that consultant costs in it, you, you get a lot of transactional frictional costs that don’t add a lot of value and what this progressive delivery does is it, it sort of allows the advisory team to sort of represent the project as opposed to each of the adversarial contracting parties. And it, it, it removes a lot of that, that consultant frictional costs.
Joe Lee (17:02):
Yeah, I think that there’s two two big issues that contribute to the decision to go an alternative delivery method or not. One is the business case, which I think example of that is the Alabama project, where they had surmised that they could pay for, or partially pay for infrastructure through staff savings by consolidation, which was confirmed by subject matter experts. And so the business case is important. And to see if that even makes sense, then the second factor is what Rodney and I talked earlier about today is back or yesterday. It was having the legal means in which to do an alternative delivery method, not necessarily P3 laws, but at least an avenue. And sometimes those avenues becomes the pin, that the eye of the needle to navigate through, but they had the legal means in which to do an alternative delivery system.
Joe Lee (18:09):
And so they, there’s a legal opinion given by either a, a legal consultant or the attorney general or, or, or someone within the government that says, yes, we can do this. If you go get those two things working towards each other, then it’s a matter of setting the project up in a manner that best serves the client and that they’re getting the best deal that they could get. So going back to the Canada model for just a second, cause I think the point that I was trying to make was, and, and again, correct me if I’m wrong, but in Canada, the process was, was already defined. It was being tweaked on just about every project, but, but yeah, but it was mostly defined when you agree with that.
Rodney Moss (18:59):
Yeah. Well, so what happened in Canada is every province set up what we call on the US a center of excellence. They set up a, an entity within government that was responsible to provide this consultation to, to the province or to the cities. And it was, it was you know, these were all very highly qualified, legal, financial, and technical people who were resourced the government. And they squeezed out a lot of the inefficiency. And they were also the resource that was there to help government make its business case, you know, as an independent sort of authority. And so what Joe was tired about was this hundred million dollar threshold, what it basically was, it was, it told all the governments, as a matter of law, if you have a project that’s a hundred million dollars, and we’re going to present that that’s sufficiently complex and big enough that you got to bring these, this center of excellence in to help you make the business case for whatever delivery method you choose.
Rodney Moss (20:09):
But if you, if you can’t prove that a delivery method other than P3 is going to deliver better value than you’re going to use P3, because there’s this presumption that it’s sufficiently large and complex, that, that it, it has enough risk in it that turning it over to the private sector is going to create a better value for the taxpayer. So, you know, what, what Canada did really well that the US has not done was it was create this center of excellence or these, this group of, of qualified consultants that will help government actually what the lifecycle cost of an, of a given asset is, and do it with, with precision in the US we still sort of don’t recognize what that, that cost of ownership really is on, on balance sheet.
Eli Gage (21:01):
So getting back to the United States, arguably the process has not been refined if you will.
Rodney Moss (21:08):
No, it’s very ad hoc. And, and, you know, the cadre of consultants that are out there that help people understand, you know, where this value for money is, are growing. There’s more and more of them. And, and many of them are staff from, from Canada, from these teams in Canada that, that developed all of this capability. So, yeah, but it’s just, it’s more ad hoc. It’s more, you know, deciding that maybe it’s P3, you hire consultants, and then they do the value for money case. And, and it’s on a case by case basis rather than being a centralized governmental function.
Eli Gage (21:49):
Would the same apply, I mean, the Canadian model, would you consider the European and maybe even the Australian models similar to those similar to Canada?
Rodney Moss (22:00):
Where are the US is sort of diverging from, from the Canadian and UK model, but maybe more akin to the Australian model is that’s more of a relational type contract in Canada and UK. What they did was they basically took multiple teams through a fixed price delivery in which, you know, three or more teams developed designs and provided a fixed price. And then, you know, say 30 to 60 days later after award, they went straight to financial close. And so, you know, they w w what ended up happening was the price of putting those proposals together. Cause you have to have a 30 to 50% design, you have to have a good amount of work put into these bids. They became cost prohibitive and therefore the competition was somewhat limited and it wasn’t very transparent. And so what ended up happening is through limited competition, they may have overpaid for some things they may have over transferred risk, and it didn’t allow for, for the parties to get together in a relational collaborative way and really understand what the different levers are and where the different capital structures may be you know, available.
