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Public-Private Partnerships: Paving the Way for Infrastructure Revitalization

Many factors for infrastructure projects that are seemingly coming together could signal the dawn of a P3 Golden Age.
By: | March 1, 2017 • 5 min read

Public-private partnerships (P3s) are an effective way to get complex and expensive transportation infrastructure projects done at a time when political will to invest public funds fall short.

While the approach has been successfully utilized for many different projects, overall adoption remains limited. Out of the United States’ total annual infrastructure spend of $1.2 trillion, roughly $20-25 billion goes toward P3 projects, or about 2 percent.

Part of what has kept P3 to this niche is a dependence on toll-based revenue structures. But new revenue approaches such as Availability Payments could make the model work for a much broader scope of projects, including social infrastructure like hospitals and public schools.

“The insurance community, construction community, and finance community all have an interest here. These three industries could get aligned and work together to help promote P3s as a potential alternative solution for what needs to get built and rebuilt and improved in the next five to 10 years,” said Thomas Grandmaison, executive vice president, Energy and Construction Industry Leader, AIG.

P3s come with a set of both benefits and risks, but new financing approaches combined with an evolving political climate that seems to favor infrastructure investments could be the dawn of a P3 Golden Age.

New Revenue Structures

Developments in finance structures and insurance coverage make P3s more attractive for both public and private partners.

Roads built under a P3 model have typically generated revenue from tolls. The financing of these projects is therefore based on traffic forecasts that estimate the number of cars using the road every day, over a period of 30 to 50 years.

And when those forecasts are inaccurate, the entire project is put in jeopardy. In 2016, SH 130 Concession Co., the private entity that financed, constructed and maintained State Highway 130 — a 41-mile toll road connecting Austin and Seguin in Texas— filed for bankruptcy. The project cost $1.3 billion. SH 130 tried to attract drivers with a high speed limit of 85 mph and an alternative route around other gridlocked highways, but motorists ultimately opted for longer commutes that required no toll payment.

In California, the 10-mile South Bay Expressway suffered the same fate, declaring bankruptcy in 2011. Same for the privately operated Indiana Toll Road, which went bankrupt in 2014.

That’s why availability payments have become increasingly popular.

With availability payments, the public entity issues a periodic payment of a predetermined amount to the private partner as long as the project is available for its intended use at the expected performance level. In this arrangement, the public partner collects any tolls and retains the risk that revenue may not meet expected levels. These arrangements help to attract private partners who don’t want to take on traffic risk, but also allows public sponsors to retain some ownership and control over the road going forward. Availability payments can also enable non-transportation P3 projects, including water treatment plants, ports and public facilities like hospitals and schools.

“There is no shortage of interest in private financing,” Grandmaison said. “There’s plenty of capital out there, and now potential financiers can feel more secure in their investment. The availability payment option often provides the difference between investment grade, and non-investment grade debt, dramatically reducing the cost of debt and increasing the number of potential investors.”

Evolving Risk Management

Insurance coverage plays a part in that security as well, and carriers have been pushed to build creative and flexible solutions to accommodate the size and complexity of P3s. Current trends and P3 project structures need sureties providing alternative solutions that incorporate liquidity elements that can address both concessionaire and rating agency concerns.

“As P3s become more prevalent, builder concessionaire teams and brokers will be asking the insurance market to think more holistically about how separate coverages can be brought together in a coordinated and aligned fashion to make the buying process more streamlined,” Grandmaison said.

There may be multiple large contractors working on a P3 project, and none wants to take the entire program onto their balance sheet. Same goes for the mix of private investors involved. And then there’s the public entity that wants full insurance protection even though they take a back seat in terms of project management and execution.

“You’re creating a six-headed monster as the owner or sponsor of the insurance program,” Grandmaison said. “It’s a more complex risk assumption than the traditional setup where the public entity is responsible for insuring construction, but takes on operation of the project through a separate program.”

Complete and coordinated coverage for all of the risks involved in complex projects alleviates fears — held by both public and private parties — that one entity will be more exposed than their partners, or that risk will be allocated unfairly. For P3s to be executed smoothly, it’s critical to have insurers involved that have the full breadth of experience and capabilities to fill this need. In addition, not all insurers are comfortable with project terms that are often longer than 5 years (sometimes 8-10 years), and providing operational coverage during course of construction or post construction.

