introduction to public private partnerships · • p3s cost more because public sector can borrow...
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Introduction to Public Private Partnerships
Introduction to Introduction to Public Private Partnerships Public Private Partnerships
Kelowna, BC – December 3, 2003
OverviewOverviewOverview
BC’s P3 Initiative
Potential Benefits
P3 Experience
Myths & Facts
P3s in BC … Status Report
BC’s P3 Initiative
Potential Benefits
P3 Experience
Myths & Facts
P3s in BC … Status Report
The ChallengeThe ChallengeThe Challenge
Investment in new infrastructure has not kept up with economic growth
Significant deferred maintenance deficits have been accumulated
BC’s population is growing and aging
Ministry Service Plans specify $7 billion capital expenditures over three years
Most dramatic needs are in health, education and transportation
Investment in new infrastructure has not kept up with economic growth
Significant deferred maintenance deficits have been accumulated
BC’s population is growing and aging
Ministry Service Plans specify $7 billion capital expenditures over three years
Most dramatic needs are in health, education and transportation
Benefits of BC’s P3 InitiativeBenefits of BC’s P3 InitiativeBenefits of BC’s P3 Initiative
More capital projects, sooner and on-budget
New investment and economic growth in BC
Better capital asset management and procurement• Meet customer needs at minimum life cycle cost
• Optimal risk transfer
Promote and lever Best Practices
More capital projects, sooner and on-budget
New investment and economic growth in BC
Better capital asset management and procurement• Meet customer needs at minimum life cycle cost
• Optimal risk transfer
Promote and lever Best Practices
What is a P3?What is a P3?What is a P3?
Long term contract between government and a private partner to deliver goods or services
• Delivers value for money
• Engages in a competitive process to achieve the best project for the best cost
• Transfers appropriate risks
• Establishes performance standards and payment mechanisms
• Maintains government involvement to oversee public interest
Long term contract between government and a private partner to deliver goods or services
• Delivers value for money
• Engages in a competitive process to achieve the best project for the best cost
• Transfers appropriate risks
• Establishes performance standards and payment mechanisms
• Maintains government involvement to oversee public interest
Risk TransferRisk TransferRisk Transfer
Typical Allocation in a P3
DesignConstruction CostsIndustrial Relations
Maintenance Permitting
Commissioning
EnvironmentalDemand Growth
Energy CostsSchedule
Legislative ChangeFirst Nations
Land AcquisitionForce MajeureSite Geotech
Private SectorShared or Deal Specific
Public Sector
Traditional ApproachTraditional ApproachTraditional Approach
Example of a Hospital ProjectExample of a Hospital Project
Private Sector Public Sector
Own Land
Own Building
Finance Project
ProgramPlan
Design Build MaintainFacilities Management
Operations
Clinical & SupportServices Operations
Manage Project
P3 Hospital Project ModelP3 Hospital Project ModelP3 Hospital Project Model
Private SectorPublic Sector
Own Land
Own Building
Finance Project
ProgramPlan
Design Build MaintainFacilities Management
Operations
Clinical & SupportServices Operations
Manage Project
Advantages of P3sAdvantages of P3sAdvantages of P3s
1. Value for Money
2. Improved project delivery
3. Better project discipline
4. Faster procurement
5. Performance standards
1. Value for Money
2. Improved project delivery
3. Better project discipline
4. Faster procurement
5. Performance standards
1. Value for Money1. Value for Money1. Value for Money
P3P3 Government Government delivery
vs. deliveryvs. Risks RetainedRisks Retained++
LifeLife--cycle cost cycle cost reduction
i.e. design, cost, i.e. design, cost, schedulereduction schedule
Multiple Criteria Analysis =Multiple Criteria Analysis =
Financial Analysis + Qualitative FactorsFinancial Analysis + Qualitative Factors
2. Improved Project Delivery2. Improved Project Delivery2. Improved Project Delivery
• UK ExperienceReports from UK National Audit Office, HM Treasury and Arthur Anderson indicate improved project delivery
22-24% projects late / over budget (due to
scope changes)
17% Average savings
75% Satisfaction (operational performance
as expected or better)
70% projects late
73% over budget
After P3 model:Before P3 model:
3. Better Project Discipline3. Better Project Discipline3. Better Project Discipline
Reduced scope creepReduced scope creep
TraditionalTraditional P3P3•• Preliminary DesignPreliminary Design
•• Project ApprovalProject Approval
•• DesignDesign
•• Build
•• Performance StandardsPerformance Standards
•• Business CaseBusiness Case
•• Contract AwardContract Award
•• Design/BuildBuild Design/Build
International study, 258 transportation projects showed actual costs are on average 28% higher than estimated costs
