The structure of public-private partnerships and the use of innovative contracting methods require all parties (public and private) to a transportation construction project to shift to a different way of doing business. Contractors, including prime contractors and subcontractors, often have concerns about how changes in procurement laws, the business market, and work demand will affect their business. These contractor concerns can be an impediment to public-private partnership formation, especially for smaller contractors.
Bonding capacity, warranty requirements, financial risk, and project expertise all can impede small businesses from engaging in public-private partnerships.[285] There are several reasons why these barriers exist. Many public-private partnerships are utilized for mega-projects (defined as projects with an estimated cost of $100 million or more[286]) that attract national and regional contractors, which leaves local, smaller contractors at a competitive disadvantage. Mega-projects involving a public-private partnership usually involve financing by the private partner. Even if a smaller contractor had the financing to support a large-scale project, the level of financial risk would negatively affect the smaller contractor's bonding capacity.
Mega-projects may involve a maintenance component, such as a warranty. These projects also use the design-build method of procurement. Such a method would require smaller contractors to carry professional liability insurance and have in-house design capability. All of these requirements involve financial burden and risk, which in turn affect bonding capacity.
Additionally, smaller contractors may lack expertise and the ability to gain expertise on these mega-projects. National and large regional contractors have the resources to move around the country to where these large-scale projects are located. Smaller local contractors may have limited opportunities to work on such projects, and therefore do not tailor their businesses to such projects. However, experience to date indicates that subcontractors perform a significant amount of the work, even if they are not the prime contractor. Figure 4.1 depicts what proportion of work was done by subcontractors on some select projects.
Figure 4.1
Subcontractor Cost Analysis March 2004[287]
Project | Current JTD* Total Cost | Current JTD Subcontractor Cost | Percent Subcontracted | Dollars of Self-Performed |
SR-125 | $41,670,189 | $21,306,534 | 51% | $20,363,655 |
E-470 | 227,418,308 | 88,265,490 | 39% | 139,152,818 |
Gold Line | 288,126,490 | 178,507,757 | 62% | 109,618,733 |
I-895 | 298,210,707 | 256,743,766 | 86% | 41,466,941 |
New River Bridge | 52,000,000 | 37,000,000 | 71% | 15,000,000 |
I-15 | 1,250,904,303 | 621,239,244 | 50% | 629,665,059 |
Hudson Bergen LRT** | 1,104,000,000 | 992,000,000 | 90% | 112,000,000 |
Total Cost | $3,262,329,997 | $2,195,062,791 | 67% | $1,067,267,206 |
Total Highway Work | $1,818,203,507 | $987,555,034 | 54% |
|
Total Transit Work | 1,444,126,490 | 1,207,507,757 | 84% |
|
Legend:
*JTD = Job to Date
All items listed at 100% of contract value
Hudson Bergen LRT numbers include some Material POs (e.g. Signals & Comm), but excludes vehicles and O&M
Several sources consulted for this report addressed the contractor concerns previously discussed in this chapter. One suggestion is that the Federal procurement regulations attempt to strike a balance between full and open competition and the need to increase efficiency in government contracting. Although the competition may inhibit the ability of smaller contractors to compete successfully, market forces should compensate as firms form suitable joint ventures or other partnering arrangements.[288]
Also, relatively small construction firms can contract jointly with engineering firms to provide the expertise required under a design-build contract, which may result in greater competition. Experience indicates that large projects are in reality done by local subcontractors. When the E-470 Authority in Colorado entered into a $321 million design-build contract in 1995 with Morrison Knudsen and Fluor Daniel, they subcontracted all of the construction work to local contractors.[289]