We are at the beginning of the Great Broadband Infrastructure Funding Boom. New federal funding for broadband started with the CARES Act and picked up steam with the American Rescue Plan Act (ARPA) but the amounts involved are dwarfed by over $65 billion that will be distributed by the federal government over the next few years as part of the bipartisan Infrastructure Investment and Jobs Act (IIJA). Meanwhile, in the near term we expect over $400 million of the state’s ARPA funding to be appropriated by the General Assembly this spring, with actual awards and funding to begin by late this calendar year.
While this funding potentially could be distributed directly to local government, in many cases the federal and state enabling legislation contemplates that private for-profit internet service providers, nonprofits and government entities will work together to implement broadband access and internet adoption projects. These public-private arrangements are called public-private partnerships or – P3s.
P3s seldom are actually documented as partnerships and the arrangement may not even be referred to as a “P3.” However, they all do involve an ongoing legal agreement among one or more federal, state or local governments (public partners) and at least one for-profit or nonprofit entity (private partners), with the goal of constructing and operating a new development or enterprise. P3s have been used for many decades to construct and operate all sorts of public improvements, everything from arenas and stadiums to water systems and power plants, to toll roads and bridges – even a few high-speed internet networks. They also have been instrumental in bringing major retail or business expansion projects to depressed or underdeveloped communities.
I believe P3s likely will be used extensively for new broadband projects in underserved communities because much of the funding from the federal government comes with conditions that focus on outcomes over the long-term. For example, any broadband infrastructure project funded with an IIJA grant will have to achieve minimum levels of performance (download, upload and latency), offer service to all or nearly all of the locations in the project area, meet certain service affordability standards, and once operating, satisfy specified “quality of service” parameters. The exact requirements remain to be seen, but it seems likely that if federal funding is used, recipients will be required to show not only that project was built as designed, but also that when completed it operates at the performance levels promised, and that the service offered is reliable and affordable. This focus both on construction and the ongoing operation of the project will be difficult for a single entity (government or business) to meet on their own and many will move to seek to share both the risks and rewards of project construction and operation using a public-private partnership. In fact, Missouri’s most recent award of federal funding required that the new projects be completed using a public-private partnership.
Using a P3 won’t necessarily eliminate risk or ensure the project will be a success. My work with communities, negotiating and documenting P3s over several decades, has yielded decidedly mixed outcomes. Many P3s have been unqualified successes, delivering state-of-the-art infrastructure improvements on time, at or under budget. However, others have been financial and operational disasters. There have even been a few situations where initially the P3 failed, but later it was resurrected, modified, and ultimately succeeded. As communities and businesses across Missouri and the United States consider using P3s for broadband, it seemed a good time to share a list of characteristics that I’ve found most successful P3s have in common.
My list is anecdotal; it’s based entirely on my own observations. I compiled it after reflecting on my experience working on many projects over the years. Admittedly my list wasn’t derived primarily from experience working on P3s that were formed to construct and operate broadband networks, but I think the fact that the projects I worked on were so varied (everything from ethanol and bio-gas plants to football stadiums) shows that what is being built or operated is not all that relevant, and at least a couple of the characteristics described actually were illustrated by broadband P3s.
With that as an introduction, my list follows —
Characteristic 1 — The Partners Think Long-Term
Partners in successful P3s typically organize their arrangement to achieve long-term objectives over many years or even decades. All critical partners share an understanding of the ultimate objective, and each tends to see their individual responsibility to the enterprise through that perspective. For example, if a P3 is used to build and operate a toll road, the construction contractor understands that delivering the road on time and under budget in accordance with the design specifications, means very little if she knows the road hasn’t been properly designed to handle projected traffic volume, or that the material specified in that contract will not stand up to weather conditions and last for the project’s intended useful life. Neither of these concerns are the contractor’s primary responsibility, and if the arrangement was viewed only as a construction contract, the contractor would measure success only by looking at whether the road was completed, on time, within budget, in accordance with design specifications.
However, the true objective for the P3 is to provide a toll road that will improve travel for many years. Certainly, a critical step in reaching that goal is to get the road built and open for operation, but that short-term objective is only part of a much larger long-range goal. If the contractor partner takes this long-view into account, she will raise her concerns, and all parties will consider and address them before proceeding. It may take a bit longer to get the road built, and it might cost more, but it will be much more likely that the project will satisfy the P3’s long-term objective.
This mindset may not come naturally, but it does seem to lead to a better overall outcome – over the long term. It doesn’t take much imagination to see how thinking long-term thinking could benefit communities building a new broadband network. If the long-term objective is to provide the community access to high-speed internet that is affordable and capable of handling the community’s needs over the next 10 to 20 years, the partners in the P3 wouldn’t automatically choose the broadband infrastructure option that could be constructed for the lowest cost.