AIG is one of few insurers that can provide all of the coverages traditionally needed for construction projects like workers’ compensation, general liability, builder’s risk, inland marine, environmental, professional liability, surety and even some ancillary coverage like cyber and kidnap and ransom.

Political Considerations

Despite their big benefits, P3s also come with significant hurdles. Even with a shifting government agenda that prioritizes infrastructure, local political will can still be difficult to muster.

If a P3 project doesn’t pan out, taxpayers end up paying the balance. Local governments sometimes struggle to justify such costly projects that potentially place their constituents’ wallets at risk. To overcome that hesitance, political leaders want to be assured that their private partner has the capacity to stay with a project over its long lifespan.

“One of the challenges we’ve seen here in the States is that Departments of Transportation want to ensure that the companies that are contracted to keep the project running for up to 30 years actually remain in place,” he said. “There is hesitance to transfer that ownership over to a party that may want to cash out as soon the market shifts.”

Of course, having comprehensive insurance coverage alleviates fears for public sponsors as well.

“AIG is really a full service carrier that can provide everything a customer might need on a project-specific basis,” Grandmaison said. “AIG has been in the market of flexibility and creativity for years and will continue to be so.”

The future certainly looks promising for P3, and the insurance industry looks poised to face any new challenges it brings.

To learn more about insurance solutions for P3 projects, visit http://www.aig.com/business/insurance.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with AIG. The editorial staff of Risk & Insurance had no role in its preparation.




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More from Risk & Insurance

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Workers' Comp

Keeping Workers on Their Feet

Slip and fall prevention programs must interweave all of the factors contributing to the risk.
By: | July 6, 2017 • 11 min read

If you peruse the last decade’s worth of literature from the CDC, NIOSH, or numerous other agencies or organizations, you’re bound to come across the “good news” that slips, trips and falls are largely preventable.

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So it’s frustrating, then, that slip, trip and fall injuries consistently account for more than a quarter of all nonfatal occupational injuries, and at least 65 percent of those injuries happen on same-level walking surfaces. And those figures just don’t budge all that much from year to year.

According to the “2016 Liberty Mutual Workplace Safety Index,” falls on same level currently rank as the second highest cause of disabling injuries in the U.S., with direct costs of $10.17 billion, accounting for 16.4 percent of the total national injury burden.

“Not only are they still happening often, but they tend to be very significant injuries,” said Mike Lampl, director of research at the Ohio Bureau of Workers’ Compensation.

“We’ve seen these trends grow over the years,” said Wayne Maynard, product director, risk control, with Liberty Mutual. “Bottom line is, it’s a real, real big problem.”

So why are preventable falls so hard to prevent? This stubborn status quo, say experts, is that the causes of slips and trips are typically far more complex than they seem. There are nearly always multiple factors in play, from footwear and flooring and the interplay of both, to cleaning procedures, lighting, housekeeping, weather, and workers’ mental or physical conditions as well as overall awareness.

And all of these factors are being exacerbated by the fact that incidents often go unreported.

“Slips, falls — people get up, move on, they don’t report it,” said Maynard.

“When somebody’s injured and files a claim — in the workers’ arena, how many are behind the scenes that may have happened that are not reportable? …. The unreported number is considerable in my opinion.”

The key to making any headway in reducing slips and falls on the same surface, say experts, is to have a comprehensive fall prevention plan that addresses all possible factors. No small task.

Engineering Solutions

Flooring conditions are often the most obvious starting point. Ideally, said Maynard, all the right choices are made at the planning and design stage. But sometimes mistakes are made, and in other cases, a business may be inheriting an older space with floor chosen for a different purpose.

Patricia Showerman, senior loss control consultant, Arthur J. Gallagher & Co.

So even flooring in good condition may be the wrong type of material and may not have the necessary coefficient of friction (slip resistance) needed for the work being done.

If companies want to drill down into all the details of the surfaces in their facilities, a friction coefficient study is always an option, said Patricia Showerman, senior loss control consultant at Arthur J. Gallagher & Co.

