demystifying the public private partnership
TRANSCRIPT
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Demystifying the Public-Private Partnership
An Overview of the Model and its Application in Quebec
Philipp Duffy December 5, 2012
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What is a Public-Private Partnership?
– An alternative mode of public procurement
– A bottom-up performance-based method of designing and evaluating infrastructure projects
– A means of better accessing private sector innovation and discipline
– A means for government to achieve time and cost certainty
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But it is not:
– A privatization of public infrastructure
– A substitution of the private sector for the delivery of government services
– A simple method of financing or ability for governments to finance off balance sheet
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How do P3s Work?
– Output/performance based contracts– Allocation of risk between public and private
parties– Integration of design, build, operation and
maintenance phases– Private financing– Payment upon delivery
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The Experience in Quebec and Canada (“DBFMO”)
– “Design - build – finance – maintain – operate” DBFMO model most prevalent• asset is at all times owned by the public
entity• incorporates all of the foregoing elements• allows achievement of all of the theoretical
benefits of a P3 Model• makes concessionaire responsible
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The DBFMO Model
– Forces the public entity to clearly define the output and performance expected of the infrastructure
– Output specifications and performance requirements provide benchmarks for performance of private partner to be measured against (and penalties assessed)
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The DBFMO Model (con’t)
– Forces the private party to consider cost over the entire life of the project life cycle considerations become much more important and feed innovation/efficiency
– Enforces discipline as a result of financing component
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The DBFMO Model (con’t)
– Lends itself well to proper allocation of risk “packages risk” properly in the concessionaire
– Is easy to monitor for performance– Is inherently suitable to performance based
incentive/disincentive measures/accountability of private partner
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Drawbacks of the P3 Model
– Risk premium– Private sector’s higher financing cost– Higher transaction costs inherent to the model
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When Are P3s Appropriate?
– For larger infrastructure projects– Complex projects or projects presenting
timing/cost certainty risks– Projects with potential for tapping private sector
innovation or specialized know-how– Where a competitive market exists for private
party services
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The Procurement Process
– Each of B.C., Alberta, Ontario, Quebec and the federal government have bodies responsible for evaluating, planning, procuring and overseeing major public infrastructure, including by way of P3
– In Quebec, handled by Infrastructure Québec– Infrastructure Québec replaced “The Agence des
partenariats public-privé du Québec” in 2009
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Role of Infrastructure Québec
– Responsible for major public infrastructure projects ($40M+)
– Works with and advises the client to develop a 3-stage business care for the project
– Each stage is followed by ministerial approval
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Role of Infrastructure Québec (con’t)
– First stage involves a strategic presentation of the project with preliminary budget ranges
– Second stage provides for tighter budgeting, a rigorous “value for money” analysis and I.Q.’s recommended model for procurement.
– It is within I.Q.’s mandate to recommend:• traditional design-bid build;• the “project management” method;• turn-key procurement, or• public-private partnership
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Role of Infrastructure Québec (con’t)
– Third stage involves complete and final detailed business case for project, with estimated budget at ± 5%
– After approval any increases in cost of more than 5% must be reported to the government
– Where project proceeds either by PPP or turn-key, I.Q. coordinates the selection process
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The Selection Process
– Preparation of preliminary output specifications and design requirements
– Preparation of a Request for Qualifications (RFQ) package
– Review of responses to qualify a shortlist of consortia invited to participate in the RFP
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The Selection Process (con’t)
– The RFP is released to qualified bidders• includes full output specifications• includes form of legal agreements• provides timetable:
for various workshops (legal, design, engineering, etc) and technical proposals
for delivery of financial and technical proposals
• provides for transparent Q&A/R.F.I. mechanisms designed for fairness
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The Selection Process (con’t)
– Process necessarily expensive for both public and private parties
– Bidding agreement providing for deposit guarantees and compensatory payment to losing consortia
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The Selection Process (con’t)
– Delivery of proposals– Proposals examined for compliance with RFP– Compliant proposals subjected to “best value”
analysis
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Preferred Proponent Stage
– “Preferred Proponent” selected– Negotiation of final documents adapted to
winning proposal– Finalizing financing arrangements by private
party– Execution of Project Agreement (“Financial
Close”)
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The Project Agreement
– Together with schedules is the “Bible” of the project
– Allocates risk between public and private partners
– Site condition, design and construction obligations, works schedule, commissioning, deficiencies, services during operational term, maintenance and conservation, end of term requirements (handback)
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The Project Agreement (con’t)
– Requirements Program (output specifications)– Payment mechanism (and failure points)– Variations procedure
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The Project Agreement (con’t)
– Energy– Collateral agreement with design-builder and
service provider with step-in-rights in favour of public party
– Lender’s direct agreement
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The Canadian Experience
– Conference Board Report of 2012– Examined 55 infrastructure P3s– “Value for money” analysis pointed to savings for
taxpayers over conventional procurement– Noted a high degree of cost and time certainty
through delivery
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The Canadian Experience (con’t)
– Penalty regime seems to be working– Suggests that first wave (pre-2004) of P3s was
less successful since:• was driven by off balance sheet issues• attempted to transfer inappropriate risk• didn’t properly transfer financing risk
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Projects in Quebec
– Maison Symphonique• delivered September 2011• Gold CCPPP award winner
– Autoroute 25• delivered may 2011
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Projects in Quebec (con’t)
– Autoroute 30• to be delivered December 2012
– CRCHUM• projected delivery autumn 2013
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Municipal Project Opportunities
– 2012 report of Canadian Construction Association, Canadian Public Workers Association, Canadian Society for Civil Engineering and Federation of Canadian Municipalities rates 30% of existing municipal water and roadway infrastructure in 123 participating municipalities as in “fair” to “very poor” condition
– Replacement cost of $172Bn
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Municipal Project Opportunities (con’t)
– Challenge for P3 model is size vs. cost:• process is expensive• need larger projects to attract private lenders
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– CCPPP points to several successful smaller projects:• Vancouver Landfill Gas Cogenerating Project• Ottawa Paramedic Headquarters• Moncton Water Treatment Facility• Goderich Water and Wastewater System
Municipal Project Opportunities (con’t)
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Municipal Project Opportunities in Quebec
– Infrastructure Québec available to provide services and support to municipalities
– Can also help in obtaining Federal funds– Advantage of transparency
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Summary
– Alternative form of procurement– Value for money– Accountability and responsibility of private sector– Innovation and discipline– Not a panacea– Canada and Quebec good at this– Opportunities exist
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Questions?
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