In the December 2005 issue of Readers Digest an interesting article points to a major change in world educational trends. The article states, “The Chinese economy is surging, fueled by increasingly sophisticated engineering, producing everything from automobiles to semiconductors. India has nearly as robust an economy, powered by cheap English-speaking labor forces that excel in software and services.” And in the same article, a “genius software engineer” chooses to return to business school, Harvard no less, in lieu of furthering his software career because his earnings potential paled next to that of his friends in law school and business school. Nobel Laureate and Professor of Chemistry and Physics at Rice University, Richard E. Smalley stated: “If the present trends continue 90 percent of the world’s scientists and engineers will be living in Asia by the year 2010.”
These points of interest from the article referenced above are key to the educational facility challenges facing U.S. colleges and universities now and in the near future. Chinese universities are upgrading existing educational facilities to attract the best scholars and students. The U.S. is in a dogfight to compete for the best and brightest students. The appropriate facilities to educate from K-12 to undergraduate studies and beyond are needed throughout the U.S. as we begin to educate the grandchildren of the Baby Boom generation. The genius software engineer’s decision to pursue further education, to “retool” in a new field to meet market demands and reach personal financial goals, supports our strong belief in education as the critical key to our nation’s continuing success. Many Americans have recognized this need for educational excellence and have made it a part of their everyday lives. The robust economies of China and India are driving the need for educational facility development in those countries to maintain and grow a strong local educated workforce. In education, the game is on, and the U.S.’s educational facilities professionals recognize the need to rework existing facility programs to meet the challenge.
Now here is our challenge! How do we as an industry and as advocates of alternative project delivery assist in “tooling up” the educational facilities world? How do we as designers, constructors, facilities professionals, and educational owners address this overwhelming national need for effective educational facilities when money is tight and many states are working on diminished budgets for all services, including education?
Alternative solutions in project delivery, project financing, and project development offer solutions for educational facilities development and the ability to continue the long successful history of the highest level of education, science, engineering, and other fields here in the U.S. The software engineer example above occurs regularly on all levels of education. How many undergraduate students graduate in four years? And as we learn with age, life keeps changing, sometimes almost daily. Many would agree that we need to be able to re-educate ourselves and re-tool regularly to maintain a working advantage over the competition. We don’t use slide rules anymore in engineering. To compete and be successful we must have the tools to perform at whatever level we may wish to achieve.
We at Turner Construction Company have implemented a proactive strategy for bringing feasible economic solutions to our education clients to enable them to meet their pressing facility needs within the context of difficult economic circumstances. Through the creation of strategic partnerships with leading design, development, and financial firms, we are able to offer our clients alternatives to traditional project funding and delivery on a “turnkey” basis. The presentations that will be offered at the 2006 education facilities conference by these and other specialists will provide an interactive forum where alternative financing, alternative delivery methods, and alternative development solutions will be reviewed, discussed, and put into practice.
As traditional sources of funding have become less and less available for many colleges and universities, the need for non-traditional funding alternatives for critical facilities programs has become apparent. Add in the increased facilities requirements needed to attract the best scholars and students, the development of alternate facilities solutions is a must.
Owners must carefully examine their key priorities and objectives in determining the appropriate model for use in delivering needed facilities. The most critical factor is to determine the owner’s business goals for a new facility up front and to align all subsequent decisions with those goals. Using this foundation, a natural progression of decision-making in terms of the project delivery system, procurement method, project team, facility program, contract form, and operational concept can be determined. This decision-making process will include evaluation and prioritization of subjective qualitative factors balanced against quantitative (price-based) factors to determine the best value for each individual client.
Options include the entire range of project delivery models, from traditional design-bid-build to design-build-finance-operate. Turner Construction has extensive experience in the turnkey delivery of facilities for both public and private sector clients. Such projects typically utilize public-private partnerships or design-build-finance models as the underlying structure of the transaction.
The factors that most frequently interest our clients in these types of financing and delivery models are:
- A single source of responsibility for design and construction to save time and money and improve quality;
- The ability to finance projects “off-balance sheet” without tying up capital in non-earning hard assets like real estate or negatively impacting a public entity’s debt capacity.
Strategic relationships with design firms, as well as investment, development, and financial firms that specialize in these types of transactions become critical in forming project teams with the experience and capabilities that these types of delivery models demand. Through such relationships, service providers can assemble the right team to provide a customized delivery solution to meet the needs of creditworthy private corporations, public agencies, and institutions.