But if a company doesn’t want to take that step, she said, it may be a simpler matter of saying, “Let’s look at what you’ve got. Let’s look at your floor surfaces and how you’re maintaining them.”

A lot of people want that “shiny grocery store glam look,” she said. “And if you can do it properly, and maintain it properly and keep that coefficient of friction and have the shiny look, that’s great. That’s what everybody wants but how do they get there?”

Certain surfaces may start out with an adequate coefficient of friction when they’re clean and dry. But add even an invisible layer of dust or debris, “and it’s like microscopic little BBs that you slide across,” said Showerman. “So if you have dust on your floor, you are dramatically reducing your slip coefficient.”

For companies that do have flooring surfaces in need of improvement, ripping up the floor and replacing it isn’t typically a feasible option. Fortunately there are more budget-friendly ways to get the maximum slip resistance from existing flooring, such as coatings and etchings.

A coating adds a microscopic layer on top of the flooring that creates a grip surface while maintaining the shine. Showerman likened the effect to the way that Velcro fasteners work.

“You want that hook effect … sharp points are going to microscopically stick into the soles of your shoes, rather than rolling off the top.”

Etching can work in a similar way, chemically altering the existing surface to make it imperceptibly gritty. Etching can also be used to create pores in an existing surface, which is useful for areas such as machine shops, she said.

Be Smart With Surfactants

While keeping floor surfaces clean is one of the best ways to remove slip and fall hazards, cleaning them the wrong way can actually do more harm than good.

Failure to follow appropriate cleaning procedures can severely diminish a surface’s coefficient of friction.

Experts suggest that companies engage with their chemical suppliers, and discuss their flooring as well as the types of dirt or grease removal and disinfectant needs. Detergents – which can contain different types of surfactants — aren’t a one size fits all solution.

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Sometimes purchasers might be inclined to try to cover all their bases by buying the strongest product on the market, but that might mean adding unnecessary surfactants that make surfaces less slip resistant.

“Clearly identify the types of surfaces you’re using it for, the type of oil or dirt or debris you have, and whether or not you need a sanitizing step,” said Showerman.

“You’ve got to find the right balance.”

But that’s only half the battle. A significant problem experts see time and time again is that companies don’t understand how their flooring is being maintained on a day-to-day basis by front-line employees. Failure to follow appropriate cleaning procedures can severely diminish a surface’s coefficient of friction.

“This is where you’re seeing someone with a mop and bucket and they are just re-smearing that grease from one place to another. They put the dirty mop in the dirty bucket, the mop gets full of that emulsified grease and you’re smearing it across the room. In high grease areas, you have to replace with clean water consistently.”

In other cases, a worker without the proper training may grab the first detergent he finds, even if it’s meant for the equipment rather than the floor. Or perhaps he mixes equal parts detergent and water when he was supposed to only use 8 oz. of detergent for every five gallons of water.
Sometimes people will even over-concentrate the detergent on purpose, she added.

Peter Koch, safety management specialist, The MEMIC Group

“I see that in the food industry frequently,” said Showerman. “They find that the more detergent they leave on the floor, the easier it is to clean up next time … but then everyone’s slipping and falling like in a cartoon.”

A company could invest a significant amount in flooring improvements, only to have the benefits undone by improper detergent use or failure to follow recommended rinsing procedures.

It’s incumbent upon safety managers to reinforce that maintaining floor surfaces isn’t just a matter of housekeeping, but a key part of the company’s workplace safety program.

The Human Factor

When you’ve done everything possible to address hazards in the physical work environment, workers themselves remain the wildcard. Most employers routinely include slip and fall hazards in their safety awareness training or toolbox talk programs. But that training should go well beyond a general “watch where you walk” message, say experts.

“One of the most overlooked parts for employee safety is actually employee training,” said Peter Koch, safety management specialist at  The MEMIC Group.

“How do you train an employee to not slip and fall? I think many times that is wrapped in a “you have to be more careful” message, which is valid but nebulous and not very helpful — it means something different to everyone based on your risk tolerance as an individual.”

Koch’s employee training regimen revolves around four elements: surfaces, awareness, footwear and environment (SAFE).

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The first goal of the surface portion is just to get employees to start thinking about the different types of surfaces they walk on and how it can change throughout the work day. Koch said he likes to ask: “How many different types of surfaces did you have to walk on the get to this training room?”