Rodney Moss (23:24):
And, and so it’s not to say while the Canadian model was very effective in, in my view created somewhat of an overpayment for risk transfer. It became too expensive. And the US is, is understanding that maybe a little better and, and, and sort of heading towards this, this progressive delivery that allows government to take an off ramp at any point, it’s not working for them. And if it, if a project becomes unaffordable, or if they see that the government’s cost of financing is cheaper, they can toggle that in and out along the way before, before it goes to financial close, and it just creates a qualitatively and quantitatively better project.
Eli Gage (24:12):
So progressive delivery is indeed a P3.
Rodney Moss (24:17):
It is a P3. The only difference between that and what the world is traditionally viewed as P3 is that involves a period of pre-development activity. Before you go to financial close six to eight months after you’ve awarded the project, you go through this pre-development period before you make any financial commitment that that’s every bit as much of a P3 as a P3, where you get a price proposal at the same time, you get a, a technical proposal and go to financial close shortly thereafter. It’s exactly the same, except that one’s just much more collaborative and flexible.
Eli Gage (25:01):
Travis County being an example of that.
Rodney Moss (25:03):
So Travis County courthouse was a what we call a design build finance, where government, the County decided at the outset that they, they didn’t own land. They had a lot of real estate acquisition risk, but the most important thing for them was they needed a new courthouse by fall of 2022. And they were sitting there and in 2018 and they had four years to get this courthouse online. And so for, for that County, the speed to delivery was, was the most important risk component to them. And they had plenty of that capacity. And, and really, you know, from a courthouse perspective, didn’t want to turn over operations and maintenance because it’s a secure building and they had their own business drivers around that. And so they decided that DBF was the way they would do it, and they would buy it from the developer when it was finally complete, turned over, furnished, fully operational.
Rodney Moss (26:14):
So all of that sort of development and design build risk was transferred. And then they would reserve their options on whether they wanted to transfer some or all of the maintenance risk. And Joe and I are working on sort of what that maintenance transition period is that would, would enable them to, you know, what we say is, we’re going to hand you this Ferrari you, can’t just, we can’t just throw you the keys and let you start driving it. It’s, there’s going to be a period of transition. And so, you know, that that is a lot of risks to both the public and the private sector. And the good news about the Travis County delivery is, you know, we get to figure that out while we’re building the job to think about where that, that that greatest window of, of value for risk transfer is. So Travis County is much more of an incremental approach, but it’s every much a P3 is as if you were to go do a 30 year DBFM project.
Eli Gage (27:19):
Let’s talk about the market for a minute. Cause I think arguably Long Beach courthouse was, was probably the first P3 in what I guess we should call the social infrastructure market in our world. It’s the criminal justice market. But I think Rodney, you expand into other government type buildings. Would you say that Long Beach was kind of the first one in this, in this model?
Rodney Moss (27:41):
Yeah. Long Beach was the first one to implement the true Canadian finance model that involved both equity and debt over over a 30 year term where, you know, the, the risk capital in terms of the equity and the performance risk of the project over its full life cycle resided in, in the development developer entity, it’s been very successful. I, you know, I think as, as that Canadian model is evolving in the US you’re not seeing as many of those as you are, you know, sort of the, the Travis County model, but Miami-Dade courthouse, which was awarded last year is falling the Long Beach model. So I’m not to say it’s this favor that just you’re seeing much more variations of, of that delivery that was first implemented on, on Long Beach that allow you to just better tailor the scope of the project to what government is needing.
Eli Gage (28:42):
So help me out here, you’ve got, you know, maybe arguably number one Long Beach, maybe number two, Miami-Dade in your mind, what’s kind of the linear path of P3 and the criminal justice or social infrastructure space?
Rodney Moss (28:56):
Well, like I said, I, I think that the, the perception right now is that private capital is more expensive, certainly from an equity perspective, equity is always going to cost more than, than muni debt, right? So what you try to do is, is minimize the equity and maximize the debt. And then on the debt create as much of a parody with traditional Texas muni debt, as you can, but with the financial markets where they are right now, a taxable and tax exempt debt are, are frankly right on top of each other. And taxable provides a lot more flexibility in terms of, of how you draw down the debt how restructured that if, if, if you want to. And so, you know, my answer on, you know, what the best debt structure is for government is it just depends on where the markets are and what the appetite is.
