P3: The future of financing for contractors
October 28, 2015
A new financing model has evolved in the last half-decade or so — the public-private partnerships (P3s). Local, state and federal governments are looking to private investment to help fund much-needed infrastructure products in the U.S.
The adoption of P3s as a financing model is changing the relationship between the contractor and the government. Instead of a contract between these two parties only, the private investing company is part of the agreement as well. P3s may encounter potential risk for contractors, as they now work for the private company instead of the government. While still in the early adoption phase in the U.S., contractors in Canada have been working on P3 projects for more than a decade.
“Starting in 2006, many of the projects by the Ontario government were P3s,”says John Aquino, president of Bondfield Construction based in Toronto. “In order to compete effectively in the market, we had to adapt to this new type of financing model.”
Aquino explains that under a P3 contract, many risks are included that were not traditionally part of the two-party agreement between the government and contractor. Companies, like Bondfield, are being asked to assume the risk of many different unexpected conditions and delays from hazardous waste to issues with zoning laws.
“P3s bring a major shift in project risks both for the contractor and subcontractor,”says Aquino. “Zurich responded to this market need right away in Canada, and we depend on their P3 performance bond to meet the specific requirements of these private lenders. “It gives us the extra protection and security we need to get the project done on time.”
As U.S. contractors begin to meet the demand for P3 projects, Aquino advises that it is critical to read and understand all the fine points of the contract to understand if the risks don’t outweigh the rewards of a project. “We work with Zurich’s surety team to give us a deep understanding of the liabilities involved in the potential project. These invaluable surety risk insights help us better respond to the final bid and helps provide our financial health.”
Public-private partnership projects will continue to change both the opportunities and the insurance needs for contractors. Zurich’s surety solutions will also continue to evolve with innovative surety bond features and market-relevant risk engineering.
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