A Closer Look at the Long Beach Courthouse PBI
A Conversation with Clifford Ham on the Delivery of the Long Beach Courthouse for the Administration Office of the Courts
How did you first hear about PBI as a model?
Under Governor Schwarzenegger there was a desire to explore a new way of doing things (capital outlay building projects). The AOC was chosen as a likely candidate, partly because we had a number of buildings that were in serious need of improvement and the depth and range of projects provided a good basis for testing the model.
Why was Long Beach a likely candidate for the first trial project?
There were a few things that made Long Beach a good candidate. First, there was some value in the existing property, or at least there was thought to be. This provided some potential for development opportunities, or for a land swap opportunity, as was ultimately consummated with the City of Long Beach. Second, the scale of the project was of a size that was interesting and attractive to sophisticated investors and project teams, so it attracted some very interesting proposals. Finally, being located in a major metropolitan area was a big plus,as it meant that there was top notch talent available to staff the project (development) team.
What intrigues you most about the PBI model?
We explored a lot of models with our advisors. What I really liked as an architect was this idea of linking the long-term performance of the facility to the initial design. With PBI you build in a motivation for the developer to consider the total lifecycle costs, not just what might look good on day one.
What are the things you think that you got right in the procurement process?
One key thing was having our own land. There was some talk early on about having the developers bring land (as part of their proposal), but this way we got to pick the site we wanted and the project team (and design approach) that we wanted. One of the things we learned from the market early on was that the big infrastructure funds are not the same groups generally who are into flipping land and doing speculative development.
Also, I think we did a decent job of transferring the risks. One example is the permits risk, which I know you are personally familiar with. While we had the site entitled, any potential changes required by the approving authorities fall squarely in the hands of the builder and developer.
Finally, we had a decent set of facilities standards to work with up front and a good “Client” in the Superior Court. The Superior Court had done a lot of design-build work, so they were used to laying out a good program and making decisions early in the process, then sticking to them. Where we didn’t have clarity in the program (for example, the low voltage equipment), we set up allowances so the court could have time to work through an appropriate standard that met today’s changing technology within a defined budget and without needing to decide every detail up front.
How did the project progress from your perspective?
It’s interesting. I often say that it took three years to get the procurement done but it only took two to complete the building. Now that we have a template, future PBI procurements should not take as long. The design and construction went amazingly fast though, which is a good thing. In addition to being on schedule, we were about $14 million under budget at one point. Mostly that is because of how we managed the AOC allowances.
If you compare Long Beach to the other projects that the AOC has going on around the state, what would you say are the major differences you see?
One of the big differences is that the long term O&M, including lifecycle replacements, is fully funded from day one. Long Beach was started about six months ahead of the San Bernardino courthouse, which is a similar size; the idea being we would have two very similar projects to compare against each other. It will take a few years to truly see the results of funding O&M through a service payment versus the traditional O&M funding model.
As a test project, I imagine that the Long Beach Court Building gets a lot of attention. What is the number one question that you get asked about the project in Sacramento?
The big question I get is did we truly transfer risk or is this just some type of smoke and mirrors. The risks certainly did transfer. I mentioned the permit risk earlier. Schedule risk was also transferred. Of course the project was on schedule.
What do you think is the future of PBI in California?
The AOC has no current plans for other PBI projects. With that said, it is hard to say what the future of PBI in California is going to be. There is certainly no shortage of projects and there is value in the idea that with a limited (state general fund) budget we accomplish more (projects) using private sector capital in addition to state funds.
The project has garnished some media and industry attention outside of the state as well. What do you think people are looking to learn from Long Beach?
One is how we did it so quickly. The ability to overlap the construction and design schedule certainly helped to accelerate the process. Having the firm responsible for the long-term operation of the building, in this case Johnson Controls, at the table (during design and construction) was a quality control mechanism of sorts that helped ensure that the product being built using fast-track construction will be an enduring asset.
Of course I think in hindsight the big question will be “did the State get a good deal?” One of the things we did in this deal that I think may turn out well is that we have a formula that shares any savings from refinancing. With the recent drop in interest rates I think we may benefit if Meridiam refinances the project after it is open.
What advice would you give to another public agency looking to pursue a Public-Private Partnership project?
You need to build in a little flexibility for yourself. Technology is an area, for example, that changes so quickly that if you determine the type of equipment that needs to be in the building, you don't have to spec every single piece. For Long Beach we established an allowance that gave us some flexibility to determine what worked for the more current systems in the building during the final stages of design.
Another thing I would highly recommend is that you have agreement ahead of time with the approving agencies, mapping out the evaluation and approvals process, and who is going to do what, and then build commitment to the schedule on the public side.