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What will be the fallout from Denver airport's Great Hall P3 termination? | Dump Trucks Charlotte NC

Columbus Ohio Dump Truck Company Brief:

  • A new Moody's Investors Service report on the credit impact of Denver Airport Enterprise's (DEN) decision to terminate for convenience Great Hall Partners' $1.8 billion contract for renovation of the airport's Jeppesen Terminal and 34 years of concession management has revealed that the bond credit rating business believes the move will have minimal negative financial and credit impact for the city and the airport.
    DEN severed its relationship with Great Hall amid the possibilities of a three-year schedule delay and up to $300 million of change orders. 
  • Moody's said despite the exposure to higher construction costs as the airport searches for a new contractor, the facility has more than $900 million in liquidity and should easily be able to make an early termination payment to Great Hall, which Moody's estimates will be between $140 million and $180 million, and issue bonds to cover the termination payment and any extra construction costs. Moody's said the exact amount of the termination payment should be finalized closer to Great Hall's official Nov. 12 exit date.
  • Moody's said the failed relationship between DEN and Great Hall highlights the risk inherent in using public-private partnerships (P3) for some projects, especially those with the relatively higher risk of "designing for and building in a dynamic operating environment," such as the airport, which has remained open during the project. DEN understood the risks, Moody's said, indicated by its inclusion of a $120 million contingency in Great Hall's contract. Moody's added that P3 projects for construction of new assets are likely to see more success. 

Dump Trucks Columbus OH Insight:

"This is sad to see," attorney and P3 expert Keith Poliakoff with Saul Ewing Arnstein & Lehr in Florida told Construction Dive, "because it could make other international airports more cautious when offered a P3 opportunity."  

However, he said, this was the first U.S. airport P3 undertaken by lead partner Ferrovial, and he and others in the industry were "shaking their heads" when DEN announced it would be performing the work. "It was a pretty big risk," he said.

But the airport made the right choice, Poliakoff said, in not letting an unproductive situation, with rising costs and continuing delays, drag on. "It was a courageous decision to cut their ties and move on," he said.

As they look for a new partner, potentially another P3, airport officials would be wise to select a well-vetted team with more experience constructing U.S. airports, which they should have done in the first place, Poliakoff said.

"It's all about picking the right partner early on," he said.

A few days before its termination, Great Hall released documents indicating it would take $1 billion to complete the terminal renovation and expansion, originally contracted for $650 million. The most significant construction dispute between the airport and Great Hall revolved around the low compressive strength of existing concrete in the terminal.  

Last year, Great Hall Partners said they found concrete in the terminal that was weaker than what the airport reported when they first entered into the contract. Of particular concern to Great Hall, reportedly, was the steel erection phase and whether the existing concrete would be able to support not only the steel but the associated structure. An independent consultant hired by the City of Denver found that there were no safety issues with the concrete but recommended additional testing throughout the airport grounds. 

The airport's decision to terminate for convenience will likely allow it to avoid most legal headaches, but the prospect of such a major shift mid-project has its own pitfalls.

This is why public entities facing this kind of situation, said attorney William Eliopoulos with Rutan & Tucker in California, often choose to continue on by contracting directly with existing design-build, construction, operations and maintenance teams in order to minimize the disruption. 

But whether the ultimate completion date of such a project is delayed or not, Eliopoulos told Construction Dive, depends on the specifics and how much time the remaining team can make up.

"Any time you stop a [large] construction project, whether it is a P3, design-build or design-bid-build," Eliopoulos said, "you’re going to have delays."