Any contractor that’s been involved in public infrastructure projects knows how painful it can be waiting for funding to come through. That’s just one reason why public-private partnerships, or PPPs, are growing in popularity.
In a PPP, one or more of the private-sector participants, such as a contractor, contributes a portion of the financing, which helps get the project off the ground much sooner than if it were 100 percent publicly funded. To recoup its investment, the contractor may take over the operation and/or maintenance of the finished project for a period that can be as long as 50 years. An example of a PPP is a toll-road project in which the investing party maintains the road and collects a portion of the toll revenue.
While PPPs share many of the same risks as traditionally financed projects, the heavy scrutiny they receive from lenders and credit agencies during the planning stage often results in projects with better risk. Also, the improved collaboration among owners, contractors, and designers that is common to PPPs leads to fewer disputes and claims.
Government agencies are under more pressure than ever to deliver projects that not only stay within budget, but also deliver maximum value in return for taxpayer dollars. As a result, an agency may be receptive to awarding a long-term contract that ensures the design, construction, operations, and maintenance of a finished project.
However, as Kevin Coen, Liberty Mutual Insurance construction underwriting project leader, cautions, “Contractors should realize that taking on such responsibilities as permitting, operations, and maintenance carries with it much more risk than traditional projects that usually end at delivery.” Coen says contractors should consider adding professional liability coverage for design and consulting work.
Another area of insurance coverage to consider, Coen says, is a form of property coverage known as delay in startup. “When the contractor has a financial stake in the project,” he says, “any delays in the project’s ability to produce revenue — for example, tolls, office leases, parking fees — will likewise delay the contractor’s ability to recoup its investment.”
While PPPs present their own challenges for insurance coverage, they nonetheless offer many benefits to contractors looking for long-term contracts.