Business (Managing Higher Ed)

Do You Deliver?

• By Amy Milshtein
• 09/01/16

One thing is clear; your school needs a new facility. The rest, however, is a bit murky. How will we pay for it? Where will we put it? Should we renovate what we have or build something new? Whether it’s a large public university or a small private college, schools today have questions when proposing, funding and delivering construction projects.

They also have options. Innovative funding models and close construction management partnerships offer schools choices and advantages — along with a few pitfalls. Check out these options before you break ground on your school’s next project.

P3: Funding of the Future?

Public-private partnerships, or P3s, have been used to fund large transportation and infrastructure projects for many years. Now schools are getting on board. The University of California has developed many projects using P3, according to a paper by law firm Hanson Bridgett, including the Neurosciences Building at the UCSF campus. Construction and development giant Skanska reports that UC Merced plans to fund its ambitious expansion, doubling its size with some 1.9 million square feet of academic, housing and research sites with P3.

The biggest benefit of the P3 model seems obvious: it offers improved access to capital. Terrence Gilbride, partner at Hodgson Russ LLP, explains in a paper that this kind of “private capital is particularly useful as the first dollars into a project, for things like feasibility studies, predevelopment activities and architectural services — the things that are needed to take a proposal from a mere idea to an achievable project with finite cost and time parameters.”

Gilbride notes other advantages to P3, like offering schools an opportunity to invest in projects that can’t be funded with public money, accelerated project development, access to incentives and project delivery flexibility.

The model also allows colleges to focus their limited energy and resources on what they do best. “A school’s core mission is academics and research, not necessarily providing beds,” explains Orion Fulton, senior manager, Arup Transaction Advice.

Fulton goes one step further, explaining P3’s ultimate advantage. “There’s a lot of nuance to it, but a P3 can keep a project off of a school’s balance sheet.” This means projects can still be delivered even if a school doesn’t want to or simply cannot increase its debt.

Even with these advantages and successes by major players, there are pitfalls and limitations to using the P3 model. Firstly, it may require special legislations, as explained by Gilbride. “Most public college and university P3 arrangements are structured through a combination of leases, operating agreements, occupancy agreements or other contractual arrangements between the public institution and a third-party. In more heavily regulated states, though, public institutions do not have the inherent power to lease or convey their property, or enter into agreements with private development partners, without complying with cumbersome public land disposition requirements.”

In other words, it’s complicated. And that added layer of complexity could be offputting. “A university has to have the staff and resources to negotiate a good deal,” says Fulton.

There may also exist commitments and obligations with labor unions that must be honored. “There are workarounds,” explains Fulton, “like having the private entity hire the workers with the same benefits package, or allow them to retain union status. Still, it can
be a thorny issue.”

Fulton admits the biggest challenge to the P3 model is cultural acceptance. “This is not a robust liquid market where it happens all the time. Adoption is slow.”

Gilbride agrees. “Public institution facility staff often reacts to proposed P3 projects with a mixture of ‘you can’t get there from here’ and the proverbial ‘deer in the headlights’ look,” he writes.

Endicott College: A Fruitful Partnership

Endicott College, a small private school in Beverly, MA, was on the verge of bankruptcy when Dr. Richard Wylie assumed the presidency in 1987. Instead of winding down the two-year women’s college, he planted $25,000 worth of flowers. This commitment to the physical plant, along with a shift to a four-year, co-ed program, saved Endicott. In the last 10 years it’s doubled its landmass as it added new programs and buildings to house them.

For the first 20-plus years of this rebirth, Endicott used the classic hard bid approach to project delivery. In this model a public bid goes out to contractors who win a project by submitting the lowest bid. In 2008 Endicott began partnering with Windover Construction to provide pre-design, preconstruction and construction services.

Since then Windover has built more than 12 structures on campus. “Their strategy or pre-planning and budgeting has made construction on-campus a very positive experience,” quotes Dr. Wylie.

Their latest project for Endicott, the Callahan Student Center and Dining Hall, was an important project with many challenges. The college needed to double the size of the existing center and update an inadequate dining hall. As the center of student life and only real food service option on campus, closing the mid-1960s building for construction was not possible.

Replacement seemed like the logical choice. But Endicott is located on the water, on the Atlantic coast, making available land scarce. And of course the budget was tight. “We were at the table early in the process to study the cost of replacement versus renovation and expansion,” says Lee Dellicker, president and CEO, Windover.

Windover came up with a phased construction schedule that kept the student/dining center up and running during the entire 13-and-a-half months of construction. “Yes, it would have been cheaper to tear the structure down and rebuild, but they had to keep operating,” explains Dellicker.

Endicott College has gone through a growth spurt over the last seven to eight years, adding $100 million worth of buildings. Windover has helped deliver these projects as a partner, creating an ice rink, student housing and a three-story academic building that hosts both a science and business curriculums.

The construction management approach, “doesn’t just build buildings. It identifies needs and solves problems,” according to Dellicker. “It’s more economical, saner and more fun.”

This article originally appeared in the College Planning & Management September 2016 issue of Spaces4Learning.