Extended Interview: Bryan Kendro, Pennsylvania Office of Policy & Public-Private Partnerships

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Bryan Kendro is the Director of the Pennsylvania Office of Policy & Public-Private Partnerships. I spoke with him by telephone on March 4, 2014. Portions of this interview appear in the May 8 issue of the Capitol Ideas E-Newsletter and the forthcoming 2014 edition of CSG’s The Book of the States. He discusses Pennsylvania’s Rapid Bridge Replacement Project, a public-private partnership the state is pursuing to replace hundreds of structurally deficient bridges. Kendro will be among the speakers at the InfraAmericas U.S. P3 Infrastructure Forum in New York City this June.

CSG: How did the idea come about to bundle a large number of bridges and try to develop that as a public-private partnership? Was something like this project what policy makers there envisioned as (Pennsylvania’s) P3 legislation was being approved in 2012?

Kendro: “It wasn’t something I’d say that was envisioned as the legislation was working its way through to the extent that I know. We were approached by some folks in the private sector, who knew the legislation was moving (and) were looking at the types of projects or possible projects in Pennsylvania that might be good P3 projects. So a couple (inaudible) from the private sector basically came to us with an idea at a very high level, pointed to what Missouri had done (with the Safe & Sound Bridge Improvement Program) but suggested that doing it as a P3 would even take it one step further than they did. So we began to look at it ourselves. More importantly, I think we recognized already even before (the) P3 (legislation) passed the value of bundling bridges together. We had three county pilots that we started early on in this administration. We started getting those pilots up and running with the idea being that we’d look at five, six, seven bridges in a region, a combination of state bridges and local bridges that were a similar shape and size and let’s pilot bundling them together. Because I think our engineers knew already that frankly there’s probably a lot of inefficiency with doing those kinds of bridges one by one by one than when you put them together. There’s some repetitive design processes, there’s some standardization in construction and economies of scale that can be achieved. So we had these three pilots and, sure enough, we began to see on the design side significant savings and we’re starting to see on the construction side those savings as well. We’re confident that in most cases those savings will be greater than 20 percent. So we’ve said (in Pennsylvania’s 2013 transportation funding legislation) that the local bridges participating as part of that bundling program will no longer be required to make their 20 percent match because essentially we’re expecting the savings to exceed 20 percent. So we’re letting them benefit from those savings as well as us. So the thinking is that based on the success of the pilot and the proof of concept, take seven or eight bridges and exponentially multiply that out by 600 and you’re doing the same thing with the savings and at a certain you’re reaching max efficiency and you’re really taking advantage of the economies of scale as part of the project and prefabrication of concrete structures. Basically it’s like Legos, where you’re trying to get as few designs as possible and standardize as much as you can with the bridges to set up a mass production process.”

CSG: Is this kind of P3 unique in this country? Is there any model for what you all are doing?

Kendro: “All the P3 projects to date in the United States have been single asset or at most two mega-bridge type projects. Not where you’re talking about essentially 600 discreet projects rolled up into one contract. We’re finding that at every turn we’re charting new territory here. There’s not a whole lot of precedent out there. Because it’s been several years since Missouri did their program, a lot has changed in the P3 market.  Missouri originally did try to roll out that project as a P3. Ultimately it ended up being a design-build. But even looking at some of the technical provisions and some of the aspects of the project when it was a P3, a lot has changed even in the P3 market to the extent that a lot of that information relative to putting the contract together, writing the technical provisions agreement, things like that. There wasn’t really a whole lot there as far as a template goes. Now there are clearly some lessons learned we were able to take out of that project. For instance, we’re focusing on total replacements. We’re not getting into any rehab-related projects because then you have an issue of the latent defects. Is the bridge failing or are there problems because of the existing structure or is it failing and are there problems because of the work that the P3 contractor did or the design-build contractor did? So to avoid those, when you replace the structure completely, you eliminate those kinds of debates because essentially you’re responsible for it. You designed it, you built it, you know what it’s supposed to do and if it doesn’t do it, there’s no one to blame but yourself.”

CSG: What has been the response of the private sector to this kind of project? Is this something that they like and that we’re likely to see more of around the country in the next few years do you think?