These delivery solutions can take a variety of forms ranging from traditional leaseback transactions to tax-exempt bond financing utilizing a special purpose entity created to finance a particular project. Many educational institutions and school districts have under-leveraged assets that can be put to work to help meet new facility demands. It can in fact be possible to finance 100 percent of the project cost on a non-recourse off-balance sheet basis at tax-exempt rates. The type of financing employed and terms ultimately depend on the source of funds used to repay the obligation.
The above concepts are not new to the building industry. However, the implementation of proven private sector building development project alternatives has sometimes faced insurmountable legislative barriers. Adverse local legislation can easily defeat any effort to create the appropriate financing and project delivery method for an educational facilities project. This issue must be addressed at the state and local level and has been a key focus of the DBIA over the past few years. Our organization’s efforts have been key to getting many states to recognize design-build as a viable delivery model for public projects, including education facilities. Turner has had numerous successful projects where these concepts and others have been used to deliver facilities for a wide range of education clients. The concepts are sound but the administration and intolerance to change still holds our institutions and our educational systems tightly restrained with limited tolerance toward alternative method delivery in the K-16 educational facilities markets.
A compelling example is the recently completed project for the University of Cincinnati. The University needed an alternative solution to allow the implementation of their campus-wide master plan. Faced with a multiple-year campus-wide plan that incorporated a significant portion of the existing urban campus, the University did not have the parking and swing space available to kick off the campus-wide project. The University had established that they needed approximately 170,000 s.f. of flexible classroom swing space, a 600+ car parking garage to replace existing surface lots needed for additional building space, and an office building to replace the existing Police Department and Parking Services Department that would be displaced with the new master plan.
Traditional means would have resulted in a solution that would have taken more than three years, delaying the start of the much-needed infrastructure and building upgrades incorporated in the master plan. The University needed a solution that could be culminated in less than eighteen months to keep the master plan projects on schedule.
Turner responded with a design-build-leaseback approach, partnering with the architectural firms of Glaser Associates and Skidmore Owings & Merrill. With the decision-making ingredients in place the operational concept was developed. The process of evaluation and prioritization of both qualitative and quantitative factors to determine best value for the client was expedited.
The project design was finalized including a seven-story 161,400 s.f. tower incorporating the flexible swing space, an adjacent three-story 38,900 s.f. office building for the Police and Parking Services Departments, and an adjacent open-air 610 space five-story, 195,000 s.f. cast-in-place concrete parking garage. With this approach, the project was designed, completed, and delivered in 14 months.
The University was able to maintain the overall schedule for the campus master plan and take occupancy of a high quality building in a short time. Ronald B. Kull, University Architect, was instrumental in helping the University understand the alternative delivery method and commented that, “while many people here at the university were skeptical, you completed the project within an extremely difficult timeframe to facilitate occupancy on schedule. This was done without sacrificing a quality product which will serve the University well into the future.”
The educational facilities in America need to continue to attract the best and brightest scholars in science, engineering, and other critical fields of study. American educational facilities, K-16 and beyond, need our help, as an industry, to keep America smart, strong, and competitive with the world’s recognized best educational facilities.
The critical time for sharing all best practices, obstacles to overcome, and lessons learned is now. The 2006 DBIA Educational Facilities Conference promises to help us all meet this challenge head-on and assure the best strategies to plan and complete facilities for education in the U.S.
The Turner Corporation is recognized as the leading general builder in the U.S., ranking first or second in major segments of the building construction field. The company performs work on over 1,500 projects each year.
William J. Smith, P.E., DBIA, has approximately 30 years of experience in the building and environmental construction industry, including a concentration on design-build project delivery over the last 13 years. Currently, he is Senior Project Manager for the Turner Construction Company, Cincinnati offices. He may be reached atwjsmith@ tcco.com.
Steven R. Schnoor, Director, Alternative Finance and Delivery, has over 25 years of industry experience as an architect, owner, general contractor, and developer. As part of Turner’s Corporate Development group, Mr. Schnoor is responsible for management of Turner’s involvement in design-build-finance and public-private partnerships on a national basis. He may be reached at SSchnoor@tcco.com.
Russell Alford is a Project Executive in Turner’s Education Group and has been with the company 25 years. Mr. Alford is currently responsible for $1.5 billion in educational projects. He has contributed to numerous publications including AGC’s Construction Planning and Construction text book. He may be reached at ralford@tcco.com.