Rodney Moss (29:55):
And the credit quality of the government counterparty, the beauty of progressive delivery allows you to do that, that I was saying, which is to, to minimize equity and maximize the lowest cost of, of debt and do it in a collaborative way. So that if there’s a hybrid structure that could apply that, that maximizes the, the, the capital that is available to both government and the private sector. And so you can all sort of optimize this hybrid structure is frankly, where I think the market is heading, but how much of each of those and what, what each cost is, is, is highly volatile right now. And we’re where we are just with debt converging on, on zero. I mean, look, capitalized interest is, is is a significant component of, of any financial structure. You, you, you know, you go and borrow in a, in a tax exempt transaction, you go and you issue the bonds and you, you basically day one before you’ve ever turned a shovel or have financed the whole cost of the project.
Rodney Moss (31:09):
And, and that costs money. You, I mean, while you’re building the project, you’re paying interest on that, on that debt and not deploying it cause you’re not paying for anything. So the way we, you know, try to minimize the capitalized interest cost is to create a milestone structure, which, which transfers the completion risk and the development risk effectively, but doesn’t force you to wait until the project’s done done before you make payments on it. And therefore you minimize the, the capitalized interest load. And so like on Travis County you know, we were paid in milestones when we when the foundation was done, when the structure was 50% complete, when the structure was a hundred percent complete when the building was dried in, when the MVP was operational. So that what, what the County was getting by making those milestone payments is actually value.
Rodney Moss (32:12):
It’s not stacking one brick on top of another, but it’s actually something. If, if there was a default that, that they have gotten a hundred cents of the value that they paid for, by making these milestone payments, they cut their capitalize interest costs to a fraction of what it would have been if they just paid for it. At the end, what we did on Travis County was for example, it’s a $340 million project, but our debt is $75 million revolver. So basically what we did was we sized it on the size of the biggest milestone so that, you know, we have a milestone that’s valued at $75 million. The County pays that and the debt basically goes to zero once that’s paid. And then, and then we, we incur costs related to the next milestone. And when that’s achieved, that goes to zero. So if you think about you’re, you’re only having a $75 million facility for six months versus a $300 million facility for four years. That’s the difference.
Joe Lee (33:18):
Yeah. I think sometimes in P3s or alternative delivery methods, people really forget about, well, what would it be like if I did it compare to the private sector doing it and they lose track sometimes. And the risk profile that they’re in versus the risk profile that they would be in the private sector has taken care of it.
Rodney Moss (33:43):
Yeah. There’s no question that, that, I mean, this is just, I mean, I don’t want to be too general, so please take what I’m saying with a grain of salt is that the public sector doesn’t really understand the inefficiency in traditional muni finance and the risks and, quote unquote use this cheap, you know, cheap debt that they have. They’re not really recognizing the risks and, and all of the costs that, that are on their side. And they jumped to a conclusion that private is more expensive and public is cheaper. The congressional budget office came out with a seminal paper in January of this year sorta telling the federal government and the States that they got to get out of this bias that they have around traditional government debt, basically saying that the cost of private debt and public debt are the same once you adjust them for risk. And so you shouldn’t just focus on interest rates, but instead looking at the business case and the risk of delivery both time and cost. And if you do that properly, you’re, the cost is the same. And that’s where these consultants are so really important to make this business case. So that, that this optimism bias that we have on traditional delivery is, is neutralized in the, in the analysis.
Joe Lee (35:12):
Yeah, I think I mean there are two large parts of an alternative delivery method that can absolutely save people money and government’s money. One is core schedule because doing a traditional method takes longer and has more risk associated with designing construction risk. Then the second one is maintenance and life cycle and people, sometimes believe that, you know, they have just because they’re not funding a maintenance, that’s the cheapest route to go. When in actuality underfunding maintenance is the most expensive way to go as far as buildings failing prematurely.
Eli Gage (35:58):
Rodney, what other projects come to mind that have utilized either progressive or the P3 model? I’m thinking of Kansas?
Rodney Moss (36:08):
Yup. Kansas replaced a facility that was built in the Civil War that did it very successfully and was able to pay for the facility effectively pay for the facility and what they were going to save in their operational costs. And that’s what, you know, sort of, sort of broke the mold, I think, in the correction space because privatizing, it was, you know, becoming disfavored. And, and that’s what then led us to Alabama.
Eli Gage (36:38):
I’m trying to think of what other projects come to mind. I can’t really think about them. I mean, this, this wave of P3, I think Joe started you and I were tracking it 12 years ago. And arguably, I think it’s been slow to fruition, but it’s Rodney, do you think it’s starting to catch on more and more?
