Why public-private partnerships are the future for higher education

Universities are turning to the private sector to help build and run high quality facilities that meet the expectations of future students and staff.

February 26, 2018

Public-private partnerships (known as P3s in the U.S., and PPPs in the UK) are fast becoming the financial model of choice to construct new student accommodation and renovate and maintain aging campus buildings while minimizing risk and keeping a lid on costs.

David Houck, Managing Director and national leader of JLL’s Higher Education practice in the U.S., expects to see the P3 approach to accelerate in 2017 in response to intense competition for students and faculty, the need to upgrade facilities and other pressures.

He says: “Universities are vulnerable to pressures common in the business world, such as raising capital and intensifying competition. A P3 model gives universities flexibility to retain control of their facilities, while managing debt and providing a potential revenue stream. These partnerships in turn allow the university to focus investment in students, faculty and research.”

Taking a new approach

It’s not just the U.S. which is seeing an increasing uptake in P3. In the UK, some 25 universities have so far collaborated with private specialists in so-called Design, Build, Finance and Operate (DBFO) deals – with others actively exploring the option, according to Robert Kingham, JLL’s UK Director of Higher Education. Under DBFO scenarios, universities agree terms with specialist developers and managers who take on a site for a long lease of up to 50 years, during which time they manage the buildings and lettings – and also shoulder the risk for costs, design, construction, operations and maintenance.

In the UK, about 43,000 beds – 17 per cent of the total owned by universities – are now part of a P3. The largest deal to date covers nearly 5,000 beds at the University of Reading. JLL estimates that £2.4 billion has been invested in these partnerships.

“Universities don’t want to spend their own money on student accommodation,” says Kingham. “Universities want to focus their investment on teaching and research facilities, sports and social centers and all the other areas that will improve their appeal to prospective students.”

Yet in both the US and the UK many student halls are over 40 years old – and refurbishment costs in the UK alone would amount to over £5 billion, according to JLL research. In the US, deferred maintenance at both public and private universities has grown to approximately $100 per square foot.

Navigating a complex world

Very careful planning is needed to set up these long-term deals. The DBFO model is, arguably, the most ambitious. Lighter versions of P3 leave the university with more control over its assets – but also shouldering more of the risk.

Whichever route an institution takes, it probably needs several months to evaluate the options and carry out the essential preparation work from clearly defining the aims and goals, setting performance standards and establishing the timetable to clarifying the finances, identifying risks and obtaining the approval of key stakeholders. Missing out an apparently small point could mean that the final cost of the project is much more expensive than it needs to be.

It’s key that academic institutions do not take short cuts, Kingham explains. Appraising the value of a DBFO proposal is a “complex and expensive” process, he says. “Because the contracts are generally for 40 or 50 years, you have to be very clear what each partner is doing. We have seen deals in which universities haven’t been aware of the purchasing power they have.”

Creating modern spaces

Benefits can also go well beyond the financial. Through such partnerships, universities are learning how to make their workspace designs more engaging and productive for staff. “They are reconfiguring space to support collaboration and building campuses close to amenities to attract new faculty talent, mimicking the workplace strategies of the tech sector,” says Houck.

The new approach works equally well for students. While traditional dormitories included study space in bedrooms, today’s designs recognize that students want to spend more time together – whether that is for study or for recreation. As Houck says: “Today’s student housing designs are more conducive to successful learning outcomes.”

While some university pioneers have entered into public-private partnership schemes as a way of giving themselves more flexibility, others will do it out of necessity. “Current government policy in the UK is to make higher education much more of a free market,” says Kingham. “The most prestigious universities are being encouraged to grow. Some of the others find themselves in an increasingly competitive environment.”

Wherever they are located in the world, many universities are realizing that going it alone is an increasingly unviable option. As Houck concludes: “They are turning to private sector experts for operational expertise and financial solutions that allow them to focus on their core mission of educating students.”