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kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Page 1: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Independent Contractors and and Businesses Association

PPP’s and the Infrastructure Agenda

Stephen BeattyJanuary 29, 2002

Burnaby, BC

Page 2: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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What is a Public/Private Partnership?

A business relationship wherein the public and private sectors share:

– Risks.

– Rewards.

– Responsibility for the success or failure.

Less RiskTransfer

More RiskTransfer

Design, Buildand Operate

Design, Build, Operate and Finance Concession

Page 3: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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What Makes a Good Public-Private Partnership Candidate?

In conjunction with SuperBuild, KPMG developed a series of criteria which a project should ideally meet to be considered a candidate for a successful public-private partnership. Each criteria contain a number of considerations, each of which requires careful planning and deliberation.

Will the partnership be able to carry out the project under

financial terms that are acceptable to both?

Financial

Can a technical solution to the project be found using a

PPP approach?

Technical

Are there operational hurdles that prevent a PPP approach

from being used?

Operational

Will the public accept the involvement of the private sector in implementing the

project?

Acceptability

Are there implementation barriers that prevent the use

of a PPP Approach

Implementation

Are there time constraints that would preempt

consideration of PPP approach?

Timing

Poor PPP candidate

Good PPP candidate

No

Yes

No

Yes

No

Yes

Yes

No

No

Yes

No

Yes

Page 4: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Before Going Public

Debate policy issues in private.

Analyze the affordability and/or feasibility.

Assess whether now is the right time.

Scope out the project.

Decide if private sector is to be a contractor or a manager.

Plan the selection process.

Commit to the project, including project champion.

Page 5: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Identify Project Risks

Site risks (environmental, aboriginal, zoning)

Design and construction risks

Financial risks

Operating risks (inputs)

Market risks (demand and price)

Network/interface risks (complementary or competitive networks)

Labour relations risk

Legislative/regulatory risks

Force majeur risks

Asset ownership risks (design, technical, maintenance, obsolescence and residual value)

Page 6: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Establish a Risk Strategy

Risk transfer costs money.

Allocate risk to the party best able to manage the risk.

Transfer risks that the private sector can control or is prepared to assume.

Page 7: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Present a Viable Business Proposition

The public objectives:

– To obtain maximum value from an opportunity.

– To maximize service at a reasonable cost.

– To minimize cost at an acceptable service level.

The private objective:

– To earn a return commensurate to the risks and merits of the venture.

Page 8: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Both Parties Face UncertaintyBoth Parties Face Uncertainty

Public Uncertainty Private Uncertainty

CollectiveUncertainty

Fear of being ripped off by

private-sector sharks

Fear of being consumed by an illogical political

process

Page 9: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Reduce Bidder Uncertainty

Develop clear, unambiguous requirements.

Resolve strategy debates before going public.

Use a transparent, understandable selection process.

– Provide the same information to all proponents.

– Provide bidders with access to relevant staff.

– Disclose evaluation/selection criteria.

Allow proponents freedom to be creative.

Anticipate bidders’ questions, not just public requirements.

Respect confidentiality of the proposals.

Page 10: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Reduce Bureaucrat Uncertainty

Read the RFP – all of it.

Read your proposal.

– Ensure that it responds to the requirements of the RFP

Accept the public sector’s need for information.

They are at least as smart as you.

Page 11: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Project Champions and Managers

Political.

Bureaucratic.

Project Manager.

The private sector needs to be able to identify these individuals If they cannot be identified by the private sector, there is a risk that they

will not bid

Without a well-thought-out and effective decision-making process, the project will fail.

Page 12: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Project Organization – Public Sector

Project Manager.

Technical.

Financial.

Operational.

Communications.

Administration.

Provide sufficient resources.

Build competence.

Selection versus implementation.

Page 13: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Project Organization – Private Sector

Traditional business partnership:

– Cannot act like a contractor.

Identify, develop and retain strong project managers that thrive in the new environment.

Build the right team internally and externally

– Decide on the best role for your organization on the team

Need to address public partner’s information needs.

New types of customer service requirements.

Potential ongoing operating role as opposed to short term design/construction role.

You are in a different business now.

Understand public partner’s approval process.

Page 14: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Summary of Key Success Factors

Assess merits of partnership approach.

– Decide if partnerships and PPPs are for you

Pre-plan, including empowerment of your team

Market the opportunity.

Logical risk-sharing rather than full risk transfer.

Reduce collective uncertainty.

Harmonize incentive structure.

Accept that it is a partnership.

Page 15: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Protecting the Public Interest in the RFP

Regulatory Regime:

– Initial rate structure.

– Future increases.

Development Standards.

Timing Requirements.

Service Level Standards.

Operational Standards.

Buy-Out Options/Renewal Provisions.

Handback Standards.

Page 16: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Building on Successes (Public and Private)

Translating project success into program success.

Experience is a great teacher.

Finding project managers who will do it again.

Retaining key personnel.

Building intellectual capital:

– Individuals.

– Organizations.

Page 17: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Building on Successes (Public and Private) (Cont’d)

Different program models:

– Financing.

– Approvals.

– Skills.

PPP skills are unique because PPP’s are different.

Program organizations and governance models will evolve as:

– Competence grows.

– Market matures.

Page 18: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Building Competence

Select highest quality resources:

– Internal.

– External.

Build a complete team.

Empower your project manager and take away other job functions that may be just distractions.

Develop an approvals process and stick to it.

Page 19: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Building Competence (Cont’d)

Projects evolve and project organizations need to as well.

The best project manager during selection may not be the same after implementation.

Empower the team.

Page 20: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Conclusions

PPP’s are different and require different skills to manage them.

Greatest challenge to PPP’s as a concept is to build competence:

– Public.

– Private.

Effective, empowered project managers are the key to success at the project level.

Need to treat PPP’s differently:

– Public.

– Private.

Managed well, the results are worth the effort.

Page 21: Kpmg 1 Independent Contractors and and Businesses Association PPP’s and the Infrastructure Agenda Stephen Beatty January 29, 2002 Burnaby, BC

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Contacts

Stephen Beatty

– (416)777-3569 or (604)691-3182

[email protected]

Paul Levelton

– (604)691-3409

[email protected]

Al Kanji

– (604)691-3061

[email protected]