What the economic crisis means for asset management...

A recent article on the Huffington Post really turned the light on Physical Asset Management in infrastructure and some of the trends that are starting to emerge as a result of the economic crisis.

In a nutshell it reveals how cities in California are struggling under the shrinking tax base from the crisis, meaning they are looking for alternative methods to fund their estimated $2.2 trillion in infrastructure maintenance spending over the next 5 years.

And even though they didn't say it there is another side to this as well. The USA, along with many other Western nations, have been on a spending spree to try to circumvent the fallout of the economic crisis.

Regardless of what you think of this one day somebody has to pay... so there will be even less cash for cities, states and nations to spend on something as un-sexy as infrastructure maintenance.

Their take was on the Public-Private Partnership (P3) model which sprung out of Europe. In fact the London Underground is probably the most prominent case of a P3 contract worth billions.

The financial model is somewhat complex, but the end result is private industry sharing the costs for funding, and managing the public infrastructure such as trains, roads, water and electricity where this is still in government hands.

So what does a PPP contract mean to California or the USA?

First, there are far more options that just the PPP option. The UK in particular has stood out as a leader int he utilities infrastructure industry for the way that they privatized their water and electricity utilities.

But in the area of PPP by itself there are many advantages for consultants, contractors and maintenance professionals.

There are arguments to and fro regarding whether they are a good thing or a bad thing. And of course everyone can easily point to the costly and potentially dangerous collapse of Metronet.

However, my experience has been:

• Decision making becomes more diverse. With more players in the game there are more decision makers, hence more decisions made. 

• A variety of strategies and activities spring up as each looks for the leading practice to try to shine brighter than others in the field.

• The imposition of harsh regulations and penalties, (As per the Severn Trent Water fiasco) means that a lot more work goes into accountability, and getting it right.

• New techniques and focus emerges in asset cost management generally, and in CAPEX justification specifically. (E.g. the PAS-55 work)

The list goes on, but for me it is a no-brainer. Their just isn't the cash in the state coffers to continue to fund this directly, and ways and means are needed to share the immediate costs. Even if this does mean merely putting the full cost off until a later date.

Despite what the naysayers may come up with, I have no doubt that this and a raft of other measures will need to be taken to address the problem of infrastructure maintenance spending on an already neglected US infrastructure sector.

An unexpected but totally obvious side effect of the economic crisis.