From the August 2020 Edition of Public Works Financing
In a major milestone for a project that represented, in and of itself, a milestone for the P3 industry when it was awarded, the University of California (UC) Merced campus P3 reached the completion of construction this summer. In its entirety, the project nearly doubled the size of the UC Merced campus, delivering 1.2 million square feet of new facilities across 13 buildings.
The facilities delivered under the project include student housing, classrooms, multiple laboratory and research facilities, a dining facility, a wellness center and recreation facilities, and supporting parking and other infrastructure. The facilities w ere delivered in three phases between 2018 and June 2020, and will enable UC Merced to grow to accommodate more than 10,000 students. The project reached financial close in August 2016, and was awarded to Plenary Properties Merced. At $1.3 billion, it is the largest completed social infrastructure P3 in US history.
Mike McLeod is the Chief Operating Officer of UC Merced and was the owner’s representative for the project. He had a message for his peers at other universities: “Don’t look at our project and think projects like this are easy. We were successful, sure, but projects of this scale are never easy.”
And the stakes were high. While more universities are turning to P3s in the energy, parking and student housing sectors, nothing to date has matched the size and complexity of the Merced 2020 project. And now it’s been delivered on time, on budget.
“We appreciate the contributions of all who have had a hand in this accomplishment and we look forward to making sure these new facilities perform to the highest standards and serve the needs of current and future generations of UC Merced students, faculty and administrators,” said Dale Bonner, executive chairman of Plenary Concessions. “This on-time, on-budget completion of the 2020 Project shows that incredible things can happen when all stakeholders work together with a true spirit of partnership,”
The project team included Plenary as developer, Webcor as the lead construction contractor, and Johnson Controls for operations and maintenance. The DBFOM concession includes a 35-year obligation for Plenary to operate and maintain the facilities following the 4-year construction phase. Approximately half of the project’s total uses will be financed by the University of California and will be paid via milestone payments during construction. The remainder was financed by Plenary and will be remunerated via Availability Payments during operations.
The procurement was unique even beyond the fact that it was the largest P3 of its kind in the social infrastructure sector. Since the final agreement would need to be approved by the UC Board of Regents, the university established affordability and other criteria with the Regents ahead of the procurement to give bidders additional certainty that the project would go through. The lifecycle maintenance and handback requirements will also incentivize optimum preventative maintenance during operations.
Proposals for the deal were first evaluated by panels of outside experts, who then provided advice to internal project selection committees of senior university leadership on Administration, Finance, and Technical Evaluations. Proposal Technical scores were based on scores for academic facilities, student facilities, program delivery, community design, operations and maintenance plans, sustainability, and community/workforce engagement.
Despite the complexity and scale of the project, the UC Regents team was able to complete the procurement and negotiate its Project Agreement with Plenary in two years from Request for Qualifications to Commercial Close.
From Procurement to Project
The construction schedule was only a few years longer than the procurement schedule. It required delivery of the facilities in three phases. The first, in 2018, included the new dining facility and student housing and classroom facilities. The second phase, due a year later, included several laboratory buildings and faculty offices. The final phase, completed this month, included the remaining student housing buildings, wellness center, and administrative buildings among others.
“Many considered our construction schedule impossible given the scale of the project,” said Rehan Khan, head of the project for Plenary Properties Merced, “and it definitely would have been impossible without such a strong partnership between the project team and UC Merced.” UC Merced former Chancellor Dorothy Leland is credited with creating an environment of trust from the outset, which allowed the project team to collaborate with the university to address challenges and issues quickly.
And the challenges were indeed substantial. UC Merced’s campus is located in the heart of the San Joaquin Valley, and summer temperatures average highs north of 95 degrees, making for challenging building conditions. Heavy rains during the winter of 2016-17 required the schedule to be adjusted just after the start of construction.
The project faced another immediate challenge with the construction of a retaining wall at the edge of Little Lake – a prerequisite for the rest of Phase 1 construction. A permit delay from the California Department of Fish and Wildlife (CDFW) threatened to delay the project schedule right from the outset. “I think that was when we really started realizing, after all of the efforts to get the deal closed, just how challenging it would be to deliver a project this complex at our aggressive schedule,” said McLeod.
Just when it appeared the project could face its first major delay, the permit finally came through, and Webcor proceeded in earnest to make up ground.
“From that point we were off to the races,” said McLeod, “Regular communication was a must, but we also needed to balance that with decentralizing decision making to the extent we could. Our priority was making sure problems could be fixed at the lowest level possible while maintaining a clear process to escalate when necessary.”
That collaboration would prove critical. During each nesting season, the daily discovery of nests would require construction to be regularly re-sequenced and shifted. And, of course, the arrival of a global pandemic 6 months prior to the final delivery date brought a set of challenges all of its own. “It had the potential to derail the project, but we were able to work with UC to adjust plans to allow for safe construction activities and keep the project on track,” said Khan.
With the project now completing its transition into the O&M phase, the partnership is far from over. The project has already earned accolades on the procurement alone, including a Public Sector Champion Award from the Performance-Based Building Coalition. It was also the 2017 Social Infrastructure Project of the Year.
The final measure of a successful procurement is, of course, a successful project. And in the case of the Merced 2020 project, it may in fact be most noteworthy for the milestone it hasn’t crossed. To date, and through substantial completion, the project still has not recorded a single dispute, claim or lawsuit. For a $1.3 billion project, and in California no less, they should give out medals for that.