Instead, before selecting that option, the partners also would consider how much it will cost to operate and maintain the network, and whether the network can be easily upgraded so that it can efficiently operate new internet applications that become available, compared to other infrastructure technologies that are more expensive to install. Looking “long-term” the savings associated with lower operating expenses and avoiding the cost of installing a replacement network in just a few years, may far outweigh the limited benefit of a lower initial installation expense today.
Characteristic 2 — The P3 Has “Good Partners”
Successful P3s have “good partners” – partners that have three characteristics: a proven track record, financial wherewithal to weather economic problems, and finally, a “cooperative spirit.” The first two of these seem obvious. Of course, a local government (public partner) would want to find a private internet service provider, contractor, or network operator with a great track record, that was highly capitalized and able to cover unexpected cost overruns and delays. Likewise, a private company (the private partner) would search out a city or county with a team of elected officials and staff that had successfully worked with private businesses on significant P3 projects in the past and that have a reputation for following through on financial and other commitments.
However, identifying and recruiting good partners is not easy. After all, if government or business, acting alone were able to provide affordable access to high-speed internet in the community, that already would have happened. There likely are engineering problems, lack of access to easements and right of way, insufficient access to capital, low population density and demand for service, and many other issues to overcome to successfully construct and operate an economically viable network. The best “partner” candidates often have many options in communities that present fewer challenges and that are less risky. This does not mean recruiting good, –qualified partners — is impossible, but it does underscore the need to carefully evaluate and select the best candidates, and to pay particular attention to each candidate’s experience and financial condition.
Communities need to be especially cautious of firms that offer untested technologies to achieve the P3’s goals. Although it’s possible an entrepreneur may have discovered a great solution, often unexpected problems arise when a new technology is deployed in a real-world setting, and invariably firms promoting these technologies are undercapitalized and find it difficult to weather these setbacks. Certainly, a carefully crafted request for qualifications or request for proposals solicitation process should be followed to identify all available candidates and options. For public partners, this usually will require the help of a financial advisor and perhaps an engineering consultant to assist in evaluating prospective partner candidates and P3 proposals.
A third, less obvious, characteristic of a “good partner” is a cooperative spirit. For the reasons already discussed, a P3 that seeks to provide internet access to underserved communities and improve adoption of internet applications, likely will encounter difficulties and setbacks along the way. In successful P3s, each partner, public and private, understands this, is willing to stay the course and, if necessary, alter their approach to the extent necessary to achieve the P3’s long-term objectives.
Characteristic 3 — Each Partner Has the Support of its Constituency
Public and private partners have constituencies. Public partners (elected and appointed government officials) must answer to voters, public utility customers, parents of school age children, local business and civic community leaders, and many other groups. Private partners typically answer to their board of directors, investors and, in the case of nonprofits, donors. To achieve success, partners in successful P3s will have taken steps to obtain and maintain the support of their constituencies.
This characteristic is particularly important for public partners. It can be easy for a well-meaning government official or governing body to get ahead of the voters. Even if the P3 contracts are eventually approved over public objections, a future city council or county commission may work to undue the efforts of its predecessor and terminate the arrangement. In successful P3s, written agreements among the partners reflect and evidence the commitment of the community, not just the current government leadership. Of course, no P3 has unanimous public support. There always will be dissenters, but when reflecting on unsuccessful P3s, one often finds it had a critical public partner that entered into the agreement even when faced with widespread sustained opposition from a substantial portion of the community.
In successful P3s, prior to entering into the arrangement, public partners spend time and effort engaged in learning sessions where they carefully explain both the benefits and the risks associated with the P3, and work to address concerns voiced by constituencies. This effort continues throughout project construction and commencement of operations. The public is kept informed of the project milestones as well as challenges encountered along the way that require modifications to the initial plan.
Characteristic 4 — Expectations Are Kept in Check
Successful P3s have partners with realistic expectations of what can be achieved. Public partner leaders and decision makers understand that calling the arrangement a “P3” does not somehow guarantee the successful completion and operation of the enterprise, nor eliminate financial risk. Private partners understand that public institutions operate by consensus rather that edict, and they accept and adapt to a decision-making process that takes more time.
Characteristic 5 — The Objectives of All Partners are Well Defined and Understood
Partners in successful P3s take the time to fully understand their shared objectives, and to compromise individual objectives that could otherwise lead to future conflict. In contrast, partners that assume their objectives are fully understood and shared – or worse – conceal their true motivations to achieve a strategic advantage in negotiations, eventually face difficulties. Some underlying problem eventually will expose the problem under circumstances when it will be much harder to achieve an acceptable resolution.