Kendro: “I know that there are other states that have reached out and there are other states that are talking to our consultants to try to get a sense of how they might be able to do a project similar to this. Especially in this part of the country, you have a lot of facilities that are old and a lot of bridges that are in need of replacement. So I think folks are looking to this as maybe the way to address some of those issues and do it in a cost-effective manner. I think in terms of private sector interest, I think that’s reflected in the response we got to the RFQ (request for qualifications). I think we have five extremely strong teams and if you look at the lead development entities that are associated with those teams, they’re all the bigger players in the U.S. P3 market, which isn’t a huge market. It’s not like there is a ton of development entities or players that typically go after these projects. You look at the Purple Line project in Maryland or you look at a project in Virginia, it’s the same players on every deal and we’ve attracted a good percentage of them. So to have five strong teams I think shows that we have a very attractive project to the private sector and that it’s one that’s very viable.”

CSG: P3 deals to a large degree are about balancing risk for either side. How much risk is involved for Pennsylvania in this one?

Kendro: “I think where the risk lies is how prescriptive do we need to be and how much flexibility do we want to give the private entity? Ultimately they are taking the risk in terms of the performance of the bridges. So if the bridges they’re building aren’t holding up, they’re going to have to go out there and fix them so that they meet the specifications and the performance. It’s really in establishing those performance criteria that we are able to articulate to the private sector the minimum requirements—what we need to see, what we expect the life of those bridges to be, to what standard they’re designed to, the types of materials that they can or can’t use—while still allowing them to bring innovation. Now frankly with a $2 million bridge, we’re not looking for a ton of innovation in the design and construction. … Where we’re looking for them to bring innovation is more the logistics associated with the project and the prefabrication and the mass production and the standardization of those 600 bridges. It’s more how do they manage the portfolio of projects versus how do they figure out how to build a small, less than 100-foot bridge, which isn’t that difficult.”

CSG: Give me a sense of the scope and the logistics involved in trying to put this kind of project together. How do you ensure that Pennsylvania doesn’t become known for bridge repair gridlock over the next few years?

Kendro: “That’s going to be a key component of the proposal and also, shortly after the successful team is awarded the contract, (they will put) together their plan or their schedule for delivering these bridges so that we can coordinate our projects. Because with the funding legislation that just was enacted (in 2013), there’s obviously going to be a lot of projects that we’re going to be working on through our traditional program and bridge projects in particular. So the ability to coordinate these activities is going to be essential. So there are going to be requirements of the development entity to tell us where they’re going to be and when working on these bridges so that we can plan accordingly with our traditional program to avoid certain areas where we don’t want to get into a situation where we have two bridges out in the same community and all of a sudden you can’t get from point A to point B without going 50 miles out of your way. That again goes to the logistics. That’s where we’re looking for the innovations of the private sector and for them to come up with ways to speed up the replacement of these bridges. So if it normally takes us a few months, we’re hoping that they can find ways to bring that down to a few weeks so you eliminate issues of gridlock or construction all over the place so that you’re getting in, you’re getting out and the impacts to the travelling public are minimized as much as possible.”

CSG: Is this in a sense the only alternative for Pennsylvania because of how bad the condition of the infrastructure has gotten and how much it would cost to repair these bridges by some other means on a more ad hoc basis?

Kendro: “If we didn’t do these projects as P3 projects, it could be 10, 15 years before frankly (we could get) to a lot of them and in 10 to 15 years, they’re going to get more expensive no matter how you do it—whether you bundle them or whether you do them one-by-one. They’re going to get more expensive just as the price of materials and labor continue to go up. So to be able to do it now and not wait, there are savings in that. And then there is the additional savings associated with bundling them together. So basically doing it as a P3 project, we’re able to do more bridges for less money now. … And then over the long haul, it will also allow us to do more projects in our traditional program because by being more efficient in delivering these bridges, it frees up dollars to use on other bridge projects that might not fit the P3 profile.”

Bryan Kendro will be among the speakers at the InfraAmericas U.S. P3 Infrastructure Forum 2014, which takes place June 17-18 at the Grand Hyatt in New York City. CSG is a supporting organization for the conference, which brings together infrastructure developers, investors, financiers, state and federal public officials and regional transportation authorities for a variety of panel discussions on the state of the P3 industry.