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A proposed pilot project that would transfer more of the risk on select public projects in Oregon from the owner to the contracting team has rankled some construction industry stakeholders.

Via a draft bill introduced to the House Transportation and Economic Development Committee last week, a state agency would be created to screen all projects that receive more than $20 million from the state and cost $50 million or more.

The agency, called “Infrastructure, Innovation, Oregon,” or I2O, would guide public agencies on how to structure performance-based contracts with a team consisting of a designer, a builder, a financier and a maintainer. The contract would be structured so that the team could be paid by meeting desired outcomes up to 40 years, said Karen Williams, staff director of the Innovation in Infrastructure Task Force that in December issued a report on the alternative contracting approach to the Legislature.

Performance failures in areas such as HVAC and elevator downtime during occupancy could result in payment deductions, according to the draft report.

“One of the big risks for owners in a typical bid approach is that they put a project out for bid and the contractor comes in (and) says, ‘We need to make change orders to make this successful,’ ” Williams said. “Performance-based contracting is a more integrative process where you think about … the costs of operating this building. When you think about the operating costs 35 to 40 years down the road, then you get a very different set of decisions at the front end.”

The shared risk would likely draw confidence from private investors whose money is needed to help pay for numerous public projects that otherwise would not move forward, said Rep. Tobias Read, D-Beaverton, a co-chairman of the task force.

“The need is clear; there is significantly more infrastructure that needs to be built than our financing allows us,” he said. “The opportunity is to stretch financing methods that allows us to stretch taxpayer dollars and deliver better results for taxpayers.”

Performance-based contracting would be akin to giving a buyer’s warranty on projects, Read said. For example, the city of Portland could have been protected against the cost of structural repairs – estimated at $95 million – needed at the Portland Building, he said.

“The promise here is not the least amount of cost, but rather to think about the useful life of the building,” Read said. “The city would still be in contract with the contractor.”

Construction industry officials, though supportive of the goal to plug the financing gap, did not believe their voices were heard while the legislation was crafted.

“Based on our research, legislation proposed would be the most far-reaching government-run solution in any state in the union,” said Dee Burch, president and CEO of Portland-based Advanced American Construction Inc. “We don’t believe there’s been enough due diligence to support that approach.”

Burch is the legislative committee chairman of the Associated General Contractors’ Oregon-Columbia chapter, which said more time was needed to craft appropriate legislation.

With Oregon needing sizable public projects, including the Columbia River Crossing and liquefied natural gas facilities at the Port of Coos Bay, no more restrictions should be placed on the procurement process, Burch said.

“From what we see, the legislation would do nothing to assist any of those projects,” he said. “It could potentially add time and they are all at a standstill. We don’t believe that the legislation will get us there.”

The AGC chapter would like to see other models for creating public-private partnerships.

“If we want to look at strategies of bringing private capital into funding public projects, you should not limit yourself to one business model,” said John Rakowitz, AGC’s director of public and strategic affairs. “Oregon has very little understanding with public-private partnerships. That’s why we believe there is more due diligence that needs to be done.”

The task force drew lessons from Vancouver, British Columbia-based Partnerships BC, a private company that would play a critical role in the establishment of I2O, Williams said.

“They are an adviser who augments the owner’s project development team,” she said. “They provide a rigorous analysis of the project, and a result of the analysis is the optimum procurement method that might bring the highest value for the taxpayer dollars.”

Partnerships BC served as a consultant for Multnomah County, and performed a detailed screening and analysis of its county courthouse project.

In its screening completed last year, Partnerships BC determined that two options – building a new courthouse and relocating operations while the existing courthouse is renovated – would be viable for a public-private partnership, Williams said. The firm is conducting a business case analysis that will help the county determine whether to use traditional or performance-based contracting methods, she said.

Partnerships BC over 12 years has served 40 projects valued at $17 billion, Williams said. Roughly $7.5 billion of that funding was generated through private capital, she said. Every one of those projects has been on time and on budget, she added.

“The overriding value statement is to find a message to get the highest value for Oregon taxpayers on their infrastructure projects in a way that works for everyone,” Williams said. “The process would create an understanding about what works for the construction community as well as the taxpayers.”