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P3 Higher Education Summit

October 24, 2019

The Merced 2020 Project represents UC Merced’s next chapter and it will provide access for students from every walk of life.

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It’s a pleasure to be with you today.

I have only been in my position as Chancellor of the University of California Merced, the UC’s youngest campus for three months. However, I am proud to have worked alongside my predecessor Chancellor Dorothy Leland over the past five years to advance UC Merced’s remarkable growth – and to share an update on what has been accomplished so far.

If you were to visit UC Merced today, you might notice two things. First, the distinctive hum of construction activity.

Just 10 months from now, we are poised to receive the final set of academic, residential and student life buildings from our large multi-year P3 campus expansion, also known as the Merced 2020 Project.

Second, you would immediately notice the energy and vitality of students, faculty, and staff and how the growth of the campus feeds this positive energy.

Just over 73% of our 8,200 undergraduates are first generation students and nearly 65% receive Pell grants — federal aid for low-income families. In fact, we are # 1 in the United States for percentage of students receiving financial aid.

Perhaps more impressive is that, when US News looked at the students who enroll at UC Merced, we are # 1 in the country — #1 — for student outcomes, which takes into account graduation rates and other factors tied to creating social mobility.

It is clear how transformative this academic success is to them personally, for their families, and for their communities.

And the drive of our students is amplified when you add nearly 700 ambitious graduate students and more than 400 committed, talented faculty to the mix.

Many of them have chosen to start their academic careers at Merced precisely because they were attracted by the prospect of building a new research university alongside serious and committed undergraduates.

Chancellor Leland liked to call UC Merced a “special place.” It is certainly unique in the annals of American higher education.

But getting to this point required addressing some very real structural and capital challenges.

When UC Merced opened in 2005, the expectation was that the campus would grow in the traditional, steady and incremental fashion of its sister UC campuses.

Yet with the onset of the Great Recession in 2007, that path forward become a lot rockier.

Building a new research university almost from scratch, in a global economy, and amidst California’s rapidly changing demographic context is hard enough. Building a campus at a time when traditional funding for capital facilities and long-term maintenance was not available made it even harder.

Our fellow UC campuses, some of which were founded between 50 and 60 years ago, were launched with State funding to build their educational research facilities, with no impact on their balance sheets. In the case of Merced, just fifteen years old, the State has not issued a GO bond for higher education since 2006 and suspended lease revenue bonds for higher education in 2011, precisely the period of Merced’s creation and dramatic growth.

An additional challenge we faced is that, even for buildings that have separate revenue streams, such as dorms or dining facilities, we could not construct these in a traditional, serial manner. Merced was constructed on an undeveloped “green field” several miles from the city, and the costs of infrastructure overwhelmed the construction costs of one facility. We had to spread these costs across a broader footprint. Thus, both the demand for growth and the need for economies of scale drove us to one extremely large, unified project, basically building an entire generation of campus buildings in four years!

After intense planning and negotiation, we ultimately agreed on what’s technically known as an Availability Payment Concession model to add 1.2 million gross square feet of buildings and infrastructure over the course of 3 years of construction and then maintain them through 2055.

The headline is that the project is on schedule and on budget.

But when the full story of UC Merced’s growth is written, some early decisions will prove to be critical:

First, during its formative stage, UC Merced adopted a discipline of self-limitation that was communicated throughout the academy, the student body and staff: Going forward, UC Merced would only build what it could afford to maintain.

Second, we developed a governance structure that has provided steady leadership and stakeholder representation at key decision points during implementation and construction.

For us, as a young research university with a long life ahead of it, the calculus for what we could afford had to focus not only on construction but on ongoing maintenance costs.

In essence, UC Merced’s mission to nurture teaching and research excellence would be in jeopardy if we found ourselves in 2030 or 2040 burdened by the silent accumulation of deferred maintenance and insufficient operating funds.