Rodney Moss (36:58):
Absolutely. you know, I think that, that a couple of things are happening. I mean, government is stressed from a debt capacity standpoint, but more than that, they’re, they’re stressed on liquidity which is just sort of the near term ability to, to get the PR development expenses and design and construction done with the understanding that the government is always going to have to, you know pay for, for its assets, but it’s a liquidity crisis that’s happening. Also, we’re seeing quite a bit of urgency. You know, these, these, these facilities are old and inefficient and when you start making these business cases like being able to pay for something new for what you would otherwise spend to operate it it begins to get people’s attention.
Eli Gage (37:49):
Hey Joe, how old is the criminal justice infrastructure?
Joe Lee (37:55):
Well, two-thirds of the state prisons that are in existence in the United States were built between 1980 and 2000. So every state has got some infrastructure problems and they were built for the wrong type of inmates. In those cases, a lot of the sentencing reform has produced an inmate population that are mostly violent offenders and the non-violent offenders are being released or sent to other programs. You know, Alabama, instead of being focused on a single facility was actually focused on the system and trying to right sides and, and put the right infrastructure for the entire system. I mean, it’s a system of about 21,000 inmates and the level four or five category or the more secure category, and they didn’t have the beds. The right kind of beds in fact, is we had to do a benchmark study about the number of celled beds versus open dorm.
Joe Lee (39:04):
And that benchmark for the, for the 11 states that we looked at was 60% were in celled beds. And the others were in 40% were in open dorms where Alabama was 72% open dorms and 18% that cell beds. So it was looking at the entire system and deciding what the absolute right thing to do for the system was including the 21,000 inmates. So we did something that is unusual, and we put a procurement together for 10,000 beds under one procurement and three different prison complexes and the prison complexes themselves were divided into 1000 bed prisons so that you weren’t just warehousing people. You were, you were designed the prisons to have programs best suited the inmate population. And the state was small enough that we could create one centralized health facility for both mental health and, and medical needy inmates.
Joe Lee (40:23):
So that, that centralized approach save them a lot of operational dollars. The result is that we were able to save about 1,059 staff and and significant amounts of overtime because of the new or prisons attract more correctional officers because you’re giving them a better working environment. And then that led to savings upwards of $80 million a year or at least an avoided cost of $80 million a year that led to, you know, a net zero approach for adding a billion dollars worth of infrastructure. So it was a pretty good success story. And, and it’s the largest procurement, single procurement for correctional, but beds that’s ever been done. So I think it’s going to be a model going forward of how to address some severe needs and make a significant improvement of people’s lives in one fell swoop.
Eli Gage (41:34):
Do you guys consider Alabama a P3?
Rodney Moss (41:37):
Oh yeah. There’s no question, you know, we, we say privatization is not is not P3. I mean, P3 never includes a, a scenario where government loses control of its asset. And so because Alabama is retaining the operational control and providing all the correctional officers and everything, and the private sector is only maintaining and, and financing and design and building. It definitely is a P3.
Eli Gage (42:11):
Joe Lee (42:11):
Eli Gage (42:12):
How does an old maintenance guy learn so much about P3?
Joe Lee (42:17):
Well, he starts out in design for a third of his career, and then he understands the value of maintaining facilities throughout his life and what the numbers look like. And it’s fun. It’s fun to be on, on on, on the complete cradle to grave process for some of these facilities, or maybe I just am the last man standing and the oldest guy in the room all the time. One of those two.
Eli Gage (42:45):
Can I quote you what you just said that it’s fun.
Joe Lee (42:48):
Eli Gage (42:52):
Rodney, thanks for your time.
Rodney Moss (42:53):
Eli Gage (42:54):
Well, thanks everyone for listening to our podcast today. I think dispelling the myths of P3 is something at least in the criminal justice market that we could all learn more about. You can find this episode on any standard podcast platform, Apple Podcasts, Google Podcasts, Stitcher, Spotify, or visit us at cglcompanies.com/podcast. And please do reach out to me if you have suggestions for topics that you want to hear covered this season or are interested in being a future guests.
Thanks for listening to the 360 Justice Podcast to see today’s show notes and relevant resources related to today’s topic, or to make suggestions on future topics and guests for our show, visit our podcast page at www.cglcompanies.com.