Defining and understanding objectives often does not receive enough attention because it is inconsistent with traditional contract negotiation strategy. For example, if I want to buy a house, my goal – my objective – is to get one that best suits my needs at the lowest possible price. In contrast, your goal, as seller, is transfer the house for cash, free of any future responsibility at the highest possible price. Most would agree that in a traditional negotiation, the seller should emphasize the positive aspects of the house, while avoiding (to the extent the law allows) pointing out any defects that might depress its price. On the other hand, as the buyer, I would do everything possible to emphasize the structure’s defects and shortcomings and initially would offer less than the amount was willing to pay in the hope of getting the best bargain. Eventually, through a series of offers and counteroffers we would either arrive at the selling price or abandon the effort.
Partnership arrangements involve a much different set of expectations and dynamics. Most are designed to remain in effect for an extended period, and in successful P3s, the parties recognize this, and tend to spend a substantial amount of time at the outset working to understand and clearly define each other’s objectives. It is true that, just as in the buyer-seller example, the parties likely will have some objectives that are incompatible, but if the P3 structure is a viable option, they will also identify some important common or shared objectives.
For instance, a for-profit ISP may be looking to maximize profits by expanding its internet network to homes in an underserved community. At the same time, the public partner may be looking to provide online learning opportunities for residents, or it may want to add residence-based internet sensors and controls for public water, sewer or electric utilities. The common, or shared objective in this case is to expand internet service to every home in the community. While the motivation behind the objective may be much different (profit for the private partner ISP and better delivery of community services for the public partner) the potential exists to create a successful P3 that will enable them to reach this shared objective. For example, the public partner might agree to purchase permanent capacity on the new network capacity to meet its goals, in exchange for the ISP’s agreement to build out service to each home in the community, including those that it otherwise would have by-passed because the lack of customer density created profitability concerns.
Of course, there also likely are some inconsistent objectives as well. The ISP might want to exclude some homes in the community because they could not be served profitably, or the public partner might want the ISP to offer service to low-income households at a reduced rate to encourage adoption of its new public internet-based government services. But even here, if these objectives are identified and understood, a solution probably can be found. For example, perhaps the parties would agree that the ISP could install infrastructure that is slightly less capable, but much less costly to install and operate in marginal areas of the community. To meet its goal of reaching all of the households in the community, the public partner might agree to offer subsidies to low-income subscribers, so that they could afford to pay a market rate for internet service.
However, before any of these ideas can be explored and developed, the partners must be willing to reveal their underlying motivations and objectives. Stated another way, it’s impossible to find common ground unless you know where you and your potential partners “stand” right now. This can be a difficult shift, particularly for legal advisors and business advisors more familiar with traditional negotiation strategies. It requires a significant investment of time and the development of a negotiating environment designed to encourage free exchange of information and ideas.
Characteristic 6 – The Partners and the P3 Speak with One Voice
This characteristic applies primarily to public partners, and it applies both during the course of negotiations leading to the formation of the P3, as well as after the project commences. Nothing tends to undermine trust and sidetrack negotiations quite like a public partner with multiple spokespersons. Public entities, by their nature, tend to be somewhat decentralized and populated with folks who are eager to take the limelight. Private partners cannot effectively react to multiple inconsistent positions voiced on behalf of a single government, and if the situation is not properly managed, the private partner may eventually decide to abandon negotiations. Successful P3s tend to have public partners that understand this risk. They establish clear lines of negotiation and communication through a single individual, and demand that all parties respect this process.
What is true for individual partners, is also true for the P3. Most P3s need to contract with others for financial and other resources. When approaching third parties such as a bank or underwriter, or a federal regulator, successful P3s designate a single individual to conduct negotiations.
Characteristic 7 — The Parties Think “Win-Win”
This final characteristic I borrowed from Stephen Covey’s “The Seven Habits of Highly Effective People.” It may seem altruistic and somewhat naïve, but it reflects a practical difference that underlies all of the six characteristics previously described. Effective partnerships of any kind exist because they can achieve an objective that the individual partners, working alone, could never reach. From this perspective, if the partnership succeeds, everyone should feel like a winner – because all fared better than they would have had they undertaken the project on their own.
Identifying a path that achieves the community’s core objectives, that provides private partners a fair economic return, and that fairly allocates risks and offers rewards commensurate with each partner’s investment of time and resources is seldom easy. In many cases attempts to establish a P3 fail because there are too few shared objectives or because one or more of the partners was unwilling or unable to engage and negotiate an arrangement that required a long-term investment of time and capital. In some instances, the P3’s objectives, were only partially achieved, and of course there are some where the P3 failed completely. However, there are many others where the effort proved successful.
That’s the reason public-partnerships continue to be popular and used in a wide variety of situations. It’s not because they ensure success or eliminate risk, but instead it’s because parties know that without them there would be no possibility of successfully completing the project and achieving their shared goals.
