PUBLICPRIVATE PARTNERSHIPS Overview What is a P3 When are they used Risk Transfer Value for Money P3 Project Team Structure Summary What is a P3 Background Governments struggling to keep up ID: 722997
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Slide1
PPP Canada
INTRODUCTION TO
PUBLIC-PRIVATE PARTNERSHIPS Slide2
OverviewWhat is a P3?
When are they used?Risk TransferValue for MoneyP3 Project Team StructureSummarySlide3
What is a P3?Slide4
BackgroundGovernments struggling to keep up
Aging infrastructureGrowing populationBudget constraints and deficitsRisk of project delays and cost overrunsRoads, bridges, hospitals, schools, etc. need to be
built so governments looking for innovative approachesSlide5
What is a P3?
- P3 CanadaSlide6
What is a P3?
- The Canadian Council for Public-Private PartnershipsSlide7
What is a P3?
Integration of roles (Design, Build, Finance, Operate, Maintain)A long-term durationThe provision of goods or services to meet a defined output specification (i.e., define what is required rather than how it is to be done) A transfer of risk to the private sector anchored with private sector capital at
riskThroughout the project life-cycleEntered into by a competitive processSlide8
What is a P3?
Simply an additional way governments can deliver infrastructure
- P3 CanadaSlide9
Strengths and Limitations of P3 Models
- P3 CanadaSlide10
What is a P3?
Traditional Procurement vs. P3 Procurement
- P3 CanadaSlide11
Perceived BenefitsCost savings
Time savingsProjects begin soonerEffective risk transferValue for moneyImproved price and schedule certaintyInfrastructure funds attract investors
Source:
Synthesis of Practices for Implementing Public-Private Partnerships in Transportation Related Projects - Transportation Association of
CanadaSlide12
Perceived BenefitsUser pay options (e.g. tolls)
Innovation through integrating phasesRedeployment of government resourcesImproved asset maintenanceImproved qualityLifecycle cost considerations
- Transportation Association of CanadaSlide13
Perceived ConcernsAdditional costs
Risk premiums, higher financing costs for private sector, higher procurement and monitoring costs for governmentLonger upfront procurement/negotiation processHigh cost to renegotiate long-term contracts when policy changes occurTermination is costly and complex
- Transportation Association of CanadaSlide14
Perceived ConcernsForeign control of domestics assets
Issue when foreign companies are involvedPublic may not accept private sector’s roleRisk of private partner bankruptcyRisk is low in today’s P3 domainHigh level of government expertise requiredSkills in P3 procurement, negotiation, and project management
- Transportation Association of CanadaSlide15
When are they used?Slide16
When are they used?P3 benefits do not always outweigh costs
Screening process is required to determine if the P3 method is appropriateP3 method is suitable for a project when: It is feasible to develop output specifications and performance requirementsRisks can be identified and transferredDeal size is large enough to offset bidding costs
Project is highly complexCompetitive market exists (multiple bidders)
- Transportation Association of CanadaSlide17
When are they used?TAC identified 16 common screening criteria
Canadian projects employed the P3 model when it offered:Value for moneyRisk transfer to the private partnerSchedule certaintySufficient project size/scopeSufficient private sector competition
Benefits for taxpayers
- Transportation Association of CanadaSlide18
When are they used?
Lower total-life costs (capital, construction, operations and maintenance, rehabilitation)Private sector innovationMeasurable outputsPublic ownership of the infrastructureOperation and maintenance componentsNo outstanding issue that would prevent projectNo legislative or legal impediments
Clearly defined private partner’s responsibilitiesThe maintenance of public sector accountabilityA transparent process
- Transportation Association of CanadaSlide19
What sectors are employing P3s?
Total of 198 Canadian P3sHospitals and healthcare (75)Transportation (42)Environmental (22)Justice/Corrections (19)Recreation and culture (17)Education (10)Government services (5)
Energy (4)Real estate (3)Defense (1)
http://projects.pppcouncil.ca/ccppp/src/public/search-project?pageid=3d067bedfe2f4677470dd6ccf64d05ed The Canadian Council for Public-Private Partnerships - July 25, 2013 Slide20
Example: Highway 407Greater Toronto Area, Ontario
Purpose: Reduce 401 congestion through CityWorld’s first all-electronic open-access toll highway407 ETR (private sector entity)Construction and finance
Operation and maintenanceAll other services (police, customer service, etc.)Built and operated based on toll revenue only (no tax dollars spent)Slide21
Example: Abbotsford HospitalAbbotsford, B.C.
Fraser Health/BC Cancer Agency650,000 ft2 hospital300 bed acute care with ambulatory facilityRegional cancer
centre
ABN
Amro, PCL, JohnsonDesign, build, finance, operate, maintain
Built on time with $0 in change ordersSlide22
Example: Water Treatment FacilityMoncton, N.B.
