Twenty years ago, my boss and I devised an idea to buy land, build schools and lease them back to school districts. We designed the buildings for high energy efficiency and low operating costs and tied those costs into the lease. Even with paying state prevailing wages, we offered tremendous savings to school districts. We set up Privatization Services Inc. and signed our first project for the Warwick Elementary School. We were less than 2/3 the costs of the traditional delivery method. The cost savings came from intensely managing the land procurement, design and construction processes.

Unfortunately, then PA Governor Casey bowed to last minute union pressure and blocked the slight change we needed to make the state reimbursement system work fairly for leases. We thought the unions had been appeased by our agreement to pay PA Prevailing Wages. The only explanation we ever heard was that the unions didn’t want, “To let the camel’s nose under the tent.” I suppose they feared that one efficiency improvement would lead to others. The result was everyone in PA paying too much for schools and school taxes.

Today I read that one of the stimulus projects, a $500M new building for the Social Security Administration Data Center has agreed on a site in Urbana, MD. The 400,000 sf project was authorized in 2009 and has just found their land. They are already 11 months behind schedule. Governments are almost always terrible at real estate and construction transactions.

The costs for the SSA project also boggle my mind. The ENR article mentioned that $400M was for construction and $100M for data equipment. The arithmetic yields $1,000/sf for buildings and land. What a waste! America can’t compete well with the rest of the world with that kind of inefficiency.

Governments should be moving toward leasing buildings and equipment. Leases are so much simpler than ownership.

1. Leases can be turnkey and include operating costs
2. The free enterprise system will deliver at a much lower cost than the government system
3. Bidding of leases can be fair and open (the US Postal Service has been doing it well for many years)
4. The project delivery time will be much faster (the vendor doesn’t get paid until the project is completed, providing the best incentive)
5. Depreciation is a value in the private sector, not in the public or non-profit sector
6. Government should be using up-to-date buildings and equipment to be effective, not dealing with aging assets and renovation issues
7. Well written Request for Proposals for leases will force the Government to determine the actual operational needs, rather than offloading that major decision to an architectural firm paid by a percentage fee on the total construction cost (reverse incentive for project control and cost savings)

During this transformational time of right-sizing the government, I hope this concept gets accepted. The potential savings are huge.