The footwear piece of it is the most straightforward. Are your shoes designed for the work that you’re doing and the surfaces you’re walking on? Are they in good condition? Are the soles worn out?

There is no ASTM standard for measuring the performance of slip-resistant footwear, added Gallagher’s Showerman. So workers should be reminded that wearing the right shoe isn’t a guarantee — it’s just one piece of the solution.

Awareness, said Koch, may be the most challenging piece of the puzzle — helping people to think about their gait, what they’re carrying, what they’re doing, and simply where their heads are at any given moment.

“If you’re thinking about 15 things you have to get done by the end of the day, or you have a particularly challenging employee interaction coming up that day, or you had a fight with your girlfriend last night— or whatever it is — you’re not focused. Then you take that step through the icy patch, and now it relies completely on your athletic ability and luck to stay upright.”

Workers may not necessarily make the connection between personal factors and fall risk. Someone who has an ear infection or is taking certain medications, for example, may not even be aware that their balance might be compromised, putting them at higher risk for a fall.

Employees also should be reminded of how even normal daily stressors can contribute to risk. Everyone is under pressure to deliver more in less time. Everyone is rushing, everyone is stretched to their limits. Add the ever-present cellphone beeping and buzzing and demanding our attention and perhaps it’s a wonder slips and falls don’t happen even more often than they already do.

We’re so conditioned to react when the vibration goes off or the tone chimes in our pockets that we just grab it without thinking, Koch said.

“If you knowingly put yourself at risk by knowingly going quickly through an area with slip and fall exposures, it’s just Russian roulette – at some point you’re going to get broken.” — Peter Koch, safety management specialist, The MEMIC Group.

“Even that, in certain conditions, is going to be enough to put you on the ground.”

Awareness of environmental factors should also be part of the training, Koch said, especially in terms of what workers can’t control, like inclement weather.  He said the main thing he tries to impress upon people is to slow down in a high-risk environment.

“If you knowingly put yourself at risk by knowingly going quickly through an area with slip and fall exposures, it’s just Russian roulette – at some point you’re going to get broken.”

Koch says that getting people to put all of these facets of awareness together is where the training can really click.

The goal is that when they approach an area with a higher-risk surface, employees are thinking “for those few seconds or minutes that I’m going to be walking through it, I need to have a greater sense of awareness, I need to put away the mental [distractions] and focus on what I’m doing – don’t answer your phone, don’t answer your texts.”

Some employers are looking to address the human piece of the slip and fall puzzle by using training that goes far beyond hazard awareness. Active slip-prevention training focuses on body mechanics and teaches workers how to respond when they feel themselves begin to slip.

One such program revolves around the Slip Simulator, technology born of a research partnership between Virginia Tech researchers and UPS. The simulator that creates slippery and hazardous conditions in a controlled environment while participants walk in a harness so they can slip safely. An instructor offers real-time guidance on how to alter their movements to avoid falling.

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After mastering the initial technique, trainees face additional challenges related to their specific work environments, such as walking up ramps or turning wheels. A New Mexico security team practiced drawing firearms while standing on the simulator, which led to a change in how they wear their weapons. Workers at an Ohio refinery practiced stepping over pipes and turning large valves.

Clients of the program are reporting 60 to 80 percent reductions in accident rates.

The Road Ahead

A comprehensive slip and fall prevention plan is a must for employers, experts agreed, with clear, consistent procedures that empower employees to be a part of the solution.

“Employees play a very critical role,” said Liberty Mutual’s Maynard. “If they see a slip risk or a slipperiness issue, they need to be able to report it and they need to be able to get that corrected immediately. They have an important role in maintaining a safe facility and reducing risk themselves — be proactive, don’t walk by, clean it up.

“Any time you can involve the employee in solutions …. the likelihood of success of that intervention is higher.”

Maynard added that the best prevention plans will also be forward-looking.

“Understand where current safety performance is. Then make a roadmap to get better,” he said. “Emphasize where you’re doing well,” then identify opportunities to effect improvement, now and over the next three, four or five years.

“Prevention is too often reactive,” Maynard said. “We’ve got an issue and now what do we do? The goal is for companies to be proactive.” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]