Treatment facility built using P3 modelServes approximately 125,000 residents102,000 m3/day with expansion up to 136,400Uses local surface water reservoirState of the art clarification process
High water qualitySubsequent location of Molson brewery in Moncton Slide23
P3 Success FactorsStrong political and public sector leadership and support
Clear legal and administrative frameworkActive public involvementSkilled government personnelWell defined outcomes Oversight of public interest, appeal processesRigorous analysis - objective technical and financial analysis/value for money Slide24
P3 Success FactorsClear risk transfer
Whole-of-life costingPerformance-based contract, including non performance penaltiesEfficient and competitive procurement Stable and predictable processesTransparency, accountability and monitoring
systems (e.g. use of an independent fairness advisor)Slide25
What can go wrong in a P3?Contracts can fall through
Lack of public supportLack of political supportPolicy/government changesDelays can occur in starting workLengthy proposal/negotiation processInexperience in P3 contractsNo one will bid if contract/pricing isn’t done wellSlide26
Saint John, NB - Peel PlazaNew police headquarters to also integrate four other functions
Started 2007 – Completed 2013Delays caused by three issues:Not flexible on designLack of public supportCity’s lack of P3 expertiseSlide27
Costa Rica: San José - San Ramón Concession Road
Termination of $524 million contract with OASRepair and expansion of roadLack of support from all sidesBusinessTechnicalPolitical
Fierce public opposition to tollsSocial unrest was leading to violenceSlide28
Risk TransferSlide29
Risk TransferWhat does it mean to transfer risk?
What does the cost of risk mean?What does it mean to assume risk in a project?What is a risk premium?Slide30
Risk Transfer: Car Insurance Analogy
Risk Transfer:A person who drives a car is at risk of causing a collisionThis person enters into a contract with an insurance company to transfer that risk from the person to the insurance companyCost of Risk:The person pays the insurance company a yearly fee for this risk transfer, thus assigning a cost to the risk
This cost is calculated based on the type of risk and the probability of a collision (driver history)Slide31
Risk Transfer: Car Insurance Analogy
Assuming a risk:The contract will stipulate which risks the insurance company will assume and which risks the person is still responsible for (e.g. PLPD versus comprehensive)Risk Premiums:Built into the yearly fee is a premium the insurance company charges to make it worth their while to assume the riskSlide32
Project Risk Example
- Deloitte &
Touche
LLPSlide33
Value for MoneySlide34
Value for Money
A VfM analysis compares these two
Estimated costs to the public sector of delivering the project as a P3
Estimated costs to the public sector of delivering the project based on the public sector’s traditional method of procuring public infrastructure
.
Costs of Traditional Procurement
Costs of
P3 Procurement
Consider the total cost of ownership over the life of the asset adjusted to consider total cost of risk and expressed in present value terms Slide35
Base Costs
- P3 CanadaSlide36
Risk Adjustment
- P3 CanadaSlide37
Value for Money ExampleSlide38
P3 Project Team StructureSlide39
What does a P3 project team look like?
- P3 CanadaSlide40
SummarySlide41
SummaryWhat is a P3
Why/when P3s are usedWhat can go wrong in a P3What a P3 project team looks likeRisk transfer/Cost of RiskValue for MoneySlide42
Curriculum Overview
Introduction to P3s
Engineering
Business Administration
Public Administration and Political ScienceSlide43
P3 Stream: EngineeringProposals
AgreementsEngineer’s role in a P3Public sector P3 governancePrivate sector engineersPerformance based project managementPublic consultation and communication as an EngineerSlide44
P3 Stream: Business Administration
Screening a project for P3 viabilityP3 business casesRisk valuation and transferProposals and agreementsRole of Business Admin.Public sector governancePrivate sector equity partners
P3 business and payment modelsCommunication with the public in a P3Slide45
P3 Stream: Public Admin/Poli Sci
The role of government in a P3Procurement strategiesAgreementsBusiness modelsPayment modelsPublic consultation and communication as a public servantSlide46
References/LinksPPP Canada
http://www.p3canada.ca/home.phpThe Canadian Council for Public Private Partnershipshttp://www.pppcouncil.ca/
Synthesis of Practices for Implementing Public-Private Partnerships in Transportation Related Projects - Transportation Association of Canadahttp://www.tac-atc.ca/english/bookstore/
Disraeli Bridges Project Value for Money Report – Deloitte and Touche LLPhttp://www.winnipeg.ca/publicworks/majorprojects/disraelibridges/Disraeli-Bridges-Project-VFM-Report-Final.pdf
Partnerships New Brunswickhttp://www.gnb.ca/0113/PartnershipsNB/index-e.aspPartnerships BChttp://www.partnershipsbc.ca/index.php