So, by including the consolidated cost of operations and maintenance over the next 30 years, we were able to make holistic, informed and predictable decisions about the scale of construction we could afford in order to educate 10,000 students and gauge the critical staff and faculty drivers that shape the University’s costs.

With that long-term information in hand, we were able to work with our development partner at Plenary Properties Merced to develop a sound business case, funding mechanism and schedule for an aggressive three-phase delivery that began in 2018 and will be complete in 2020.

  • Completion of our new dining facility and the first residential buildings occurred in time for the Fall 2018 semester. And our development partner has completed a year of maintenance.
  • In September, two state of the art research buildings opened.
  • And by August 2020, we will have achieved substantial completion of the project with additional classrooms and laboratories and new student life facilities.

The focus on affordability and a partnership has led to some noteworthy developments.

For example, we developed a contractual structure that created financial incentives for energy efficiency. So while our contract required that every building achieve LEED Gold at a minimum for energy efficiency, I am pleased to report that our first set of certified buildings are coming in at Platinum.

And as for schedule, since the development team’s ability to recoup their investment is tied to whether the buildings are available to the University, it is worth noting that every facility to date has come in on time – or ahead of schedule.

Looking ahead, the University has the certainty of a pre-defined and fixed monthly payment to compensate our Partner for its contractual responsibility to operate and maintain major building systems to a predefined standard for the next 35 years, after which operational responsibility will be returned to the University. But to illustrate the flexibility of the model, the University opted to hold onto responsibility for grounds and janitorial services.

Another important point is that we worked very hard to establish a comprehensive governance structure that taps into expertise across the University and most importantly at the executive level.

And we supplemented our internal team with external expertise from WT Partnership that had global experience managing projects of this specific type.

Our governance structure includes:

  • A board composed of senior campus leaders who met weekly during design and now meets biweekly
  • On-call subject matter experts who act as liaisons to campus constituencies and stakeholders
  • A project team charged with day-to-day oversight.

This governance model is enabling us:

  • to monitor the University’s obligations under the Agreement and to control the impact of change requests
  • to respond in timely fashion to questions that have arisen during the design and construction process
  • and to prepare ourselves for eventual use of the buildings.

For example, we are nearly 100% through design of the entire 13-building project and have only had 75 change orders. And these change orders each required a business case and required approval from the Chancellor.

In a typical scenario that didn’t embed the upfront planning and consultation rigor of the model UC Merced used, it is fair to say that even one building would likely have more than that.

Another innovation is our focus on campus transparency for the new development model.

Each month the Board ratifies a monthly Project Performance Reports which are provided to the Office of the President and the State Legislature and are publicly available to anyone on our Merced 2020 website.

The performance reports include progress photographs, observations about Project activities, budget, schedule, developer performance, risk, and process improvement opportunities.

These reports are developed by our project management team, which has been key to building confidence among campus stakeholders.

The team has also created a framework to enable the campus to act as an engaged owner post-construction.

I believe that this approach will be critical to the ultimate success of the Project and the partnership between everyone involved over the long term.

By next year at this time, when it is complete, it will enable UC Merced to grow to 10,000 students and to increase access to the University of California.

This project was special for our campus, because it is was so comprehensive.

  • It includes new housing and student life facilities for our undergraduates.
  • It includes new classrooms.
  • And it includes modern research laboratories — such as a BioSafety Level 3 facility — for our faculty and students, and just as importantly, to fulfill the UC mission of public service by advancing the fight against Valley Fever and other infectious diseases.

But most importantly, the 2020 Project represents UC Merced’s next chapter and it will provide access for students from every walk of life.

Although the structure is not for every situation, it worked for our campus at this particular point in its evolution.

And I believe the lessons of lifecycle costing and governance are universally valuable to other campuses facing the same challenge of balancing growth with financial constraints.

We certainly couldn’t have come this far had we not garnered the benefits of examples and lessons from other institutions who have used various P3 models.

And UC Merced is committed to sharing our experience with other institutions looking to achieve their missions in creative, innovative ways.

Thank you.

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