(Underestimating Costs in Public Works Projects, APA Journal, Summer 2002)
International study, 258 transportation projects showed actual costs are on average 28% higher than estimated costs
(Underestimating Costs in Public Works Projects, APA Journal, Summer 2002)
4. Faster Procurement4. Faster Procurement4. Faster Procurement
Traditional Model
Scope Definition Business Plan Design (90%) Construction
New P3 Procurement Model
Scope Definition REOI RFP Design (80%) and Construct
Business PlanPerformance
StandardsREOI Document
Draft RFP
5. Performance Standards5. Performance Standards5. Performance Standards
Government sets standards
Outcome-based, not prescriptiveSatisfaction measures
Private sector incented to performPerformance payments
Penalties
Government sets standards
Outcome-based, not prescriptiveSatisfaction measures
Private sector incented to performPerformance payments
Penalties
P3s in CanadaP3s in CanadaP3s in Canada
•Completed• Confederation Bridge• Highway 407, Ontario• Fredericton New Brunswick Highway• Highway 104, Nova Scotia• Nav Canada / Airport Authorities
•P3 Procurement Underway• William Osler Health Centre• Royal Ontario Hospital • Calgary Law Courts
•Completed• Confederation Bridge• Highway 407, Ontario• Fredericton New Brunswick Highway• Highway 104, Nova Scotia• Nav Canada / Airport Authorities
•P3 Procurement Underway• William Osler Health Centre• Royal Ontario Hospital • Calgary Law Courts
P3s in BCP3s in BCP3s in BC
Sports complexes in Chilliwack, Kelowna and Victoria
Water treatment plants – Port Hardy, Sooke, Lytton
BC Hydro IPPs
Terasen (BC Gas) projects
200th St. overpass on Highway #1
Columbia Power
YVR
Long-term care facilities
Sports complexes in Chilliwack, Kelowna and Victoria
Water treatment plants – Port Hardy, Sooke, Lytton
BC Hydro IPPs
Terasen (BC Gas) projects
200th St. overpass on Highway #1
Columbia Power
YVR
Long-term care facilities
Myth• P3s cost more because public sector can borrow money
more cheaply
Fact• Financing costs only one component of overall costs
• Total cost over lifecycle is better indicator of cost to taxpayers than borrowing costs
• Risks need to be added to public sector borrowing for adequate comparison
Myth• P3s cost more because public sector can borrow money
more cheaply
Fact• Financing costs only one component of overall costs
• Total cost over lifecycle is better indicator of cost to taxpayers than borrowing costs
• Risks need to be added to public sector borrowing for adequate comparison
Myth• If the private sector makes a profit, the deal can’t be good
for taxpayers
Fact• In conventional procurement, private sector also makes a
profit
• Competition leads to lower costs and returns
• Lifecycle approach leads to better planning
Myth• If the private sector makes a profit, the deal can’t be good
for taxpayers
Fact• In conventional procurement, private sector also makes a
profit
• Competition leads to lower costs and returns
• Lifecycle approach leads to better planning
Myth• If a private partner goes bankrupt, taxpayers are on the hook
Fact• Government can step in to take over, at no cost to taxpayers
• Private sector takes risk and loses capital, not taxpayers
Myth• If a private partner goes bankrupt, taxpayers are on the hook
Fact• Government can step in to take over, at no cost to taxpayers
• Private sector takes risk and loses capital, not taxpayers
Partnerships BCPartnerships BCPartnerships BC
Serves public interest by delivering value for money
Implements and advises on public private partnerships
Works with Government as the client
Centre of expertise on P3 procurement
Serves public interest by delivering value for money
Implements and advises on public private partnerships
Works with Government as the client
Centre of expertise on P3 procurement
Abbotsford Hospital and Cancer CentreAbbotsford Hospital and Cancer CentreAbbotsford Hospital and Cancer Centre
RFP was issued in September 2003
Expected financial close 2004
Expected project completion 2007
Academic Ambulatory Care CentreAcademic Ambulatory Care CentreAcademic Ambulatory Care Centre
RFP closed November 2003
Expected financial close 2004
Expected project completion 2006
RAV Rapid TransitRAV Rapid TransitRAV Rapid Transit
RFP closes January 2004
Expected financial close 2004
Expected project completion 2009
Fraser Gateway CorridorFraser Gateway CorridorFraser Gateway Corridor
RFQ issued October 2003
Expected financial close 2004
Expected project completion 2007
Sierra-Yoyo-Desan (SYD) RoadSierraSierra--YoyoYoyo--Desan (SYD) RoadDesan (SYD) Road
RFP closed November 2003
Expected financial close 2004
Expected project completion 2005
Okanagan Lake BridgeOkanagan Lake BridgeOkanagan Lake Bridge
REOI issued 2003
Expected financial close 2004
Expected project completion 2008
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www.partnershipsbc.cawww.partnershipsbc.ca